Cashing In on Real Estate, It's Still Possible
July 25, 2008 3:16 p.m.
Is it still possible to make money in real estate?
With home prices continuing to plummet, many people have finally stopped seeing their family manse as a big bottomless bag of cash. But look beyond your front door, and you'll find some alternative real-estate related opportunities that are holding up despite the current economic downturn:
• Rural land: Rising food prices, demand for corn-based ethanol and a growing desire by many urbanites for a place in the country are making rural land more valuable. In 2007 over the year before, the average value of farmland rose 19.6% in Nebraska, 20.9% in Wyoming and 22.6% in Iowa, according to a survey by the Farm Credit Services of America.
In his May 22 "Country Real Estate," column, Blue Grass, Va., land consultant Curtis Seltzer observed that asking prices for rural land "in most places seem to be holding their own, and are trending up in certain markets."
• Foreign real estate: Although home price growth is slowing around the globe, some countries are still on a tear, according to GlobalPropertyGuide.com. While none of these places may be your first choice for a vacation hideaway, in the first quarter of this year, home prices rose 29% in Slovakia, 28% in China, 15% in Bulgaria, 13% in Cyprus and 9% in Australia over the same period a year earlier.
• Dockominiums: With higher gas prices, the market for both dry and wet slips for small boats has been softening. Not so for the big yachts, meaning those over 80-feet long. Real estate brokers say demand for big-boat docks is so high that having one in the backyard can double a property's value.
But you don't even need a residence attached to make money: At the Ocean Reef Club in the Florida Keys, a dockominium big enough for a 100-footer sold last year for $2 million; it had sold for $700,000 in 2004. The dock market is likely to remain buoyant: A study by yacht broker Camper & Nicholsons International says that there are 3,800 mega-yachts currently afloat, and predicts the number will grow to 5,000 in just two years.
• Fractional real estate: Many people who don't want to acquire and maintain a second home in a declining market still yearn for a vacation getaway. That's a big reason why fractional real estate, where an owner buys a deeded share of a residence, is gaining popularity. In many cases, developers are creating reservation systems that allow for spontaneous visits rather than locking owners into using the unit for only certain days of the year.
They are also offering upscale amenities: Harborview in Nantucket, Mass., for instance, offers a private owners' lounge, access to boats, and organized beach activities. According to NorthCourse, a real estate advisory firm based in Parsippany, N.J., fractional real estate sales reached $1.98 billion in 2007, a 20% increase over the year before.
Saturday, July 26, 2008
Thursday, July 17, 2008
Mortgage Solutions: FHA Loan Limits and Features
In February, President Bush signed a bill that made a temporary increase to both conforming and FHA loan limits. The U.S. Department of Housing and Urban Development (HUD) recently released the new limits, which range from $271,050 to $729,750 depending on the county.
Previously, they were capped at $362,790. With FHA loans rising in popularity, especially among first-time homebuyers, these new limits could have a very positive impact. However, the changes are currently set to expire December 31, 2008, so you should act now to take advantage.
Benefits to Homebuyers
Many borrowers who were shopping in markets where entry-level homes were above the FHA loan limit may now be able to obtain an FHA loan. The most incremental change is likely to occur at entry-level and first-time move-up prices. The effects are also expected to have the greatest and most immediate impact in markets where entry-level home prices were above the previous FHA limits, such as California.
According to a statement released by the Federal Housing Administration, the change in loan limits will “give nearly 240,000 additional homeowners and homebuyers a safer, more affordable mortgage alternative.”¹
Because FHA focuses on 30-year fixed rate mortgages, homeowners may be able to avoid some of the risks associated with subprime mortgage products. Click here to view the new FHA loan limits for counties across the nation.
FHA: Fast Facts
If you are unfamiliar with FHA loans, here are a few facts to know. One important point is that FHA does not actually loan money to the buyer. Financing is obtained through a mortgage company such as HomeAmerican Mortgage Corporation.
FHA insures the lender against loss if the buyer defaults on the mortgage. The lender still has the final decision of whether or not to loan the buyer money, but having the FHA insurance can help them in making their loan decision.
In addition to offering insurance to the lender, FHA loan programs can offer many benefits. These are a few of the advantages:
Flexible qualification: FHA programs offer more flexible qualification, allowing more borrowers to obtain financing.
Less than perfect credit: FHA loans are often more forgiving of a buyer’s credit history. For example, buyers may still be able to qualify if they’ve had a bankruptcy as recently as two years ago.
Low down payment: Homebuyers typically only need 3-5% for their down payment, and this money may be a gift from a family member or other acceptable source.
How to Learn MoreHomeAmerican Mortgage Corporation (HMC) often offers special limited-time programs that enhance the benefits of FHA loans and provide exceptional value for homebuyers.
To learn about current programs and how to qualify, call a HomeAmerican Mortgage Consultant toll-free at 866-400-7126.
Sources:¹ Federal Housing Administration. New Loan Limits to Help Homeowners – Economy. Retrieved April 7, 2008, from http://portal.hud.gov/portal/page?_pageid=33,717234&_dad=portal&_schema=PORTAL
Previously, they were capped at $362,790. With FHA loans rising in popularity, especially among first-time homebuyers, these new limits could have a very positive impact. However, the changes are currently set to expire December 31, 2008, so you should act now to take advantage.
Benefits to Homebuyers
Many borrowers who were shopping in markets where entry-level homes were above the FHA loan limit may now be able to obtain an FHA loan. The most incremental change is likely to occur at entry-level and first-time move-up prices. The effects are also expected to have the greatest and most immediate impact in markets where entry-level home prices were above the previous FHA limits, such as California.
According to a statement released by the Federal Housing Administration, the change in loan limits will “give nearly 240,000 additional homeowners and homebuyers a safer, more affordable mortgage alternative.”¹
Because FHA focuses on 30-year fixed rate mortgages, homeowners may be able to avoid some of the risks associated with subprime mortgage products. Click here to view the new FHA loan limits for counties across the nation.
FHA: Fast Facts
If you are unfamiliar with FHA loans, here are a few facts to know. One important point is that FHA does not actually loan money to the buyer. Financing is obtained through a mortgage company such as HomeAmerican Mortgage Corporation.
FHA insures the lender against loss if the buyer defaults on the mortgage. The lender still has the final decision of whether or not to loan the buyer money, but having the FHA insurance can help them in making their loan decision.
In addition to offering insurance to the lender, FHA loan programs can offer many benefits. These are a few of the advantages:
Flexible qualification: FHA programs offer more flexible qualification, allowing more borrowers to obtain financing.
Less than perfect credit: FHA loans are often more forgiving of a buyer’s credit history. For example, buyers may still be able to qualify if they’ve had a bankruptcy as recently as two years ago.
Low down payment: Homebuyers typically only need 3-5% for their down payment, and this money may be a gift from a family member or other acceptable source.
How to Learn MoreHomeAmerican Mortgage Corporation (HMC) often offers special limited-time programs that enhance the benefits of FHA loans and provide exceptional value for homebuyers.
To learn about current programs and how to qualify, call a HomeAmerican Mortgage Consultant toll-free at 866-400-7126.
