From Nimby* to Banana**--The Challenge for Developers

Peter Coy

Opposition to development of single-family homes and condominiums decreased a bit in the latest survey of residents' attitudes by Boston-based Saint Consulting Group. Here's a long excerpt from its press release about the Saint Index:

Some development sectors in the 2006 survey have encountered LESS opposition this year - that is, opposition continues but to a lesser extent than in 2005:

Apartments/condominiums - 34% opposed [down from 48% last year]
Casinos - 67% opposed [down from 80%]
Grocery stores - 25% opposed [down from 33%]
Office buildings - 40% opposed [down from 47%]
Large shopping centers - 57% opposed [down from 62%]
Single-family housing - 6% opposed [down from 13%]
Some sections remain as equally opposed this year as last, tending to more opposition:

Home improvement centers - 56% in 2006, 55% in 2005
Department stores - 55% in 2006, 53% in 2005
However, some sectors face EVEN MORE opposition than in the 2005 Saint Index:

Biotech research - 57% opposed [up from 48% last year]
Landfills - 87% opposed [up from 82% last year]
Power plants - 75% opposed [up from 66%]
Quarries - 76% opposed [up from 63%]
Wal-Mart - 68% opposed [up from 63%]. In point of fact, 61% of those polled say they like the big-box experience, but not in their own community.

*Nimby: not in my backyard
**Banana: Build absolutely nothing anywhere near anybody

The South and the West Will Go Grayer Faster

Peter Coy

As boomers "age in place" and new ones move in, the Sun Belt and Western states will age much faster than the Rust Belt and the Plains states. That's the prediction of Brookings Institution demographer William H. Frey in a new 108-page study for the Mortgage Bankers Association's Research Institute for Housing America.

With so much population growth in the Sun Belt and Western states, you might think those regions would have increasingly more dynamic and younger populations. It's true that, Florida aside, their populations are ounger now. But Frey says that people who have moved there in the past are staying and aging, while retirees are continuing to flood in from places like New York and Illinois. As for the Rust Belt and Plains states, their big aged populations aren't getting bigger--in fact, the oldest of the old are dying off.

The result: Frey predicts that the population of those 65 and older will increase less than 10% from 2000 to 2010 in the following states: Massachusetts, Rhode Island, New York, Pennsylvania, West Virginia, Ohio, Michigan, Illinois, Missouri, Iowa, North and South Dakota, Nebraska, Kansas, and Oklahoma.

At the other extreme, Frey predicts growth of more than 25% in the 65+ age group in the following states: Virginia, South Carolina, Georgia, Texas, New Mexico, Arizona, Nevada, Wyoming, and Alaska.

Frey's study has lots of other predictions about suburbs, Hispanic and Asian immigrants, etc. It's worth checking out.

Antitrust Suit Against Realtors Moves Forward

Peter Coy

There was big news this week in the government's antitrust case against the National Association of Realtors, but the press missed it. The news is that a federal court in Chicago on Nov. 27 allowed the Department of Justice's antitrust suit against the Realtors to proceed. The DOJ argues that the Realtors' rules illegally limit competition from brokers who use the Internet. The Realtors deny they're breaking any laws.

Here's a (long) excerpt from the government's press release:

"The brokers that NAR targeted with its rules operate password-protected Web sites through which they provide information, including property listings, to their customers, potential home buyers. These are sometimes called "virtual office websites" or "VOWs," because a broker operating such a site is able to provide customers with the same property listing information on-line that customers can obtain by visiting the "brick-and-mortar" office of a traditional broker."

"Consumers who work with brokers that operate VOWs are better able to educate themselves about available properties that may meet their requirements. By working with a VOW broker, customers can search the database of local property listings on their own, using their home computers to obtain the same information other brokers provide by less convenient means, such as by hand at their office or via fax, mail or e-mail. Because VOWs enable consumers to research and learn about the marketplace at their own pace and on their own time, brokers who provide this service can, in turn, lower their costs by reducing the time that their agents spend searching the Multiple Listing Service (MLS) database or showing homes the customer dislikes, the Department alleged. Because the Internet can be used to deliver brokerage services more efficiently ­ resulting in better service and lower prices to consumers ­ brokers who utilize the Internet represent a competitive challenge to traditional brokers, the Department said."

"NAR's policy enables traditional brokers to exercise an "opt out" right to block their competitors' customers from having full on-line access to all of the MLS's listings. When exercised, the opt-out provision prevents VOW brokers from providing all MLS listings that respond to a customer's search, effectively inhibiting the new technology. The Department alleges in its lawsuit that these policies significantly alter the rules that govern MLSs by permitting traditional brokers to discriminate against other brokers based on their business model, denying them the full benefits of MLS participation. The Department's lawsuit seeks to ensure that traditional brokers cannot use NAR's policy to deprive consumers of the benefits of these new ways of competing."

