How Hard Will Tight Credit Hit?
With the era of easy money drying up for Wall Street and its dealmakers, the prospect of fewer mergers and acquisitions caused a sharp drop in the stock market last week, with the Dow Jones Industrial Average falling 585 points for the week, the largest weekly point loss in five years. Now economists are watching credit markets carefully to see if tighter lending standards for wheeler-dealers will spread to Main Street, where credit is still readily available. The reduction in merger activity could eventually have an effect on the economy, says John Silvia, chief economist at Wachovia Corp. in Charlotte, N.C. “The main impact on Main Street will be a decreased ability to finance economic growth,” he says. “At the margin, there will be less investment in equipment and software and less ability to fund home mortgages and commercial activity.” The actual impact on the GDP may be only 0.1% or 0.2% in 2008, Silvia estimates, but softness in the housing market could continue longer than anticipated. (www.csmonitor.com)
Christian Science Monitor (7/30/07); Ron Scherer
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Raging Bull; Developers Struggle to Rein in Construction Costs
Despite the decline in the single-family housing market, the prices of labor and materials to build all types of apartments keep rising faster than inflation and should continue to rise for the foreseeable future, experts say. The price of new multifamily construction rose 3.5% over the 12 months that ended in April, which is not as bad as last year’s 7.9% jump, but still above inflation as measured by the overall consumer price index. By comparison, materials and labor for single-family construction were up just 2.7% for the year ending in April. Developers of garden apartments, which need less of the copper, steel and cement that have risen most in price, are benefiting from declining prices for a few materials, such as framing lumber and gypsum wallboard. As a result of the price pressures, some developers have changed their plans to rely more on wood and less on steel and concrete, even for high-density projects. For developers who know they’ll need materials with fast-rising prices, it could pay to buy the items in advance and hold them in a warehouse. Other developers are asking their contractors to sign contracts in which the price of their services moves up or down with the cost of materials. Although that leaves the developer with the price risk, it can be much less expensive than having contractors set a fixed price. It is still difficult to find contractors, especially if they have skills that can be used in commercial work. (www.housingfinance.com/aft)
Apartment Finance Today (7/07); Bendix Anderson
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Miami Condo Glut Pushes Florida’s Economy to Brink of Recession
The biggest glut of condominiums in more than 30 years will force prices down as much as 30% and help push Florida’s economy into recession as early as October, said Mark Zandi, chief economist at Moody’s Economy.com. Thirty-seven new high-rise condos and 20,000 new units are being built in Miami’s 1,040-acre downtown, where sales fell almost 50% in May, according to the Florida Association of Realtors®. The new units will join the 22,924 existing condos in Miami-Dade County that were for sale in April, according to Jack McCabe, chief executive officer of McCabe Research & Consulting LLC. As much as half of those putting down deposits for Miami condos have been speculators looking to flip units, or sell them quickly for a profit without living in them, said McCabe. With sales prices falling, he expects up to 50% of them to walk away from their deposits in the next 18 months rather than complete the sales. In the 1970s, when condos were a new product, Florida developers built 500,000 units and prices fell 50%, said Brad Hunter of MetroStudy, a research firm in West Palm Beach. “The difference is, back then they were two-story condo buildings that had $50,000 units,” Hunter said. “Nowadays they are $700,000 units in 20-story buildings. Instead of building too much stuff that people could afford like we did then, this time we built too much stuff that people can’t afford.” (www.bloomberg.com)
Bloomberg (7/20/07); Bob Ivry
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Buyers Want to Sleep Downstairs
More than 40% of new homes have master suites downstairs, a 15% increase over a decade ago, according to NAHB, with the demand being created by aging baby boomers. “Five or six years ago, it was rarely a question,” said Jill Flink, a broker with York Simpson Underwood in Raleigh, N.C. Not every buyer wants one, and the biggest driving force is still price, “but after that, it is on the short list of very, very many clients,” she said. Pulte Homes is building 1,200 homes with first-floor master suites at Carolina Preserve, an active-adult community under development in Cary, N.C. So far, 520 homes have been sold. Georgia-based Frank Betz Associates, one of the Southeast’s largest residential designers, offers first-floor master bedrooms in 90% of the plans it sells to builders, up from only 40% 10 years ago. Some home owners are asking for two master bedrooms — one for themselves and one for a parent or in-law. According to an NAHB survey of designers, architects and others in the industry, about 60% said the trend would be for luxury homes with more than 4,000 square feet to have two master bedroom suites. A first-floor bedroom suite that includes an adjoining bathroom and closet can add $100,000 or more to the price of a new home and even more to an existing home. (www.newsobserver.com)
News & Observer (7/26/07); Dudley Price
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Living on the Edge, Home Buyers Want Only the Latest in High-Tech ‘Toys’
“In the home of the future, it’s all going to be about technology,” predicts Gopal Ahluwalia, staff vice president of research for NAHB. He stressed, though, that high-tech today is being installed mainly in high-end housing. “The buyer of an average-size house doesn’t want to spend more than 3% to 4% of the purchase price on technology,” he said. “In million-dollar homes, the cost of technology doesn’t matter.” Ahluwalia added that the size of the home is the determining factor: “In a small house, there’s no room for a separate media room with a 64-inch TV.” One reason for the increased popularity of technology in the future will be its acceptance by younger home buyers. “Those in Generation X, born from 1965 to 1977, and the following Generation Y, feel much more comfortable with technology, and they will have more use for it,” he said. The leading audio/visual hot button is prewiring for later installation of plasma TVs, according to Bob Meyn, vice president of sales and marketing for Ryland Homes, based in East Dundee, Ill. The No. 2 in technology is Category 5 wiring for high-speed Internet and all TV jacks, he added. Ahluwalia said that special lighting is the most common tech feature, and is installed in 40% of new homes. Today’s fluorescent lighting has many advantages over fluorescent lights of the past, according to Shawn Martin, director of applied technology at the NAHB Research Center. “There is no downside to fluorescent lighting,” he said. “Now the color spectrum of fluorescent lights is warmer, the same as incandescent bulbs. Fluorescent lights offer significant savings. They use far less power and can last for seven years. Though more expensive than incandescent bulbs, the price has come down substantially and they’ll pay for themselves in months. A 22-watt fluorescent bulb puts out the same light level as a 100-watt bulb,” Martin said. He added that wireless switches are catching on; they are easy to install and can be put anywhere. (www.chicagotribune.com)
Chicago Tribune (7/27/07); John Handley
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As the Affluent Go Downtown, the Working Poor Are Tripling Up to Buy Homes in the ‘Burbs'
Reversing a century-long trend in Southern California in which people moved to the suburbs as they got richer, the migration of the affluent to Los Angeles’ inner city has gradually increased over the last three years. According to a study by the Downtown Center Business Improvement District, the household median income of downtown residents with at least one earner was about $99,600 a year in 2006, roughly $28,000 higher than that of Beverly Hills. Nearly half of those surveyed reported annual income of $100,000 to above $250,000. Demand for condos is so strong that virtually every older office building has been converted to condominiums. Though condo sales have recently slowed, prices have held in the $500- to $700-per-square-foot range, translating into $500,000 for a studio. Meanwhile, the population density of older, working-class suburbs is rising, especially in mostly Latino suburbs. According to 2000 Census data, the size of the average household in such suburbs has been rising since the 1980s and now approaches four people in some areas. In part, the greater density is attributable to larger families, but it is also the result of families doubling and tripling up to make the mortgage. By contrast, one to two people occupy condos downtown. (www.latimes.com)
Los Angeles Times (7/29/07); William Fulton
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