Sources:¹ Federal Housing Administration. New Loan Limits to Help Homeowners – Economy. Retrieved April 7, 2008, from http://portal.hud.gov/portal/page?_pageid=33,717234&_dad=portal&_schema=PORTAL
Mortgage Solutions: FHA Loan Limits and Features
In February, President Bush signed a bill that made a temporary increase to both conforming and FHA loan limits. The U.S. Department of Housing and Urban Development (HUD) recently released the new limits, which range from $271,050 to $729,750 depending on the county.
Previously, they were capped at $362,790. With FHA loans rising in popularity, especially among first-time homebuyers, these new limits could have a very positive impact. However, the changes are currently set to expire December 31, 2008, so you should act now to take advantage.
Benefits to Homebuyers
Many borrowers who were shopping in markets where entry-level homes were above the FHA loan limit may now be able to obtain an FHA loan. The most incremental change is likely to occur at entry-level and first-time move-up prices. The effects are also expected to have the greatest and most immediate impact in markets where entry-level home prices were above the previous FHA limits, such as California.
According to a statement released by the Federal Housing Administration, the change in loan limits will “give nearly 240,000 additional homeowners and homebuyers a safer, more affordable mortgage alternative.”¹
Because FHA focuses on 30-year fixed rate mortgages, homeowners may be able to avoid some of the risks associated with subprime mortgage products. Click here to view the new FHA loan limits for counties across the nation.
FHA: Fast Facts
If you are unfamiliar with FHA loans, here are a few facts to know. One important point is that FHA does not actually loan money to the buyer. Financing is obtained through a mortgage company such as HomeAmerican Mortgage Corporation.
FHA insures the lender against loss if the buyer defaults on the mortgage. The lender still has the final decision of whether or not to loan the buyer money, but having the FHA insurance can help them in making their loan decision.
In addition to offering insurance to the lender, FHA loan programs can offer many benefits. These are a few of the advantages:
Flexible qualification: FHA programs offer more flexible qualification, allowing more borrowers to obtain financing.
Less than perfect credit: FHA loans are often more forgiving of a buyer’s credit history. For example, buyers may still be able to qualify if they’ve had a bankruptcy as recently as two years ago.
Low down payment: Homebuyers typically only need 3-5% for their down payment, and this money may be a gift from a family member or other acceptable source.
How to Learn MoreHomeAmerican Mortgage Corporation (HMC) often offers special limited-time programs that enhance the benefits of FHA loans and provide exceptional value for homebuyers.
To learn about current programs and how to qualify, call a HomeAmerican Mortgage Consultant toll-free at 866-400-7126.
Sources:¹ Federal Housing Administration. New Loan Limits to Help Homeowners – Economy. Retrieved April 7, 2008, from http://portal.hud.gov/portal/page?_pageid=33,717234&_dad=portal&_schema=PORTAL
Previously, they were capped at $362,790. With FHA loans rising in popularity, especially among first-time homebuyers, these new limits could have a very positive impact. However, the changes are currently set to expire December 31, 2008, so you should act now to take advantage.
Benefits to Homebuyers
Many borrowers who were shopping in markets where entry-level homes were above the FHA loan limit may now be able to obtain an FHA loan. The most incremental change is likely to occur at entry-level and first-time move-up prices. The effects are also expected to have the greatest and most immediate impact in markets where entry-level home prices were above the previous FHA limits, such as California.
According to a statement released by the Federal Housing Administration, the change in loan limits will “give nearly 240,000 additional homeowners and homebuyers a safer, more affordable mortgage alternative.”¹
Because FHA focuses on 30-year fixed rate mortgages, homeowners may be able to avoid some of the risks associated with subprime mortgage products. Click here to view the new FHA loan limits for counties across the nation.
FHA: Fast Facts
If you are unfamiliar with FHA loans, here are a few facts to know. One important point is that FHA does not actually loan money to the buyer. Financing is obtained through a mortgage company such as HomeAmerican Mortgage Corporation.
FHA insures the lender against loss if the buyer defaults on the mortgage. The lender still has the final decision of whether or not to loan the buyer money, but having the FHA insurance can help them in making their loan decision.
In addition to offering insurance to the lender, FHA loan programs can offer many benefits. These are a few of the advantages:
Flexible qualification: FHA programs offer more flexible qualification, allowing more borrowers to obtain financing.
Less than perfect credit: FHA loans are often more forgiving of a buyer’s credit history. For example, buyers may still be able to qualify if they’ve had a bankruptcy as recently as two years ago.
Low down payment: Homebuyers typically only need 3-5% for their down payment, and this money may be a gift from a family member or other acceptable source.
How to Learn MoreHomeAmerican Mortgage Corporation (HMC) often offers special limited-time programs that enhance the benefits of FHA loans and provide exceptional value for homebuyers.
To learn about current programs and how to qualify, call a HomeAmerican Mortgage Consultant toll-free at 866-400-7126.
Sources:¹ Federal Housing Administration. New Loan Limits to Help Homeowners – Economy. Retrieved April 7, 2008, from http://portal.hud.gov/portal/page?_pageid=33,717234&_dad=portal&_schema=PORTAL
Tuesday, July 15, 2008
How Fannie and Freddie Grew So Big as Dangers Mounted
Plenty of Blame to Go Around for Fannie, Freddie; How the Pair Grew So Big, as Dangers Mounted, Morphed
By JOHN D. MCKINNON and JAMES R. HAGERTY
July 15, 2008; Page A14 Wall Street Journal
For years, Washington officialdom enabled Fannie Mae and Freddie Mac, the congressionally chartered mortgage companies, to grow until they dominated the U.S. market.
Now lawmakers are confronting the result: a crisis of confidence in the two companies that raises questions about whether they can make it through the deep downturn that has struck the real-estate market. And nobody wants to get stuck with the blame.
If there's one decision that is being second-guessed, it's the 1992 legislation that created the companies' regulator, the Office of Federal Housing Enterprise Oversight, or Ofheo. In the 1992 debate, Ofheo came away with fairly weak powers, and capital requirements for the companies were set very low. (Congress is now putting the final touches on legislation creating a much stronger regulator with powers to raise their capital requirements -- a bit late, critics say.)
Lobbyists from the companies are said to have strongly influenced the 1992 legislation, particularly in the House Banking Committee, whose chairman then was Rep. Henry Gonzalez, a Texas Democrat. Critics of the companies say that Rep. Barney Frank (D., Mass.), the current chairman of the committee, also helped put forth the companies' arguments.
Mr. Frank now is widely regarded as a strong voice for tougher regulation. "I've been a supporter of their role in housing, but I've been pushing for some time to improve the regulation," he said in a telephone interview on Monday. As for the legislation in the early 1990s, he said he doesn't recall being involved in weakening it.
A spokesman for Fannie Mae declined to comment on the company's prior approach. "It's a different era [now] and there's a very different approach to our dealings with policy makers and regulators," he said.
Fannie and Freddie issue debt to the public in order to buy up home mortgages from banks. They hold some of those mortgages as investments and securitize the rest, adding a guarantee of repayment in the event homeowners default. By now, Fannie and Freddie own or guarantee about $5 trillion in mortgages, almost half of the U.S. total.
The two companies have been so successful because they combine the private sector's appetite for profit with the government's ability to borrow money. Even officials who gave them their unique structure 40 years ago didn't entirely appreciate how powerful -- and potentially dangerous -- the combination would prove to be.