Strikes me that the court letting the suit go ahead is pretty big news. But I used the Factiva news retrieval service today and couldn't find a single mention in any of the thousands of publications it collects. There was a small handful of online news stories and blog entries.

Here's the court's opinion. And here's the press release from the trustbusters at Justice.

Another Surprise on Rising Home Prices

Peter Coy

Attention, everyone who thinks Zillow knows zippo about home valuations (read some recent blog comments here and here): It ain't just Zillow that's saying home values are up.

Check out this announcement today from the Office of Federal Housing Enterprise Oversight, the organization that oversees mortgage-buying giants Fannie Mae and Freddie Mac. OFHEO (pronounced "oh-FAY-oh") says that single-family house prices were 7.7% higher in the third quarter of 2006 than one year earlier.* It said they grew at an annual rate of about 3.5% from the second to the third quarter of 2006. A slowdown, but not a decline.

There were declines from the second to the third quarter in only five states: New York, Rhode Island, New Hampshire, Michigan, and Massachusetts. And only Michigan was lower than a year earlier.

Idaho, Utah, Oregon, and Arizona were all up 16% to 17% from a year earlier.

Kind of amazing, when the Census Bureau and National Assn. of Realtor numbers show prices flat to falling. There are a couple of explanations. One is that the OFHEO index covers only single-family, detached homes with conforming mortgages, which currently are around $400,000 or less.

A more interesting difference is that the NAR figures, in particular, have been skewed downward by a change in the mix of homes being sold. When more cheap homes are sold, it pulls down the median sales price. OFHEO uses a statistical method to compare prices as particular homes are sold and resold over the years, avoiding the mix problem.

The OFHEO numbers are consistent with the S&P/Case-Shiller Home Price Indices released Nov. 28, which showed that prices in 10 major markets rose 3.7% in September from a year earlier.

*Asterisk for those who care: The OFHEO index uses valuations reported in refinancings as well as in sales. That number is influenced by overstatement of valuations. OFHEO's purchase-only index shows a 6% increase from a year earlier rather than 7.7%.

The Next AOL?

Chris Palmeri

America Online founder Steve Case seemed to have put himself out to pasture not long after engineering his company’s disastrous merger with Time Warner.
But the 48 year entrepreneur has been making a comeback of late with a string of new investments in the health and travel arena. His latest: Miraval Living, a Manhattan condo project modeled after his Miraval Life in Balance spa in Tucson, Arizona. Case hopes to help and encourage residents of the 40-story Upper East Side building "to live with more balance and vitality in their lives.”

He’ll do this, according to a press release, through amenities such as a Miraval Advisor, who’ll help residents create a customized program from the over 100 programs and classes, everything from rock climbing to children’s painting. The facilities will include an almost 20,000 square foot garden, spa and fitness center, as well as a café with vegetarian and organic food. The air and water will be cleaned with eco-friendly air filters, paints will emit the absolute minimum amount of volatile compounds and there will be a chlorine-free swimming pool. All this bliss won’t come cheap, as much as $3 million for a three-bedroom residence. It’s all part of trend some have dubbed, “spadominiums.” Leave it to Case to get in early on a trend.

Home Values Are Up. Repeat: Up

Peter Coy

Would you believe that home values are up?

According to Zillow.com, home values rose 4.8% in the third quarter in the 36 major metropolitan areas covered by its Zindex. That may come as a surprise if you've been reading about falling sales prices, but there's a good explanation for the discrepancy. I think that while Zillow's number may make things look a little better than they really are, the median sales price numbers from the Census Bureau and the National Assn. of Realtors probably make things look a little worse than they really are.

Obviously one difference is that the Zindex covers just 36 metro areas, not the whole country. But the more interesting difference is that Zillow's index includes updated estimates of the values of all homes in an area, not just the ones that were sold. That's important because the sales price indexes can be skewed by changes in the mix of homes sold in a period. If for some reason there are relatively few high-priced homes sold during a quarter, that will skew a sales price median downward.

This ain't just some technical debate. Richard Berner of Morgan Stanley, who argues that housing will "rust not bust," points out a big skew in the Census Bureau's widely quoted figure of a 9.7% decline in median new-home prices from September 2005 to September 2006. As Berner points out, the sales of new homes priced between $300,000 and $400,000 fell 44% over the past year, while sales of those priced under $300,000 fell only zero to 20%, depending on the price bucket. In other words, the sales mix shifted to cheaper homes, and that pulled down the median.

