Housing Octopus Could Grab Smaller Banks
The tentacles of the housing market collapse and associated financial market turmoil could still grab smaller banks and financial institutions that have so far avoided disaster, Eric Rosengren, the president of the Federal Reserve Bank of Boston, warned on May 30. So far, the financial crisis has ensnared mainly banks and securities firms that operate across the globe. These firms created, traded and carried on their books the complex securities tied to mortgages that came to be considered toxic and almost worthless. But Rosengren warned that smaller institutions are at risk, especially if home prices fall further and the housing market recession lasts longer. Already, housing starts have fallen by the largest amount peak to trough in 50 years, he said. Residential investment, a key component in the nation’s output of goods and services, has been down for nine straight quarters and is likely to be down this quarter as well. “So should the unemployment rate rise and housing prices continue to fall, financial stresses caused by the housing correction could well spread beyond the large banks involved in complex securitizations, and the smaller banks with sizable portfolios of construction loans, to a larger set of financial institutions,” he said. (www.marketwatch.com)
Market Watch (5/30/08); Greg Robb
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The Trouble in Housing Trickles Up
About 18 months ago, says Casey Durango, a broker at Yost & Little, builders in Greensboro, N.C. could hardly keep pace with demand. “They were selling drawings,” she says. “When buyers do turn up nowadays,” she says, “they smell blood in the water and routinely offer 15% to 20% below the asking price.” One big reason buyers are being so conservative is that mortgage standards have tightened considerably. “We’ve kind of gone back to the old days,” says Christie Caldwell, who has worked as a mortgage broker in Greensboro since 1986. Traditionally, she explains, home buyers who put down less than 20% were required to pay for private mortgage insurance. But at the height of the bubble, banks turned a blind eye as borrowers did an end run around the rules by taking out two mortgages. That’s much harder to do these days, she said. Similarly, home buyers with lower credit scores often have to put more down. Everything just seems more difficult, she says. “Before, we could quote rates without knowing credit scores, debt-to-income ratios and the size of the downpayment.” The resulting crunch is now also affecting both white-collar and blue-collar workers who had depended on the real estate market for employment. Kavanagh Homes, a local builder that specializes in the middle and low end of the market, has cut its work force by half. “We’ve had to really pull our horns in,” says the firm’s president, John Kavanagh. (www.nytimes.com)
New York Times (6/1/08); Nelson D. Schwarz
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When the Going Gets Tough Local Home Builders Association Gets Going
“People are listening every day, 24-7, to news media blasting all the time,” says Todd Johnson, executive vice president of the Home Builders Association of Lexington. “We are hearing the national story, and people are feeling like that’s what’s going on here, and it’s just not the case.” He pointed out that Kentucky ranks 38th in the country in foreclosures and that “our housing prices, especially in Lexington, are holding very well, compared to the rest of the state. Everybody scratches their head as to why our market has slowed as much as it has, and I think a lot of it is consumer confidence based on what they are hearing on the national story.” To overcome the media impact, the association is fighting fire with fire, using television, along with print, to get its message out to the public. The message is “it’s a good time to buy,” which was included in more than 20,000 commercials that aired last year in the central Kentucky region, and which are continuing this year. Similarly, the association has created print opportunities in conjunction with Central Kentucky Lifestyle magazine, an association publication; the Lexington Herald-Leader’s “Home Seller” section; and a second and new Herald-Leader supplement called “Your New Home Destination.” The association is also helping its home builder members diversify and adopt methods for building energy-efficient and eco-friendly homes. (www.bizlex.com)
Business Lexington (5/30/08); Hank A. Phillips
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‘Active Adults’ Provide Boost to Charlotte Housing Market
Consultant Chuck Graham, who tracks residential sales in Charlotte, N.C., says active adult communities in that market remain among the most successful new-home neighborhoods. Almost 20% of buyers in Charlotte’s seven-county market are 55 to 64 years old, a share similar to the national figure. An additional 15% are 65-plus. Active adults have deep pockets and many are still buying. They don’t face the credit barriers that can block younger families. “In this kind of environment, it’s kind of nice to have a consumer who can bring a checkbook,” said Dan Owens, who publishes a local retirement magazine and operates a retirement living Web site. “Most of the wealth in this country is held by folks over 50.” Fewer than 40% of buyers take mortgages in age-restricted communities, according to a 118-page report from NAHB, “Profile of the 50+ Housing Market.” (www.ap.org)
Associated Press (5/28/08); Allen Norwood
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Home, Sweetened Home Sale
Metro Detroit home builders, battling a nearly three-year slump in new home sales, are sweetening their deals to lure buyers. They not only are dropping prices, but also are offering to buy customers’ existing houses so they’re free to move up to a new home and throwing in upgraded fixtures and finishes that just a few years ago would have cost thousands extra. In addition, some builders have put empty lots up for sale in hopes of recovering at least part of their investment. The number of new homes for sale in metro Detroit isn’t readily available, but builders say that increasing sales of existing homes, combined with a drastic pullback in new projects in the past few years, is helping to bring inventories down, albeit slowly. Only 631 permits for houses and condos were issued in Wayne, Oakland, Macomb and Livingston counties this year through April, about half the number from the same period of 2007 and down more than 88% since 2004. Builders say the new-home market has been hit hard in part because many people looking to build a new house are having trouble selling their old one. That’s why Randy Wertheimer, president of Hunter Pasteur Homes, is offering to purchase homes from sellers at 90% of their appraised value. “We’re able to give families the flexibility to move in a tough market,” Wertheimer said. “We then can sell the old home at a good price.” Since its inception last summer, the program has helped move more than two dozen new homes that would otherwise be sitting empty. His company also gave away a home at a Detroit Pistons game this year to help create visibility for its five developments. (www.detnews.com)
Detroit News (5/29/08); Nathan Hurst
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Ceilings Come Down to Earth
The cathedral-ceilinged “great room” — a defining feature of big suburban houses for the past 15 years — is losing favor. Owners say these double-height rooms are expensive to heat and cool. They can be drafty and reverberate noise. Cobwebs are hard to reach, painting requires long ladders and washing the second-story windows can be a nightmare. More home buyers are opting to add second-floor rooms in place of a double-height ceiling, builders say. Major home builders — including Pulte Homes, Toll Brothers and K. Hovnanian — say more buyers are looking for the maximum number of rooms and square footage for their money, so they’re opting to have a loft, bedroom or playroom built in the air space where the plans call for a double-height ceiling. “People don’t want it anymore,” says Ken Gancarczyk, head of builder services for KB Home. The big Los Angeles-based builder has stopped offering double-height great rooms in response to falling demand. (www.marketwatch.com)
MarketWatch (5/22/08); Nancy Keates, Wall Street Journal
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