"I don't think anyone had any inkling that they were doing anything but good," says Thomas Stanton, a Washington lawyer and longtime critic of the companies' massive growth. "People hadn't really worked out what would happen."
When it comes to their dealings with Fannie and Freddie, politicians often have had self-interested motives, in addition to the lofty public purposes they proclaimed.
Congress created Fannie as a government agency during the Great Depression, to encourage banks to lend. Fannie continued to function as a government-run agency during the 1940s and 1950s, even as it took steps toward privatization.
In 1968, President Lyndon Johnson decided to turn Fannie into a shareholder-owned company as part of a broader housing bill. Mr. Johnson proclaimed that the new Fannie Mae would "close an important gap in the existing network of financial institutions." In fact, administration officials acknowledged that the move actually was aimed at shifting Fannie's growing operations off the government's books.
Investors continued to assume that Fannie's debt carried the full faith and credit of the U.S. government, however. Congress did little to dispel that idea, bestowing a range of breaks on the companies, as well as other government ties.
Fannie's model proved so effective at aiding business for mortgage bankers that the savings-and-loan industry soon wanted one of its own. So in 1970, Congress created Freddie Mac. Nowadays, both serve the same customers -- mortgage lenders.
The companies' operations suited a lot of other people, too: home builders, real-estate agents, Wall Street investment houses and politicians. And, of course, the companies have helped millions of people buy homes, particularly in times of economic uncertainty.
Critics have popped up over the years, but they were always drowned out. In the early part of this decade, Alan Greenspan became the most powerful voice calling for a reining in of the companies.
At that time, though, the main worry about Fannie and Freddie was the interest-rate risks that arise from holding long-term mortgages and funding them with borrowing. This prompted the companies to use huge amounts of derivatives to hedge. And that worried a lot of people. It also led to the accounting scandals as Fannie and Freddie tried to smooth over the fluctuations in earnings created by those interest hedges. That added to the interest in strengthening their regulation, particularly among conservatives in the Bush administration.
Few critics focused then on the credit default risks. That's because of a widespread assumption that homeowners rarely default. Now that assumption is being undermined in the current weakening real-estate market.
Fannie and Freddie's survival is crucial not just for the U.S. mortgage market, but the entire financial system, because of the widespread reliance on their debt not only by legions of investors but also by banks around the world.
The failure of one of the companies would create a "world-wide panic," says Peter Wallison, a critic of the companies' structure and operations.
By JOHN D. MCKINNON and JAMES R. HAGERTY
July 15, 2008; Page A14 Wall Street Journal
For years, Washington officialdom enabled Fannie Mae and Freddie Mac, the congressionally chartered mortgage companies, to grow until they dominated the U.S. market.
Now lawmakers are confronting the result: a crisis of confidence in the two companies that raises questions about whether they can make it through the deep downturn that has struck the real-estate market. And nobody wants to get stuck with the blame.
If there's one decision that is being second-guessed, it's the 1992 legislation that created the companies' regulator, the Office of Federal Housing Enterprise Oversight, or Ofheo. In the 1992 debate, Ofheo came away with fairly weak powers, and capital requirements for the companies were set very low. (Congress is now putting the final touches on legislation creating a much stronger regulator with powers to raise their capital requirements -- a bit late, critics say.)
Lobbyists from the companies are said to have strongly influenced the 1992 legislation, particularly in the House Banking Committee, whose chairman then was Rep. Henry Gonzalez, a Texas Democrat. Critics of the companies say that Rep. Barney Frank (D., Mass.), the current chairman of the committee, also helped put forth the companies' arguments.
Mr. Frank now is widely regarded as a strong voice for tougher regulation. "I've been a supporter of their role in housing, but I've been pushing for some time to improve the regulation," he said in a telephone interview on Monday. As for the legislation in the early 1990s, he said he doesn't recall being involved in weakening it.
A spokesman for Fannie Mae declined to comment on the company's prior approach. "It's a different era [now] and there's a very different approach to our dealings with policy makers and regulators," he said.
Fannie and Freddie issue debt to the public in order to buy up home mortgages from banks. They hold some of those mortgages as investments and securitize the rest, adding a guarantee of repayment in the event homeowners default. By now, Fannie and Freddie own or guarantee about $5 trillion in mortgages, almost half of the U.S. total.
The two companies have been so successful because they combine the private sector's appetite for profit with the government's ability to borrow money. Even officials who gave them their unique structure 40 years ago didn't entirely appreciate how powerful -- and potentially dangerous -- the combination would prove to be.
"I don't think anyone had any inkling that they were doing anything but good," says Thomas Stanton, a Washington lawyer and longtime critic of the companies' massive growth. "People hadn't really worked out what would happen."
When it comes to their dealings with Fannie and Freddie, politicians often have had self-interested motives, in addition to the lofty public purposes they proclaimed.
Congress created Fannie as a government agency during the Great Depression, to encourage banks to lend. Fannie continued to function as a government-run agency during the 1940s and 1950s, even as it took steps toward privatization.
In 1968, President Lyndon Johnson decided to turn Fannie into a shareholder-owned company as part of a broader housing bill. Mr. Johnson proclaimed that the new Fannie Mae would "close an important gap in the existing network of financial institutions." In fact, administration officials acknowledged that the move actually was aimed at shifting Fannie's growing operations off the government's books.
Investors continued to assume that Fannie's debt carried the full faith and credit of the U.S. government, however. Congress did little to dispel that idea, bestowing a range of breaks on the companies, as well as other government ties.
Fannie's model proved so effective at aiding business for mortgage bankers that the savings-and-loan industry soon wanted one of its own. So in 1970, Congress created Freddie Mac. Nowadays, both serve the same customers -- mortgage lenders.
The companies' operations suited a lot of other people, too: home builders, real-estate agents, Wall Street investment houses and politicians. And, of course, the companies have helped millions of people buy homes, particularly in times of economic uncertainty.
Critics have popped up over the years, but they were always drowned out. In the early part of this decade, Alan Greenspan became the most powerful voice calling for a reining in of the companies.
At that time, though, the main worry about Fannie and Freddie was the interest-rate risks that arise from holding long-term mortgages and funding them with borrowing. This prompted the companies to use huge amounts of derivatives to hedge. And that worried a lot of people. It also led to the accounting scandals as Fannie and Freddie tried to smooth over the fluctuations in earnings created by those interest hedges. That added to the interest in strengthening their regulation, particularly among conservatives in the Bush administration.
Few critics focused then on the credit default risks. That's because of a widespread assumption that homeowners rarely default. Now that assumption is being undermined in the current weakening real-estate market.
Fannie and Freddie's survival is crucial not just for the U.S. mortgage market, but the entire financial system, because of the widespread reliance on their debt not only by legions of investors but also by banks around the world.
The failure of one of the companies would create a "world-wide panic," says Peter Wallison, a critic of the companies' structure and operations.
Monday, July 14, 2008
Treasury and FED Pleadge Aid For Ailing Mortgage Giants
Treasury and Fed Pledge Aid For Ailing Mortgage Giants
By JAMES R. HAGERTY, DEBORAH SOLOMON and SUDEEP REDDY
July 14, 2008; Page A1 Wall Street Journal
The U.S. Treasury and Federal Reserve, capping a weekend of high-stakes maneuvering, attempted to shore up confidence in Fannie Mae and Freddie Mac by announcing a plan that placed the federal government firmly behind the battered mortgage giants.
