Surrounded by Ruins, Mortgage Market Remains Intact
It would be a big stretch to label housing the sunny side of the market at the moment, but there’s a lot more light there than in most other financial sectors. There is no shortage of money available for home mortgages because the American mortgage market effectively has been federalized, at least for the time being. More than 90% of new loans now are being made through the FHA insurance program, plus Fannie Mae and Freddie Mac. Loan terms and credit underwriting standards have been toughened up, but you can still put down 3% (3.5% after Jan. 1) on an FHA-insured mortgage and 5% on certain Fannie Mae and Freddie Mac loan programs with private mortgage insurance. Mortgage rates remain low by historic standards. Mortgage company owner Jeff Lipes, president of Family Choice Mortgage near Hartford, Conn., said, “I don’t think consumers really know how free-flowing capital is right now in the residential mortgage market. There are no shortages, no breakdowns. People ought to be aware of that.” (www.washingtonpost.com)
Washington Post (10/18/08); Kenneth R. Harney
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Builders Help Buyers to Help Themselves
Home builders are working with potential buyers, enrolling them in programs that address everything from credit-report errors to managing debt, in order to raise their credit scores so they can qualify for a mortgage or a better interest rate. The programs, conducted over the Internet and in face-to-face meetings, have recently become “a very, very high focus,” said Dean Bloxom, president of imortgage.com, a mortgage banker that works with builder Meritage Homes Corp. Florida-based Debt Resource USA, which uses certified credit counselors and works with builders such as Hovnanian Enterprises Inc. and M/I Homes, has seen business triple since it started 18 months ago, said Chief Executive David Vizzi. Hovnanian, an industry trailblazer when it rolled out credit-enhancement programs nationwide last year, has more than 100 enrollees. Builders said they screen applicants for their credit-repair programs. They avoid those who refuse to pay bills on time and seek those willing to change payment behavior and aspiring buyers hurt by life events such as divorce, illness or identity theft. Everyone involved is aware there is no way to instantly rebuild a tattered score, though addressing errors is a good start. Depending on what needs to be done, the programs can take weeks or months. (www.marketwatch.com)
MarketWatch (10/20/08); Dawn Wotapka, Wall Street Journal
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Baby Boomers Scramble to Reassess Future
The events of the last 30 days have been unnerving for almost everyone, but perhaps no more so than to the nation’s baby boom population, just beginning to prepare for retirement. Many have their retirement savings in stock portfolios, which in some cases have lost nearly 50% of their value in the last few months. These are paper losses, and the stocks could regain their value, but that can take years. The tanking of the real estate market is also hitting boomers especially hard. For many, escalating home values have been a major source of their wealth. From 1998 to 2006, the median home equity for Americans 55 and older jumped by 42%. Many planned on tapping that equity for retirement. “The slumping stock market, falling housing prices and weakening economy have serious repercussions for older Americans who are approaching retirement or already retired,” said Richard Johnson, a retirement expert at the Urban Institute. “Seniors have little time to recoup the values of their homes, 401(k) plans and individual retirement accounts — all important parts of their retirement nest eggs.” (www.consumeraffairs.com)
Consumeraffairs.com (10/20/08); Mark Huffman
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Builders, Once Flush, Chase After Fewer, Smaller Jobs in Lane County, Oregon
Home owners who attended the recent Lane County Home Improvement Show got royal treatment from contractors who are hungry for work. In a faltering economy where construction of new homes has plummeted, workers in some building trades are having to rethink their jobs. Local builders who for years made a living constructing new homes for the first time this year rented booths at the Lane Events Center to try remodeling jobs. Longtime remodelers, meanwhile, have downscaled to home maintenance and repair, aiming to keep employees on the payroll and the balance sheet in the black. Home builder Tom Walter’s new-home construction business has morphed into a remodeling company over the past year. “The market is really gone for the subdivision builder right now. Our structure had to change,” he said. Before, Walter Custom Homes