U.S. Housing Risks Still Lurk Even as Buyers Return
Helped by government measures and a sense that the worst of the price slump is over, U.S. home prices have risen nearly 4% from their low point in April. But the bounce was preceded by a 33% slide since the peak in July 2006. The nascent housing recovery has combined with stronger data in other sectors to suggest the U.S. recession is over. Bidding wars are breaking out in some areas. Sales are now routinely above asking prices in California, from wealthy Orange County towns like Irvine to harder-hit San Bernardino County in the high desert east of Los Angeles. “The number of people around with cash right now is unbelievable,” said Janice Konkol of FirstTeam Real Estate in Irvine, showing a foreclosed home on the market for nearly $650,000. Business cards littering the kitchen counter told of frequent visits by real estate agents. The house sold for $890,000 in mid-2007 — and when new in 2002 it sold for $461,000. But the underlying picture remains weak. Efforts by the government and banks to help struggling home owners cut payments and stay in their homes are outpaced by mortgages going bad. The mortgage-modification programs risk being swamped by rising unemployment. “When you look at the whole culture right now and the economy with the jobs situation…it’s a domino effect,” said J.C. Ferebee, manager of a Wells Fargo team that managed a recent mass mortgage-modification program in Los Angeles drawing 50,000 people over five days. The U.S. jobless rate in September hit a 26-year high of 9.8% and is likely to head into the double-digit levels already suffered in California. Economists fear that a protracted and high unemployment rate will deter Americans from spending more again on houses and goods, raising the prospect of a slow recovery. “If the economy continues to lose jobs, demand by consumers becomes inhibited even if you have very low interest rates,” said Mohamed El-Erian, chief executive of Pacific Investment Management Co., the world’s largest bond fund manager. Aware of the risks posed by unemployment to the economy, the Obama Administration is considering extending unemployment benefits as well as the first-time home buyer tax credit. (www.reuters.com)
Reuters (10/11/09); Al Yoon and Nick Carey
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Home Sweet Home Investment? Sure, in the Long Run
For all the doom and gloom about the housing market, it still generally pays to own a home. Homes have appreciated by an average of 4% a year since World War II. They act as hedges against inflation and bestow significant tax benefits. Real estate is a leveraged investment; a 10% downpayment produces a 1,000% return if the price of a home merely doubles. Of course, historical trends don’t pay the mortgage. People who wade in and out of the housing market too often, or who buy at the wrong time or price and need to sell quickly, can get burned. But if you own for a decade, or more, price appreciation usually overcomes even bad slumps. Tony and Liz Iacobelli, who are far under water on the home they bought in the Phoenix suburb of Buckeye three years ago, aren’t panicking. They owe about $177,000 on their mortgage on a house worth only $132,000, which is about 40% below what they paid. “Houses generally go up in price, and this one will again, too,” says Tony, 51, a retired New York City policeman. (www.suntimes.com)
Chicago Sun-Times (10/10/09); Dave Carpenter, Associated Press
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Owners No More
Unlike other areas of the country, New York City has always been a renter’s town. Owning did not become widespread until the 1980s, when many landlords converted their buildings to co-ops and sold off apartments. Even today, only a quarter of Manhattan residents own their homes, according to Jonathan J. Miller, a Manhattan real estate appraiser, versus 67% nationally. Some in the city have found moving from owning to renting a liberating experiment. “I love it,” said Kim Lipstein, 38, who unshackled herself from her Upper East Side co-op last spring. “I feel the weight of the world is off my shoulders." She and her husband, Evan, 46, sold the 850-square-foot two-bedroom, one-bath apartment they shared with their seven- and five-year-old children for $531,000 after their plans to combine it with another unit fell apart. They sought to buy something larger, but they walked away from an accepted offer on a 1,400-square-foot two-bedroom because the maintenance was too high, the reserves too low and their younger daughter would have been wait-listed for the nearest public kindergarten. Instead, eager to settle into a school zone with enough seats, they signed a year’s lease on a three-bedroom, three-bath 1,400-square-foot apartment for $5,200 a month. “It’s not perfect, but it’s freshly painted, the floors are redone and the kitchen is fresh,” said Ms. Lipstein, who described the postwar part-time doorman building as “nice, not really nice.” But the amount of space — and plumbing — is luxurious. No longer must she tell her girls to line up to go to the bathroom, or to tiptoe across the floors. “I don’t have to worry that when my children make noise, I’m going to get a letter from the owners downstairs,” she said. After all, among the perks of renting is not being saddled forever with a complaining neighbor. “Here, I tell myself I’ll just move,” she said. (www.nytimes.com)
New York Times (10/11/09); Teri Karush Rogers
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Real-Estate Pros Go Moonlighting