In a statement timed to precede the opening of Asian markets Monday, as well as a closely watched auction of debt by Freddie, the Treasury said it plans to seek approval from Congress for a temporary increase in a longstanding Treasury line of credit for the two companies.
The Treasury also said it would seek temporary authority so that it could buy equity in either company "if needed" to ensure they have "sufficient capital to continue to serve their mission" of providing a steady flow of money into home mortgages. The plan, which requires congressional approval, also calls for a provision to give the Federal Reserve a "consultative role" in the process of setting capital requirements and other "prudential standards" for Fannie and Freddie.
The Fed's Board of Governors met Sunday in Washington and voted to grant the New York Fed authority to lend to Fannie and Freddie "should such lending prove necessary," the central bank said in a statement. The move would effectively give the two companies access to the Fed's discount window if necessary, providing a backstop in case the firms were to face a short-term funding crisis down the road.
Whether the government should prop up troubled financial institutions has become a hot political issue in the wake of the takeover of investment firm Bear Stearns Cos. by J.P. Morgan Chase & Co. Critics characterized that government-engineered deal as a bailout.
This weekend's moves constitute an attempt by the federal government to ease the potential crisis at Fannie and Freddie without intervening directly. By promising bold action if needed, officials are hoping they can instill sufficient confidence in the two companies that such intervention ultimately will prove unnecessary.
Fannie and Freddie are the nation's dominant providers of funding for home mortgages. They buy loans made by banks, package most of them into securities, and sell many to investors all over the world. Together, they own or guarantee about $5.2 trillion of U.S. home mortgages, nearly half of all mortgages outstanding.
Unique Status
The unique status of the two companies puts the government in a delicate position. They were chartered by Congress to support the mortgage market, but they are owned by shareholders. Investors have long believed that the government implicitly backs them. That allowed the two companies to borrow at favorable rates, benefiting shareholders and supporting the housing market, but putting taxpayer money at risk.
Sunday's moves, by promising government funds to keep Fannie and Freddie operational, reinforce the notion that investors can count on the government to bail them out in a crisis. Until recently, that was an idea the Bush administration had tried hard to quash.
The government can ill afford to see a financial crisis at either firm. With home prices falling and mortgage defaults rising, Congress and the administration have come to depend even more on Fannie and Freddie. If either company ran into serious financial trouble -- a prospect that seemed real last week when their stocks fell nearly 50% -- it would deal a severe blow to the housing market and the sagging economy.
A senior Treasury official described the steps as intended to help "stabilize" the current situation. While Treasury does not think the financial situation of either firm has deteriorated since Friday, "as we've watched market developments, we decided it was time for policymakers to act," said one administration official.
The weekend move means that Fed Chairman Ben Bernanke, who has been steadily accumulating authority as the U.S. grapples with the financial crisis, will have even more power.
The Treasury envisions the Fed working with the mortgage giants' regulator to help prevent situations that could be a risk for the entire financial system. The move builds on Treasury's broader goal of remaking financial regulation to give the Fed broader influence over financial-market stability.
Federal regulators, politicians and investment banks spent two hectic days swapping information and seeking ways to calm markets. From Washington, Treasury Secretary Henry Paulson called the heads of some investment banks, trying to gauge the level of nervousness about Fannie and Freddie and to determine whether the banks would participate in Monday's $3 billion debt auction, according to people familiar with the matter. Timothy Geithner, president of the Federal Reserve Bank of New York, also has been reaching out to Wall Street firms over the weekend to discuss the latest events.
Fed, Treasury and company officials stayed in touch with top Capitol Hill lawmakers and their staffs throughout the weekend. Lawmakers continued their efforts to reassure financial markets about the government's support of both companies.
Fannie Mae Chief Executive Officer Daniel Mudd expressed gratitude for the government's actions. "Given the market turmoil, having options to access provisional sources of liquidity if needed will help to strengthen overall confidence in the market," he said.
If either company asks for it, it could have access to a line of credit or an equity investment by the U.S. government. Both the line of credit and the liquidity backstop would be temporary, but could be in place for up to 18 months. Treasury would not say how high the line of credit might go, or how much of an equity stake Treasury might purchase. The agency would not discuss whether the equity stake would carry any preferred terms for the government. Those decisions would be up to Mr. Paulson, the official said, and "will be governed by protecting the taxpayers and the government."
The two companies' lines of credit are currently capped at $2.25 billion each. The Treasury didn't say to what level they would be increased. The Fed's role is intended as a funding backstop for the firms only after they've borrowed under their credit line from Treasury. The central bank can lend under its own authority, without further congressional approval.
Raising the Treasury credit line, along with most other changes, would require congressional approval, although lawmakers appear ready to act quickly. Late Friday, the Senate passed a housing package that would create a new, stronger regulator for Fannie, Freddie and the 12 Federal Home Loan Banks. The House passed a similar bill in May, but the process since then has been stalled by complications.
The bill could pick up speed now. Lawmakers only need to resolve a few differences, and potentially to add the changes. House Financial Services Committee Chairman Barney Frank (D., Mass.) said he spoke with Mr. Paulson several times over the weekend and was "generally supportive" of the proposals. He said all sides would have to discuss the details of the plan, but he felt optimistic that a consensus could be reached quickly. "This could be on the president's desk next week," he said.
The Treasury official said Mr. Paulson has reached out to members of Congress and has had "good productive conversations....There's nothing to suggest that we will not be able to accomplish this."
The Sunday move was designed in part to head off fears about Monday's auction of Freddie Mac notes. While small, the planned sale had assumed an outsized importance as a test of investor confidence. Freddie should be able to find buyers for its three- and six-month notes, market analysts said. But there is a chance that some financial institutions and investors may demand higher-then-usual yields.
Similar Freddie and Fannie notes that are currently outstanding yield around 2.5%. If weak demand for Freddie's auction leads to sharply higher yields on the new notes, that could trigger a selloff across a wide range of debt issued by the companies, some analysts said. But most said such a scenario is unlikely.
There was some debate within the administration about the best way to handle the two companies. Some Republicans have long worried that taxpayers would eventually be on the hook for risks taken by the two companies on behalf of shareholders.
Tough Love
Some officials at the White House are believed to have preferred a tough-love approach. Under one option, according to people familiar with the outlines of policy discussions within the administration, the White House could try to install a new slate of presidentially appointed board members at the companies. The idea would be to impose more market discipline on the two companies, to curb their appetites for borrowing and investing, and to gradually shrink their enormous balance sheets.
Appointment of new presidential directors would be an abandonment -- at least for now -- of the Bush administration's often-stated ambition to distance the federal government from the companies. The new board members would be drawn from the ranks of financial-market heavyweights.
Fannie and Freddie shares both dropped about 45% last week and are down more than 80% over the past year. Investors are worried that the companies eventually will have to raise large amounts of capital to cope with growing losses stemming from mortgage defaults. Freddie has announced plans to raise $5.5 billion by selling common and preferred shares, but it is likely to wait for a calmer market. Fannie raised $7.4 billion in share offerings in April and May.
Like Fannie and Freddie, the 12 regional Federal Home Loan Banks, cooperatives that lend to commercial banks and thrifts, "also would have temporary access to expanded lines of credit," a Treasury official said.