had a dozen full-time employees filling fields around Eugene-Springfield, Ore. with houses, Walter said. Now he has four employees who oversee independent craftsmen doing remodeling projects — and even doing some of the work themselves. The nation’s economic troubles have resulted in an unusually high level of circumspection among home show vendors this year, said Karen Ramus, who has organized the event for two decades. “A lot of us get up every day and go through the motions and do a great job at our job, but we don’t think about: Will this be here tomorrow?” she said. “(Businesses) have to think about: ‘Hey, what if this doesn’t work anymore? How do I become essential to people?’” So a vendor who sells granite countertops is diversifying into a line of water-saving toilets. A commercial woodworker and master craftsman brought his finely made cutting boards to sell at the home show. But not all businesses will escape the down cycle, Walter said. “It weeds out the people who are undercapitalized and doing shoddy work,” he said. “Through a period like this, the better organization will survive. The people with better reputations who take care of their customers will survive.” (www.registerguard.com)
Eugene Register-Guard (10/12/08); Diane Dietz
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Local Builder Renovates His Business
Recently, in an effort to combat a slowing economy, Nicola Tarzia formed the Tarzia Group in Stamford, Conn. to combine his contracting and plumbing businesses under one roof in addition to offering other services. “I found a need as a spec builder to diversify,” Tarzia said. “For years, I’d find pieces of land and would deal with commercial banks, but now that market has gone away. I needed a way to generate income.” Tarzia said recent economic conditions led him to market his business more toward renovations, additions and kitchen and bathroom services, as opposed to building spec homes. “I’ve started to get a bit of the wow factor — ‘I didn’t know you did that,’” Tarzia said about some of his customers’ responses to his expanded services. He said he is also doing more construction management, where he and the home owner share responsibilities in designating a specific contractor to work on particular aspects of a home. He also has branched out into commercial work, especially for restaurants. NAHB’s Stephen Melman said that most builders have introduced remodeling and renovations as a result of the current economic times, though it is difficult. “It’s hard to change the business model for these, especially if the remodeling jobs are not large remodeling jobs. It’s a difficult transition,” Melman said. “For some, light commercial work has been a way to diversify over a long period of time. For residential builders, remodeling is the way. It’s a whole different business model in terms of getting jobs, pricing and delivering it.” Melman added that builders are working on slightly smaller, lower-priced homes because of the state of the economy, as well as dealing with energy issues. (www.stamfordadvocate.com)
Stamford Advocate (10/15/08); Harold Davis
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America’s Luxury Homes Downsized
Ross Chapin builds high-end homes that are small or, as he calls them, “sensibly sized.” A typical structure might only be 650 square feet, a size unassociated with luxury anywhere outside Manhattan. Yet the cottages, bungalows and planned communities Chapin builds through his Langley, Wash.-based architecture firm are commanding top dollar. He just sold a home in Redmond, Wash., a Seattle suburb, for $580,000, even though it wasn’t even 1,000 square feet. Chapin is a leader in the “pocket neighborhood” movement of intimate communities in small stretches of land. Such cottage clusters can include as many as eight homes on two-thirds of an acre, surrounded by green space and shared gardens. The biggest draw, he says, is an unparalleled feeling of community. “Developers aren’t looking at the social dimension of home building,” he says. “There are a whole lot of people who don’t want to live in an oversized house that’s isolated in some ’burb.” According to Gopal Ahluwalia, NAHB’s vice president of research, large luxury properties built in the last five years are now some of the most difficult to sell. “Even if people do have the money for a big house, right now it’s considered to be in bad taste and inappropriate and politically incorrect,” says Adam Kalkin, a New Jersey-based architect specializing in homes made from shipping containers. “We had such a period of excess and people making huge amounts of money; you got this incredible breed of vulgarians in the United States.” (www.forbes.com)
Forbes (10/13/08); Matt Woolsey
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