Zillow's Zindex isn't the only measure out there that corrects for this mix problem. The Office of Federal Housing Enterprise Oversight index and the S&P Case-Shiller index do, too. But it's a good one to pay attention to.

(One other thing. This blog has gotten lots of complaints from homeowners who say that the Zestimates for their own houses are wrong. Whenever a house is sold, Zillow checks how close its value estimate was to the actual sales price. It says that in 62% of cases, the estimate was within 10% of the actual sales price. Not bad.)

Gobble, Gobble, Gobble. The Good News for Construction Workers

Peter Coy

The housing market is a turkey, but construction workers have plenty to be thankful for this holiday. Surprisingly, construction employment has fallen only a tiny bit by one measure and actually risen a lot by another. One explanation: Non-residential construction has taken up the slack from residential construction.

Here are the amazing stats, quoting a report yesterday from Goldman, Sachs & Co.

"Construction employment according to the establishment survey—which captures employees on company payrolls but excludes the self-employed—has fallen by a negligible 12,000 over the past three months. Construction employment according to the household survey—which includes both employees and self-employed workers—has risen by 292,000 over the same period. This has the startling implication that roughly half of the decline in the unemployment rate from 4.8% in July to 4.4% in October was due to employment growth in the construction sector!"

Read what the American Institute of Architects said today:

Following housing construction numbers from the Department of Commerce that dropped to their lowest level in over six years, the Architecture Billings Index (ABI), a leading economic indicator of construction activity, continued along the path of modest growth in October. Sustained demand for nonresidential projects should continue to offset the lagging housing market’s effect on the overall economy, and future growth in construction activity will come primarily from the commercial / industrial and institutional markets.

Things could be getting worse, though. Goldman, for one, is less sanguine about the future:

Continue reading "Gobble, Gobble, Gobble. The Good News for Construction Workers"

Building A New New Orleans

Chris Palmeri

The Big Easy has never been known for speed. The city so devastated by Hurricane Katrina is only slowly recovering. But city leaders want to make sure what comes next is better than before. New Orleans native Sean Cummings is leading a charge to redevelop the waterfront.

Yesterday he announced an agreement with the port to find new uses for four miles of riverfront adjacent to the Hilton hotel, some of the city's highest ground. Cummings will soon be meeting with architects, including Frank Gehry, to come up with a master plan for the site that he says may include a music hall, a culinary school, a chapel, cruise ship terminal, even an institute that would study water. "We’re trying to get New Orleans to play on the world stage," Cummings says. "It may be the biggest addition to the city since the French Quarter." It'll be another year before the planning is done and request for proposals could go out to private developers. But one day down the road, the city's ten million visitors could find something bigger in the Big Easy.

This Just In From Boston ... Prices "Could Keep Increasing"

Peter Coy

Mild optimism on housing out of Boston today. The Federal Reserve Bank of Boston issued a 34-page brief (only an economist would call 34 pages "brief") saying that "the national OFHEO house price index could keep increasing well into 2007."

The OFHEO index they're talking about is put out by the Office of Federal Housing Enterprise Oversight every three months. The latest reading in September said that the national median single-family house price rose at a 4.7% annual rate between the first and second quarters of 2006, which was a sharp slowdown from earlier double-digit growth rates.

Note, by the way, the "could" in the above quote. The Boston Fed is playing it extremely safe. Here's another quote from the intro:

"Because house prices are subject to inexplicable movements, this conclusion should be viewed as a plausible extrapolation using historical evidence rather than a forecast. An additional caveat is that mortgage markets and other institutional factors may have changed sufficiently so as to alter the relationship between house prices and the economy ...."

What makes the Boston Fed at least mildly positive on the market? Looking at housing cycles state by state, senior economist Yolanda K. Kodrzyicki and research associate Nelson Gerew conclude that "house prices have rarely decreased in the absence of a state recession."

Here's the tentative bottom line: "Assuming continued increases in personal incomes, an increase in mortgage rates in 2006, and flat apartment rates, an extrapolation suggests that national house price increases are likely to be in the range of 1 to 3 percent in 2006 and 2 to 5 percent in 2007."