A spokesman for Freddie said the company understands that any purchase of equity in Freddie by the Treasury "can only occur with the mutual agreement of both parties."
--Damian Paletta, John D. McKinnon, Serena Ng contributed to this article.
By JAMES R. HAGERTY, DEBORAH SOLOMON and SUDEEP REDDY
July 14, 2008; Page A1 Wall Street Journal
The U.S. Treasury and Federal Reserve, capping a weekend of high-stakes maneuvering, attempted to shore up confidence in Fannie Mae and Freddie Mac by announcing a plan that placed the federal government firmly behind the battered mortgage giants.
In a statement timed to precede the opening of Asian markets Monday, as well as a closely watched auction of debt by Freddie, the Treasury said it plans to seek approval from Congress for a temporary increase in a longstanding Treasury line of credit for the two companies.
The Treasury also said it would seek temporary authority so that it could buy equity in either company "if needed" to ensure they have "sufficient capital to continue to serve their mission" of providing a steady flow of money into home mortgages. The plan, which requires congressional approval, also calls for a provision to give the Federal Reserve a "consultative role" in the process of setting capital requirements and other "prudential standards" for Fannie and Freddie.
The Fed's Board of Governors met Sunday in Washington and voted to grant the New York Fed authority to lend to Fannie and Freddie "should such lending prove necessary," the central bank said in a statement. The move would effectively give the two companies access to the Fed's discount window if necessary, providing a backstop in case the firms were to face a short-term funding crisis down the road.
Whether the government should prop up troubled financial institutions has become a hot political issue in the wake of the takeover of investment firm Bear Stearns Cos. by J.P. Morgan Chase & Co. Critics characterized that government-engineered deal as a bailout.
This weekend's moves constitute an attempt by the federal government to ease the potential crisis at Fannie and Freddie without intervening directly. By promising bold action if needed, officials are hoping they can instill sufficient confidence in the two companies that such intervention ultimately will prove unnecessary.
Fannie and Freddie are the nation's dominant providers of funding for home mortgages. They buy loans made by banks, package most of them into securities, and sell many to investors all over the world. Together, they own or guarantee about $5.2 trillion of U.S. home mortgages, nearly half of all mortgages outstanding.
Unique Status
The unique status of the two companies puts the government in a delicate position. They were chartered by Congress to support the mortgage market, but they are owned by shareholders. Investors have long believed that the government implicitly backs them. That allowed the two companies to borrow at favorable rates, benefiting shareholders and supporting the housing market, but putting taxpayer money at risk.
Sunday's moves, by promising government funds to keep Fannie and Freddie operational, reinforce the notion that investors can count on the government to bail them out in a crisis. Until recently, that was an idea the Bush administration had tried hard to quash.
The government can ill afford to see a financial crisis at either firm. With home prices falling and mortgage defaults rising, Congress and the administration have come to depend even more on Fannie and Freddie. If either company ran into serious financial trouble -- a prospect that seemed real last week when their stocks fell nearly 50% -- it would deal a severe blow to the housing market and the sagging economy.
A senior Treasury official described the steps as intended to help "stabilize" the current situation. While Treasury does not think the financial situation of either firm has deteriorated since Friday, "as we've watched market developments, we decided it was time for policymakers to act," said one administration official.
The weekend move means that Fed Chairman Ben Bernanke, who has been steadily accumulating authority as the U.S. grapples with the financial crisis, will have even more power.
The Treasury envisions the Fed working with the mortgage giants' regulator to help prevent situations that could be a risk for the entire financial system. The move builds on Treasury's broader goal of remaking financial regulation to give the Fed broader influence over financial-market stability.
Federal regulators, politicians and investment banks spent two hectic days swapping information and seeking ways to calm markets. From Washington, Treasury Secretary Henry Paulson called the heads of some investment banks, trying to gauge the level of nervousness about Fannie and Freddie and to determine whether the banks would participate in Monday's $3 billion debt auction, according to people familiar with the matter. Timothy Geithner, president of the Federal Reserve Bank of New York, also has been reaching out to Wall Street firms over the weekend to discuss the latest events.
Fed, Treasury and company officials stayed in touch with top Capitol Hill lawmakers and their staffs throughout the weekend. Lawmakers continued their efforts to reassure financial markets about the government's support of both companies.
Fannie Mae Chief Executive Officer Daniel Mudd expressed gratitude for the government's actions. "Given the market turmoil, having options to access provisional sources of liquidity if needed will help to strengthen overall confidence in the market," he said.
If either company asks for it, it could have access to a line of credit or an equity investment by the U.S. government. Both the line of credit and the liquidity backstop would be temporary, but could be in place for up to 18 months. Treasury would not say how high the line of credit might go, or how much of an equity stake Treasury might purchase. The agency would not discuss whether the equity stake would carry any preferred terms for the government. Those decisions would be up to Mr. Paulson, the official said, and "will be governed by protecting the taxpayers and the government."
The two companies' lines of credit are currently capped at $2.25 billion each. The Treasury didn't say to what level they would be increased. The Fed's role is intended as a funding backstop for the firms only after they've borrowed under their credit line from Treasury. The central bank can lend under its own authority, without further congressional approval.
Raising the Treasury credit line, along with most other changes, would require congressional approval, although lawmakers appear ready to act quickly. Late Friday, the Senate passed a housing package that would create a new, stronger regulator for Fannie, Freddie and the 12 Federal Home Loan Banks. The House passed a similar bill in May, but the process since then has been stalled by complications.
The bill could pick up speed now. Lawmakers only need to resolve a few differences, and potentially to add the changes. House Financial Services Committee Chairman Barney Frank (D., Mass.) said he spoke with Mr. Paulson several times over the weekend and was "generally supportive" of the proposals. He said all sides would have to discuss the details of the plan, but he felt optimistic that a consensus could be reached quickly. "This could be on the president's desk next week," he said.
The Treasury official said Mr. Paulson has reached out to members of Congress and has had "good productive conversations....There's nothing to suggest that we will not be able to accomplish this."
The Sunday move was designed in part to head off fears about Monday's auction of Freddie Mac notes. While small, the planned sale had assumed an outsized importance as a test of investor confidence. Freddie should be able to find buyers for its three- and six-month notes, market analysts said. But there is a chance that some financial institutions and investors may demand higher-then-usual yields.
Similar Freddie and Fannie notes that are currently outstanding yield around 2.5%. If weak demand for Freddie's auction leads to sharply higher yields on the new notes, that could trigger a selloff across a wide range of debt issued by the companies, some analysts said. But most said such a scenario is unlikely.
There was some debate within the administration about the best way to handle the two companies. Some Republicans have long worried that taxpayers would eventually be on the hook for risks taken by the two companies on behalf of shareholders.
Tough Love
Some officials at the White House are believed to have preferred a tough-love approach. Under one option, according to people familiar with the outlines of policy discussions within the administration, the White House could try to install a new slate of presidentially appointed board members at the companies. The idea would be to impose more market discipline on the two companies, to curb their appetites for borrowing and investing, and to gradually shrink their enormous balance sheets.
Appointment of new presidential directors would be an abandonment -- at least for now -- of the Bush administration's often-stated ambition to distance the federal government from the companies. The new board members would be drawn from the ranks of financial-market heavyweights.
