Can Home Market Bounce Back Without More Help? Recovery Could Depend Too Much on Government
Although the housing market has shown signs of improvement lately, the recovery may not be on firm ground. The year is ending on a brighter note than it began, but economists caution that a good part of the improvement is tied to government assistance — low interest rates that stem from the Federal Reserve’s heavy buying of mortgage securities and the home buyer tax credit. With a still-weak economy and unemployment at 10%, the question is whether housing can rebound from its worst downturn since the Great Depression without the government propping it up. The Fed’s $1.25 trillion securities-buying program is scheduled to end early next year. “Right now, we’re not in a sustaining recovery,” says Lawrence Yun, chief economist at the National Association of Realtors®. “We’re on the cusp of a self-sufficient recovery, but we’re not there yet.” Mark Zandi, chief economist at Moody’s Economy.com, predicts the housing market will get a little worse before it gets better, but not all economists are seeing such a bleak outlook for the housing recovery. Brian Bethune at HIS Global Insight says home prices may rise slightly over the next year or two, then more rapidly after that. “In the next one to two years, there will be little movement on prices, but then a very tight supply will happen,” Bethune says. “Then at some point in the future, prices will probably jump, maybe in 2012.” (www.usatoday.com)
USA Today (12/14/09); Stephanie Armour
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Fed’s Duke: Tight Credit Still Holding Back Housing
Lenders stung by the financial crisis are still holding back on extending credit, impeding a recovery in the housing market, Federal Reserve Governor Elizabeth Duke said on Dec. 10. “Even taking into account the excesses of the bubble period, it appears that lenders have now tightened underwriting terms so much that the lack of credit availability is at least partially an impediment to homeownership,” she told a Federal Reserve Bank of Chicago conference on housing finance. Housing finance markets need a clear signal about the future shape of government-backed mortgage finance enterprises Fannie Mae and Freddie Mac before private mortgage markets can recover, she said. “Whatever is the ultimate future of Fannie and Freddie, market participants will need to see a clear roadmap for both the individual institutions and the role of government in housing finance before private markets can begin to map a course for themselves,” said Duke. Future models for channeling investment funds into housing markets will likely include simplified structures for securities and more information about what is in them, she said. Securities will benefit from being standardized as much as possible, she said. (www.reuters.com)
Reuters News (12/10/09); Mark Felsenthal
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Lewis Ranieri Wants to Fix the Mortgage Mess
Arguably the most important figure in the creation of the modern mortgage industry, Lewis Ranieri is now addressing the mortgage crisis, the No. 1 roadblock to America’s economic recovery. To solve it, Ranieri is combining what he describes as Lincolnesque dedication to helping the little guy with a technical expertise honed handling home loans “since the beginning of the world.” “Lincoln spent nights concocting ways to pardon soldiers and perform good deeds for widows,” he says. “I’m willing to do what the banks and government won’t — the manual labor to help struggling home owners. It’s cathartic for me.” Ranieri is now championing an inventive solution for fixing the mess he’s accused of enabling in the first place. He has raised $825 million from 31 foundations and corporate and public pension funds to form the Selene Residential Mortgage Opportunity Fund. Selene’s mission is to buy delinquent mortgages at a deep discount, work with home owners to get them paying again and resell the now stable loans for profit. To get home owners to do their part, Ranieri is taking the radical step of substantially lowering their mortgage balances. For the Rodriguez family of Chicago, for example, that meant cutting the value of their loan by $160,000. To Ranieri, this willingness to slash the loan balance itself rather than just temporarily lower interest payments is the Big idea, the essential solution the banks and government are missing. He sees his approach as a model for stemming the tide of foreclosures that is plaguing the housing market. It wasn’t the concept of securitization that created today’s crisis, he argues. Rather, he blames Wall Street for blatantly misusing his brainchild to construct an immense bazaar for “affordability products” that home owners really couldn’t afford, including loans with low so-called teaser rates that became onerous when they reset. (www.cnnmoney.com)
Fortune (12/9/09); Shawn Tully
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When You Live on a Busy Street, the Buzz Isn’t All Bad
There are advantages for home buyers in purchasing properties near heavily traveled main roads, real estate experts say. Such homes are often priced below comparable houses off the beaten path. They are convenient, shaving commuting time, and they can be more peaceful than expected, with some owners saying the hum of the traffic sounds a bit like ocean surf. However, someone looking at a house along a busy road should see the property during peak traffic times. Parking may be a significant consideration, and it’s especially important for buyers to research state and local transportation plans. Homes on a busy road are almost always priced below similar properties, which can put an otherwise unaffordable neighborhood, school district or type of home within financial reach. On average, Washington, D.C. real estate appraiser Wayne Wallace said, he deducts 10% to 12% for a property on a main thoroughfare, although there are notable exceptions. Condos, for example, are almost always more valuable if they are on a main road, he said. (www.washingtonpost.com)
Washington Post (12/12/09); Laura Barnhardt Cech
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Getting a Hush for the Money
In the wake of a sweeping rezoning that has taken place in New York over the last few years, apartments now rise from industrial areas, where trains clatter, trucks rumble and machinery beeps while backing up. So that residents don’t suffer from nightly volleys of irksome noise, the city requires certain buildings to install thick, snug windows, to make sure bedrooms stay hushed. But a crop of landlords, property managers and developers are going a step further and voluntarily soundproofing their units with an array of new insulation, foam and glass. Though the steps may expedite the selling and renting of apartments, they’re also meant to satisfy residents’ demand for quieter living spaces.” One project manager for a condominium in Brooklyn’s Dumbo neighborhood is concerned about sound from other apartments. He is armoring internal apartment walls with a dense, laminated product called QuietRock from Serious Materials of Sunnyvale, Calif., squeezing it between standard gypsum boards. The special layering could give the walls a sound-transmission-class rating of 65, compared with a rating of 40 for typical walls, according to a Serious Materials spokeswoman. On the other hand, the treatment costs three times as much as regular drywall. (www.nytimes.com)
New York Times (12/13/09); C. J. Hughes
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Numbers Game: Why Many Home-Price Measures May Be Misleading
While measuring home prices by referencing average pricing and median pricing both have their merits, averages seem to work best when they are looked at over time, whereas medians are better when the sample is more robust, according to housing columnist Lew Sichelman. “Not to knock anyone’s numbers, but when the widely quoted National Association of Realtors® publishes its monthly sales statistics, it does not cover all sales for that month. NAR’s sample does not capture new-home sales unless they went through the multiple listings service, and many of them don’t (Actually, it does not include any sales outside electronic multiple list services, and in this day and age, there are still some of those out there.) Based on my experience, I consider the new-home market to be the sales leader. Prices in that sector tend to rise or fall first, and existing houses tend to follow that.” (www.marketwatch.com)
MarketWatch (12/11/09); Lew Sichelman
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