High Profits Even in Slumping Markets

Chris Palmeri

In October, the average San Diego home sold for $485,000, a 5.5% decline from October of 2005. The actual number of homes sold was down 21% year-over-year. But that doesn't mean all those sellers were losers. Hardly. According to research from First American Real Estate Solutions, a real estate data unit of title insurer First American, the average home seller in San Diego made a profit of $243,000 that month. That's the different between the price they bought it at, five years ago on average, and what they sold it for today. First American calcuates that only 6% of San Diego sellers lost money on their homes, most likely because they bought it in just the past year. The story looks even better in other parts of Southern California where home prices have held up better than San Diego. In San Bernadino County, east of Los Angeles, the average home seller made a $203,000 profit on the typical $360,000 home. That's an average annual return of 25% over the four-year average holding period. The First American data is a reminder that many people still have a tremendous amount of equity in their homes, even if some their neighbors have had to lower their asking prices.

Housing Slump Drags Down Productivity

Peter Coy

Economists were dismayed when the government announced recently that there was no increase in labor productivity in the nonfarm business sector in the third quarter. Now, one economist is fingering an interesting culprit: housing.

Here's the idea: Construction has fallen drastically. But the builders haven't cut payrolls much yet. That means the output per hour worked in the homebuilding sector--i.e., productivity--has fallen. According to Andrew Tilton of Goldman, Sachs & Co., that one change could explain more than a full percentage point of decline in the growth rate of nonfarm business productivity.

Here's Tilton from a report today:

This suggests the industry continues to employ far too many workers, and aggressive job cuts in this industry may eventually result as firms try to bring capacity into line with demand—leading to a weaker labor market overall.

Reports of Mortgage Fraud Are Way Up

Peter Coy

The Treasury Dept.'s Financial Crimes Enforcement Network recently announced that "suspected mortgage loan fraud in the United States continues to rise, and has risen 35 percent in the past year." [Update: Treasury says it can't tell how much of the increase is an actual change vs. more thorough reporting. Thanks to Matt Carter of Inman News for pointing that out to me.]

Here's a link to its 21-page report.

Crimes range from identity theft to falsified credit scores to "silent seconds," where buyers borrow their downpayments but don't reveal that to the primary lender.

Now that the tide in the housing market is going out, all the junk is showing up on the beach.

An Appraiser's Take on the Zillow Controversy

Peter Coy

Maybe you heard that a coalition of community activist groups is accusing Zillow.com of misvaluing homes in black and Latino neighborhoods. It's asking the Federal Trade Commission to investigate. Zillow denies the charges.

The New York Times carried a story Oct. 31 saying that National Community Reinvestment Coalition accused Zillow of systematically undervaluing homes, but in fact the coalition accused Zillow in its press release of both "over and under valuations." I guess mistakes in both directions can be problems in low-income neighborhoods, depending on the circumstances.

Here's what a New York City appraiser, Jonathan Miller, has to say about the controversy on his blog.

... And here's what Zillow itself has to say on its blog.

Are There Haunted Houses on Your Street?

Peter Coy

Tonight, look for the telltale signs that houses on your street are haunted.

No, not the toothless guy in the attic window, swinging a lantern and cackling madly. I'm talking about the for-sale sign out front with the "just reduced" banner across it. The strangely empty living room, because all the family's income is paying the recently reset mortgage instead of buying furniture. The brochure for the house that they hand out to trick-or-treaters.

David Rosenberg of Merrill Lynch says that at least 10 million households who bought since the summer of 2005 are now underwater on their investments. So if the people who open the door tonight when you come knocking look like they're quietly drowning--maybe they really are.

Credit Where Credit Is Due

Peter Coy

The banking system is stacked against mortgage applicants who have scanty formal credit history--”thin files,” in banker lingo. They might have done fine if they got a normal loan. But because they’re often shunted into subprime loans with superhigh interest rates, their monthly payments are so high that many end up defaulting.

A coalition of forces in home lending is trying to fix that problem by helping worthy “thin file” families get prime mortgage loans. Step one is to help lenders take into account evidence of borrowers’ trustworthiness that they currently ignore, such as a history of paying the rent, utilities, insurance, and child care on time. Step two, after the loan is made, is to counsel borrowers to make sure they stay current.

The non-profit Neighborhood Housing Services of America (NHSA) has done something like this for about 25 years, but the process wasn’t automated so costs were high. Recently, First American Corp. examined NHSA’s loan-servicing history and distilled its rules of thumb into a fast, automated credit-scoring system called Anthem that takes into account neglected factors like bill-paying behavior. And on Oct. 24, State Farm announced that it would buy up to $100 million worth of mortgages issued by NHSA using the new system.

That’s just a start: The partners are hoping that once they prove that thin-file loans can be good business, more mainstream lenders and mortgage buyers like Fannie Mae Corp. and Freddie Mac Corp. will dive in. The goal? More loans, more homeownership, fewer defaults.