Fannie and Freddie shares both dropped about 45% last week and are down more than 80% over the past year. Investors are worried that the companies eventually will have to raise large amounts of capital to cope with growing losses stemming from mortgage defaults. Freddie has announced plans to raise $5.5 billion by selling common and preferred shares, but it is likely to wait for a calmer market. Fannie raised $7.4 billion in share offerings in April and May.
Like Fannie and Freddie, the 12 regional Federal Home Loan Banks, cooperatives that lend to commercial banks and thrifts, "also would have temporary access to expanded lines of credit," a Treasury official said.
A spokesman for Freddie said the company understands that any purchase of equity in Freddie by the Treasury "can only occur with the mutual agreement of both parties."
--Damian Paletta, John D. McKinnon, Serena Ng contributed to this article.
Tuesday, July 08, 2008
Denver Leads the Country in Rental Income Increase!
July 5, 2008, 1:07 pm
Rents Climb Despite ‘Shadow Market’
WSJ’s Nick Timiraos writes:
Landlords continue to see a strong rental market undercut by a “shadow market” — the glut of unsold homes on the market as rentals. But the housing downturn continues to provide landlords with solid rent increases nonetheless, as more homeowners become renters and as existing renters defer homeownership.
Rents climbed by 1.1% last quarter, slightly off the 1.3% growth in the same quarter last year, according to figures to be released Saturday by Reis Inc., a New York real estate research firm. Apartment vacancies held constant at 5.9% from the previous quarter.
Rent growth remains ahead of where it should be given the economic downturn and slowing wage growth. “That’s giving landlords more power than we’d normally expect to see in the cycle,” says Sam Chandan, chief economist at Reis. At the recession earlier this decade, he notes, “we had declines in rent certainly not on the order of what we’re seeing now.”
Four of 79 markets tracked by Reis showed negative rent growth, all in parts of the country hardest hit by big home prices declines: Miami; Palm Beach, Fla.; Ventura County, Calif., and Detroit. (See charts below)
Rents increased in some strong housing markets, including Seattle and Boston, where tightened mortgage lending terms continue to discourage homeowners. The energy sector helped boost rents in markets across the West, including Denver, which led the nation with 1.9% rental growth. Houston, Oklahoma City and Tulsa, Okla., also posted above-average rental increases.
Reis’s Mr. Chandan suggests that the data show “very preliminary” signs of stabilization in the hardest-hit housing markets in Florida. Vacancies fell in overbuilt housing markets including California’s Inland Empire and Fort Lauderdale, Fla., and California’s Inland Empire, which also posted an above-average rental growth. Rents gained a robust 1.5% in Orlando, Fla.
One big question that remains: When will the shadow market disappear? Analysts say that the most overbuilt housing markets will continue to see homes and condos converted to rentals through 2009. “Given the extent of overbuilding that’s a fairly speedy correction,” says Mr. Chandan.
Others point to the lack of rental demand due to renters who double or triple up or move in with their parents. Lawrence Yun, chief economist for the National Association of Realtors, says that the practice should abate in the short-term, in part because “it’s not sustainable to keep adding roommates.”
Strongest Rent Growth
1 Denver 1.9%
2 Wichita, Kan. 1.9%
3 Syracuse, N.Y. 1.9%
4 Seattle 1.9%
5 Dayton, Ohio 1.7%
6 Tulsa, Okla. 1.7%
7 Louisville, Ky. 1.7%
8 Little Rock, Ark. 1.6%
9 Hartford, Conn. 1.6%
10 Boston 1.6%
Weakest Rent Growth
1 Palm Beach, Fla. -0.40%
2 Miami -0.2
3 Detroit -0.1
4 Ventura County, Calf. -0.1
5 Fort Lauderdale, Fla. 0
6 Tucson, Ariz. 0.2
7 Portland, Ore. 0.3
8 Phoenix 0.3
9 Columbia, S.C. 0.5
10 Northern New Jersey 0.5
Source: Reis Inc.
Rents Climb Despite ‘Shadow Market’
WSJ’s Nick Timiraos writes:
Landlords continue to see a strong rental market undercut by a “shadow market” — the glut of unsold homes on the market as rentals. But the housing downturn continues to provide landlords with solid rent increases nonetheless, as more homeowners become renters and as existing renters defer homeownership.
Rents climbed by 1.1% last quarter, slightly off the 1.3% growth in the same quarter last year, according to figures to be released Saturday by Reis Inc., a New York real estate research firm. Apartment vacancies held constant at 5.9% from the previous quarter.
Rent growth remains ahead of where it should be given the economic downturn and slowing wage growth. “That’s giving landlords more power than we’d normally expect to see in the cycle,” says Sam Chandan, chief economist at Reis. At the recession earlier this decade, he notes, “we had declines in rent certainly not on the order of what we’re seeing now.”
Four of 79 markets tracked by Reis showed negative rent growth, all in parts of the country hardest hit by big home prices declines: Miami; Palm Beach, Fla.; Ventura County, Calif., and Detroit. (See charts below)
Rents increased in some strong housing markets, including Seattle and Boston, where tightened mortgage lending terms continue to discourage homeowners. The energy sector helped boost rents in markets across the West, including Denver, which led the nation with 1.9% rental growth. Houston, Oklahoma City and Tulsa, Okla., also posted above-average rental increases.
Reis’s Mr. Chandan suggests that the data show “very preliminary” signs of stabilization in the hardest-hit housing markets in Florida. Vacancies fell in overbuilt housing markets including California’s Inland Empire and Fort Lauderdale, Fla., and California’s Inland Empire, which also posted an above-average rental growth. Rents gained a robust 1.5% in Orlando, Fla.
One big question that remains: When will the shadow market disappear? Analysts say that the most overbuilt housing markets will continue to see homes and condos converted to rentals through 2009. “Given the extent of overbuilding that’s a fairly speedy correction,” says Mr. Chandan.
Others point to the lack of rental demand due to renters who double or triple up or move in with their parents. Lawrence Yun, chief economist for the National Association of Realtors, says that the practice should abate in the short-term, in part because “it’s not sustainable to keep adding roommates.”
Strongest Rent Growth
1 Denver 1.9%
2 Wichita, Kan. 1.9%
3 Syracuse, N.Y. 1.9%
4 Seattle 1.9%
5 Dayton, Ohio 1.7%
6 Tulsa, Okla. 1.7%
7 Louisville, Ky. 1.7%
8 Little Rock, Ark. 1.6%
9 Hartford, Conn. 1.6%
10 Boston 1.6%
Weakest Rent Growth
1 Palm Beach, Fla. -0.40%
2 Miami -0.2
3 Detroit -0.1
4 Ventura County, Calf. -0.1
5 Fort Lauderdale, Fla. 0
6 Tucson, Ariz. 0.2
7 Portland, Ore. 0.3
8 Phoenix 0.3
9 Columbia, S.C. 0.5
10 Northern New Jersey 0.5
Source: Reis Inc.
Saturday, July 05, 2008
How to Screen a for a Deadbeat Renter
Finding Foreclosures, Screening Deadbeats
June Fletcher offers her take on two recently launched sites: RentBureau.com, which helps landlords screen tenants and ForeclosurePoint.com, a listing service.