The housing market’s long decline has left once-thriving real-estate professionals scrambling for supplemental income or changing professions. Home builders are among those being forced to look elsewhere for income, with NAHB projecting 572,000 housing starts for 2009, down from 1.8 million in 2006. Mark Kaminsky, owner of Carson County Construction, a custom-home builder in Carson City, Nev., has felt the pain. He said his income is down at least 80% from three years ago. So he is taking on remodels, additions and repair projects, in addition to new homes. “Almost any job will do,” he says. He and his wife, Ann, who is a co-owner, have trimmed household expenses and taken on part-time jobs outside construction. She temporarily worked at a day-care center to help make ends meet. Next spring, Mr. Kaminsky plans on teaching construction-management courses at Western Nevada College. “I need an income and there isn’t enough work out there,” he says. Recruiters say real-estate workers typically have transferable skills. Those with backgrounds in acquisition or development might consider renewable-energy fields such as wind or solar, says Deb Barbanel, managing director and co-lead of real estate in the Americas for executive recruiters Russell Reynolds Associates. People with financial skills, such as mortgage brokers and loan originators, are flocking to the FDIC and other government agencies, she says. Barbanel says real-estate veterans can get a leg up in the job search by mining their executive contacts. “They build strong relationships and can take those skill sets into other areas where relationships are tantamount to success like sales and marketing,” she says. (www.wsj.com)
Wall Street Journal (10/13/09); Dana Mattioli
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San Jose Suspends Affordable Housing Rules for Developers
In a move intended to help California developers and buyers alike, the San Jose City Council has temporarily suspended affordable housing rules requiring 20% of new homes in redevelopment areas to be sold for below-market rates. With the collapse in the San Jose housing market, prices of some market-rate units have fallen nearly to “affordable” rates. “I think it’s necessary for the time being, otherwise these affordable housing projects are going to be in big trouble,” said Mayor Chuck Reed. Because the affordable units contain permanent income restrictions, developers say prospective buyers are reluctant to buy them when the market-rate units cost similar amounts. Currently, a market-rate one bedroom condo goes for $375,000; and the affordable one is $342,000. San Jose’s moderate-income qualifications for affordable homes are $88,000 for one person and $126,000 for a family of four. The affordable prices have been pre-negotiated between the developer and the city, and do not fluctuate with the changing market. The waiver allows developers to sell the affordable housing units to anyone when the price is within 5% of the market value of the unit. Developers can seek the waiver now, but only for six-month intervals until the economy rebounds. “A lot of cities are considering this,” said Cheryl O’Connor, president and chief executive of the Home Builders Association of Northern California. In Morgan Hill, developers don’t have to build a portion of affordable units until next July, if they meet certain guidelines. And Fremont has had a policy that if a below-market-rate unit does not sell within six months, the unit can be sold at market rate by the developer. To date, however, the city said it has not lost any affordable units under the provision. It’s almost impossible to sell below-market-rate units when the pricing is similar, O’Connor said, noting that these homes tend to sit on the market longer than market-rate homes. (www.mercurynews.com)
San Jose Mercury-News (10/2/09); Tracy Seipel
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Floating House Could Ride New Orleans’ Floods
A 1,000-square-foot, two-bedroom house capable of floating atop rising floodwaters made its debut on Oct. 6 in New Orleans alongside more than a dozen other homes built through actor Brad Pitt’s Make It Right Foundation. Called the FLOAT House, the home was designed by Morphosis Architects under the direction of Thom Mayne, a professor at UCLA. It is the first of its kind to be permitted in the U.S., he said. It is long and narrow like the traditional New Orleans shotgun home and sits on a raised 4-foot base. It also has a front porch, but is contemporary in design, with sharp angles and energy-efficient features like solar panels and a roof designed to capture and recycle water. Mayne said the Morphosis floating house technology was developed and is being used in the Netherlands, where architects are working to address the rising sea levels expected with climate change. In case of a flood, the base of the house acts as a raft, allowing the home to rise on guide posts up to 12 feet as water levels rise. In the Lower 9th Ward, which saw some of the worst flooding in the city during Hurricane Katrina, floodwater reached as high as 12 feet. The home’s base is a high-performance chassis made from polystyrene foam coated in glass fiber-reinforced concrete, housing the essential equipment to supply power, water and fresh air. While not intended to be occupied during a hurricane, the structure is designed to minimize catastrophic damage and preserve the home owner’s investment, Mayne said. (www.csmonitor.com)
Christian Science Monitor (10/9/09); Stacey Plaisance, Associated Press
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