July 3, 2008 3:08 p.m.
These days, my mailbox is full of press releases announcing new Web sites that purport to help overcome some aspect of the housing crisis.
Here's my take on two that launched just last week.
RentBureau.com: Homeowners who are renting out their homes because they can't sell them have a justifiable fear of getting stuck with a deadbeat. This Web site, launched June 26, uses rental payment history and other proprietary data to predict the likelihood that a rental applicant will pay on time.
The site's producers say they can produce a score for eight out of 10 Americans, regardless of whether or not they are currently renting an apartment. Scores range between 1 and 999, with above 900 considered "good" or better, and those below 850 "risky."
Scoring depends on such factors as the number of times the potential tenant was late paying rent, the number of roomates the tenant had in previous apartments and whether the tenant's landlords had to use collection agencies to get them to pay up. The cost is $9.95 per inquiry, plus a $10 one-time set up fee. Information is updated every day.
I decided to test the service, using the person whose credit status I'm most familiar with -- me. The score came back at 971, a "best" rating, which accurately describes my meticulous bill-paying habits. But it couldn't confirm my current address, where I've lived since 1995. A spokesman for the company said that's because I'm an owner and don't show up in their rental-address database.
While this site can be an invaluable tool for landlords, it's not the only one they should consult. It's advisable to get independent information from the three credit bureaus and to check criminal and sex-offender registries. It's also wise to show low scores to applicants before rejecting them and to allow them to tell their side of the story. If they had a problem with their former landlord over an issue such as a leaky roof or no heat, it's possible that they did pay money into an escrow account while the dispute was being mediated.
The company says renters who receive low scores but have a valid explanation can call to discuss adjustment of the score.
ForeclosurePoint.com: More than a million houses are now in foreclosure, according to the Mortgage Bankers Association, yet finding information on them is a difficult process for the average person. Current options include signing up with a tracking agency like RealtyTrac.com or Foreclosure.com and paying hefty monthly fees; following the disorganized foreclosure listings in local newspapers; making frequent trips to the county courthouse; or working with a local broker who specializes in such transactions.
ForeclosurePoint.com, which debuted on June 25, makes a little dent in this frustrating situation by providing free access to street addresses of foreclosure properties throughout the United States. But that's where the freebies end.
Logging on to the Web site, I was able to pull up 7,737 foreclosures for Fairfax, Va. Drilling down to one of them, a property in upscale Great Falls, Va., I found basic tax-record information like square footage, number of bedrooms and lot size, as well as a "Zestimate" of value from Zillow.
But other information I'd need to make an offer on the property, including auction dates (which are often postponed or cancelled), the purchase status of the property and the estimated equity in it, are only available to so-called "premium members" of the site -- at a monthly cost of $79.95.
It amazes me that lenders and politicians continue to complain about the rapidly growing backlog of foreclosed homes, yet no one seems to be working to create a truly free, comprehensive Web site that has all of the information a person needs to buy one. Doing so would, I think, be a major public service, and put average home buyers more on par with the professionals.
June Fletcher offers her take on two recently launched sites: RentBureau.com, which helps landlords screen tenants and ForeclosurePoint.com, a listing service.
July 3, 2008 3:08 p.m.
These days, my mailbox is full of press releases announcing new Web sites that purport to help overcome some aspect of the housing crisis.
Here's my take on two that launched just last week.
RentBureau.com: Homeowners who are renting out their homes because they can't sell them have a justifiable fear of getting stuck with a deadbeat. This Web site, launched June 26, uses rental payment history and other proprietary data to predict the likelihood that a rental applicant will pay on time.
The site's producers say they can produce a score for eight out of 10 Americans, regardless of whether or not they are currently renting an apartment. Scores range between 1 and 999, with above 900 considered "good" or better, and those below 850 "risky."
Scoring depends on such factors as the number of times the potential tenant was late paying rent, the number of roomates the tenant had in previous apartments and whether the tenant's landlords had to use collection agencies to get them to pay up. The cost is $9.95 per inquiry, plus a $10 one-time set up fee. Information is updated every day.
I decided to test the service, using the person whose credit status I'm most familiar with -- me. The score came back at 971, a "best" rating, which accurately describes my meticulous bill-paying habits. But it couldn't confirm my current address, where I've lived since 1995. A spokesman for the company said that's because I'm an owner and don't show up in their rental-address database.
While this site can be an invaluable tool for landlords, it's not the only one they should consult. It's advisable to get independent information from the three credit bureaus and to check criminal and sex-offender registries. It's also wise to show low scores to applicants before rejecting them and to allow them to tell their side of the story. If they had a problem with their former landlord over an issue such as a leaky roof or no heat, it's possible that they did pay money into an escrow account while the dispute was being mediated.
The company says renters who receive low scores but have a valid explanation can call to discuss adjustment of the score.
ForeclosurePoint.com: More than a million houses are now in foreclosure, according to the Mortgage Bankers Association, yet finding information on them is a difficult process for the average person. Current options include signing up with a tracking agency like RealtyTrac.com or Foreclosure.com and paying hefty monthly fees; following the disorganized foreclosure listings in local newspapers; making frequent trips to the county courthouse; or working with a local broker who specializes in such transactions.
ForeclosurePoint.com, which debuted on June 25, makes a little dent in this frustrating situation by providing free access to street addresses of foreclosure properties throughout the United States. But that's where the freebies end.
Logging on to the Web site, I was able to pull up 7,737 foreclosures for Fairfax, Va. Drilling down to one of them, a property in upscale Great Falls, Va., I found basic tax-record information like square footage, number of bedrooms and lot size, as well as a "Zestimate" of value from Zillow.
But other information I'd need to make an offer on the property, including auction dates (which are often postponed or cancelled), the purchase status of the property and the estimated equity in it, are only available to so-called "premium members" of the site -- at a monthly cost of $79.95.
It amazes me that lenders and politicians continue to complain about the rapidly growing backlog of foreclosed homes, yet no one seems to be working to create a truly free, comprehensive Web site that has all of the information a person needs to buy one. Doing so would, I think, be a major public service, and put average home buyers more on par with the professionals.
Wednesday, July 02, 2008
Justifying the Decision to Build a New Home
Even with a growing array of homes for sale at lower prices, costs of starting from scratch still work out.
By NANCY KEATES June 17, 2008 10:50 a.m.
An economist might deem the opportunity cost of building versus buying a house right now to be unacceptably high. And judging from emails I have received, so do some of my readers.
With the U.S. in a housing slump there's an ever growing array of homes for sale at lower prices. Meanwhile, prices for supplies like steel and nails continue to increase, driven higher by demand from construction in countries like China and India. Rising fuel prices are also pushing up transportation and production costs.
Just last week a house went on the market I would love to buy – at a price we could afford. I know this because my husband and I continue to obsessively (though separately and slightly furtively) scan local listings. Yet there is no going back now: The cement for our foundation is poured and framing will start at the end of next week. We are excited to see a year of design work take physical form. We know our house will be better for us because we have had the opportunity to help create it.
Maybe I am only trying to justify our decision. But it seems to me that the key to continued sanity for a new homebuilder in the current environment is to think about the future. The country will eventually come out of its current housing slump. And when it does, the cost and the hassle of building could be higher than now. Just look at what happened in the mid-1990s, when the housing market rebounded from a slowdown, lumber prices soared and contractors didn't return phone calls.
I feel confident that Portland Ore., where we are building our new house, will come out particularly strong. There is an 80% chance that the metro population will be 3.5 million to 4.1 million by 2060 – almost double the 2007 population of 2.2 million -- according to Portland State University's Center for Population Studies.
While the cost of building a new home continues to increase – up 2.4% in 2007 from 2006, according to the U.S. Bureau of Labor Statistics -- the rate of increase is sharply lower than the 6.4% increase in cost the year before. The same holds true for maintenance and repair: While the costs grew 3.8% in 2007, the rate of increase was less than the 8.0% rise in 2006. When the market picks up again – and it will – the rate of increase will accelerate again.
Of course, housing data still looks grim. In May housing starts fell 3.3% to a seasonally adjusted 975,000 annual rate, the Commerce Department said Tuesday. But with unemployment high that means more workers are available. With contractors having fewer opportunities, our job will get more attention. When the market starts to pick up again, that may not be true.
I have friends who built at the peak of new construction in 2004 and 2005, and who had a hard time finding the project managers assigned to their homes.
Subcontractors were unreliable because they were in such demand. One woman in my neighborhood waited a month to get an asphalt guy to redo her driveway. Another says her contractor was involved in 10 other projects at the time he was building her house. Because of competition, materials had to be backordered far in advance. There were fights over particular slabs of granite, a stone cutter tells me that she would have to meet clients at 8:00 a.m., to make sure they got first dibs on a new shipment.
We haven't experienced any of this. Work on our house is progressing ahead of schedule, with construction expected to be finished June 5, 2009 – two months earlier than estimated.
While prices for materials are still rising overall, some materials are much cheaper than they were just a few years ago – and contractors are more confident about negotiating for a better deal. Still, analysts say the minute the housing market picks up again material costs will soar.
Take lumber, which, with framing and siding, makes up a significant portion of a new home.
According to a Eugene, Ore., organization called Random Lengths, which publishes weekly price reports for wood products, the most recent price for framing lumber was $238 per thousand square feet – that's compared to $304 a year ago and around $496 in 2004.
Even significantly higher gas prices will have a minimal impact on lumber pricing, says Stuart J. Benway, who analyzes the industry for Standard & Poor's. Though lumber is transported by trucks, it also relies heavily on trains. And the effect of the decline in housing is larger than the increase in transport costs. Demand for forest products is highly dependent on the construction industry, especially the home construction and remodeling.
Fuel prices have driven some materials sharply higher – those that require a lot of energy in production and transportation, says Bernie Markstein, a senior economist at the National Association of Home Builders in Washington. Add to that a growth in world demand from building projects in China and India, and there's been acceleration in steel, nails, insulation, aluminum, asphalt, concrete, copper and brass fittings.
We will do what we can to adapt: We can avoid all copper and brass fixtures and plumbing and try to reduce the amount of asphalt we use. But there are still some bright spots. Prices for ceramic floor and wall tiles actually fell 0.2% in 2007 from a year earlier. Maybe we should tile the guest bathroom after all…
Even with a growing array of homes for sale at lower prices, costs of starting from scratch still work out.
By NANCY KEATES June 17, 2008 10:50 a.m.
An economist might deem the opportunity cost of building versus buying a house right now to be unacceptably high. And judging from emails I have received, so do some of my readers.
With the U.S. in a housing slump there's an ever growing array of homes for sale at lower prices. Meanwhile, prices for supplies like steel and nails continue to increase, driven higher by demand from construction in countries like China and India. Rising fuel prices are also pushing up transportation and production costs.
Just last week a house went on the market I would love to buy – at a price we could afford. I know this because my husband and I continue to obsessively (though separately and slightly furtively) scan local listings. Yet there is no going back now: The cement for our foundation is poured and framing will start at the end of next week. We are excited to see a year of design work take physical form. We know our house will be better for us because we have had the opportunity to help create it.
Maybe I am only trying to justify our decision. But it seems to me that the key to continued sanity for a new homebuilder in the current environment is to think about the future. The country will eventually come out of its current housing slump. And when it does, the cost and the hassle of building could be higher than now. Just look at what happened in the mid-1990s, when the housing market rebounded from a slowdown, lumber prices soared and contractors didn't return phone calls.
I feel confident that Portland Ore., where we are building our new house, will come out particularly strong. There is an 80% chance that the metro population will be 3.5 million to 4.1 million by 2060 – almost double the 2007 population of 2.2 million -- according to Portland State University's Center for Population Studies.
While the cost of building a new home continues to increase – up 2.4% in 2007 from 2006, according to the U.S. Bureau of Labor Statistics -- the rate of increase is sharply lower than the 6.4% increase in cost the year before. The same holds true for maintenance and repair: While the costs grew 3.8% in 2007, the rate of increase was less than the 8.0% rise in 2006. When the market picks up again – and it will – the rate of increase will accelerate again.
Of course, housing data still looks grim. In May housing starts fell 3.3% to a seasonally adjusted 975,000 annual rate, the Commerce Department said Tuesday. But with unemployment high that means more workers are available. With contractors having fewer opportunities, our job will get more attention. When the market starts to pick up again, that may not be true.
I have friends who built at the peak of new construction in 2004 and 2005, and who had a hard time finding the project managers assigned to their homes.
Subcontractors were unreliable because they were in such demand. One woman in my neighborhood waited a month to get an asphalt guy to redo her driveway. Another says her contractor was involved in 10 other projects at the time he was building her house. Because of competition, materials had to be backordered far in advance. There were fights over particular slabs of granite, a stone cutter tells me that she would have to meet clients at 8:00 a.m., to make sure they got first dibs on a new shipment.
We haven't experienced any of this. Work on our house is progressing ahead of schedule, with construction expected to be finished June 5, 2009 – two months earlier than estimated.
While prices for materials are still rising overall, some materials are much cheaper than they were just a few years ago – and contractors are more confident about negotiating for a better deal. Still, analysts say the minute the housing market picks up again material costs will soar.
Take lumber, which, with framing and siding, makes up a significant portion of a new home.
According to a Eugene, Ore., organization called Random Lengths, which publishes weekly price reports for wood products, the most recent price for framing lumber was $238 per thousand square feet – that's compared to $304 a year ago and around $496 in 2004.
Even significantly higher gas prices will have a minimal impact on lumber pricing, says Stuart J. Benway, who analyzes the industry for Standard & Poor's. Though lumber is transported by trucks, it also relies heavily on trains. And the effect of the decline in housing is larger than the increase in transport costs. Demand for forest products is highly dependent on the construction industry, especially the home construction and remodeling.
Fuel prices have driven some materials sharply higher – those that require a lot of energy in production and transportation, says Bernie Markstein, a senior economist at the National Association of Home Builders in Washington. Add to that a growth in world demand from building projects in China and India, and there's been acceleration in steel, nails, insulation, aluminum, asphalt, concrete, copper and brass fittings.
We will do what we can to adapt: We can avoid all copper and brass fixtures and plumbing and try to reduce the amount of asphalt we use. But there are still some bright spots. Prices for ceramic floor and wall tiles actually fell 0.2% in 2007 from a year earlier. Maybe we should tile the guest bathroom after all…
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