Job Formation
As employment trends worsen and as housing heads another leg downward, authorities are digging in to their old bags of tricks for new jobs and skill sets that meet the needs of the time.
The New York Times reports, “Real Estate Crime Unit Established in Brooklyn.”
Brooklyn DA Charles H. Hynes
[Brooklyn, NY] district attorney, Charles J. Hynes, says the time has come for a specialized unit to investigate and prosecute them [real estate crimes].
The need for such an office has been building, Mr. Hynes said, announcing the new unit on Friday. As foreclosure rates have sharply risen in central Brooklyn neighborhoods like Bedford-Stuyvesant, Mr. Hynes’s office, with limited resources, has been forced to turn down real estate investigations, and instead has referred victims to civil court or relied on federal prosecutors, who generally concentrate on larger schemes.
Mr. Hynes said the new 12-member unit would be financed for two years with $875,000 in federal money and would help people like Levi Latham, 75, a Brooklyn retiree whose house was, in effect, stolen by a woman who took Mr. Latham’s personal information, a prosecutor said. After executing and recording a false deed, the woman is now listed as the owner of the house.
Our parents and grandparents told us times were hard during the 1930s, but we also may have gotten the impression that people pulled together and found ways to help one another during the Depression. We’re waiting to see evidence that this may occur during the current economic stretch.
Foreclosure Fluency the USA Today Way
35 U.S. counties are responsible for one out of two–or 1.5 million–foreclosure actions in 2008, per a USA Today analysis of RealtyTrak data. Great Flash infographic maps show the velocity of the foreclosure tsunami as it engulfed Rust Belt cities and bubble-market centers in the Southwest and Calilfornia in the two years from 2006 to 2008.
“This crisis was triggered by foreclosures, and a lot of those were in a very small number of areas,” says William Lucy, a University of Virginia professor who has studied the link between lenders and faltering home loans. Banks spread the risk and “it became like a car with no reverse gear. Once it starts to go over the cliff, it’s gone.”
In other parts of the country, the foreclosure wave was barely a ripple — at least until it started swamping major banks that had invested heavily in mortgages. Banking giant Wachovia Corp., for example, was hammered after California and Florida customers of one mortgage firm it bought began defaulting at high rates. The risks of such lending were spread so broadly among financial institutions that, when the loans went bad, it drove the national credit crisis, says Christopher Mayer, who studies real estate at Columbia Business School.
Banks are at the nexus of the problem because their fully compromised investment in real estate has both a home mortgage and a commercial acquisition, construction and development dimension to the startling erosion of their capital base.
The weakening and ultimate failure of many banks burns housing on the non-for-sale side even though many of the multifamily for-rent companies interacting with lenders have maintained surer footing with their construction and development loans to date.
Multifamily Executive magazine senior editor Christopher Wood maps out two indirect but nasty impacts a pulverized lending and credit environment has on multifamily housing players in his article, “Bank Failures Expected to Continue: Multifamily is likely to suffer more indirect damage as financial stabilization efforts arrive too late to save lenders with high residential mortgage exposure.”
One indirect ramification is that–despite the fact that much of multifamily’s financing need is met from government sponsored entity and Wall Street funding–any curtailment in local bank funding pipelines through as a shrunken pool of capital to draw from. The other consequential effect of bank failures on multifamily is job loss, which whacks every part of every economy.
Here’s an excerpt from Wood’s analysis.
Matthew McManus: Click for access to bio. Note: No relation to Housingcrisis blog author.
“Notwithstanding those five- to 10-unit properties where a lot of local banks might have taken on deals, the vast majority of multifamily over the past 10 years has been financed through the agencies or through Wall Street,” says Matt McManus, chairman of NAI BlueStone Real Estate Capital, a Philadelphia-based commercial real estate investment banking and advisory firm that secures debt, mezzanine, equity, and sponsor equity financing for investors, operators, owners, and developers
“I don’t think that there is enough exposure to banks that the number of banks that are failing are going to really have any impact to the multifamily industry,” McManus continues. “But indirectly, whatever bank goes under, there are a few less dollars that can be loaned out to job-creating vehicles.”
Regional unemployment figures catalyzed by bank failure are certain to hit multifamily operators already struggling with tough property fundamentals. “The broader impact is being felt very clearly in higher vacancy rates and falling rents,” says report author Anderson. “But the other 800-pound gorilla is what happens with commercial [and multifamily] real estate. So far, multifamily delinquencies and defaults have not been that bad, but they have spiked significantly upward. By our calculations, there is $210 million in multifamily mortgages coming due between now and 2011. Quite a bit of that will face some difficulty in getting funded, despite the activity of the GSEs.”
Indeed, McManus reports a wide disparity between Freddie Mac re-financing terms and what is readily available in the market for a Class A stabilized apartment property in Philadelphia. “We can’t find a bank that is within 80 percent of Freddie Mac’s proceeds,” McManus says. “That’s how conservative banks are being today. They underwrite to shorter amortizations, higher debt service ratios, and sometimes artificially high constants to make a 60 percent LTV-type loan versus a 75 percent or 80 percent LTV.”
Not Pretty Pictures of the Housing Crisis
This article in the New York Times draws several conclusions. Unfortunately for readers of the story, the conclusions conflict, and negate insight.
- The headline revelation is that spring selling season has officially been cancelled
So this March-to-June season, when most homes are bought and sold, will be bad, perhaps the worst since the market began to spiral down in 2006.
Across the nation, 19 million houses and apartments — nearly one out of every seven — are vacant, the highest percentage since the 1960s. But only about six million of those homes are for sale or for rent. That means millions more could still flood onto the market, depressing prices further.
- The story swings over to touch on President Obama’s housing policy initiatives, and the fact that they’ll play out in an environment so inimical that the housing plans will get eaten for lunch.
On Wednesday, the Obama administration announced details of a plan that will pay banks to lower monthly payments for troubled borrowers, hoping to avert millions of foreclosures and keep more homes occupied. Despite that effort, most analysts expect the outlook to worsen.
- Next, the story asserts that even though it has cancelled the spring selling season due to consumer and commercial credit disruptions, homes are selling up a storm in markets where prices have corrected.
In inland areas of California, for instance, sales are surging now that prices have fallen sharply. But most of the sellers are not individuals but rather banks that foreclosed on homeowners who could not or would not pay their mortgages.
- We’re supposed to glean intelligence from reporting that some markets’ delcine lagged that of the bellwether bubble markets’ fall. The interpretation and analysis is not of the local job dynamics and broader business dislocations that account for the way San Francisco and New York markets have taken a recent beating, but simply that they took longer to succumb.
New York is not alone. Real estate sales have also slumped in cities like San Francisco and Seattle, which previously seemed impervious. California’s recent experience might offer one roadmap of how the housing slump will play out in other places. But the process will be painful and slow.
- One wonders which question Zelman & Associates CEO Ivy Zelman actually answered when she responded with her quote, “You are really looking at a very, very ugly outlook.”
If home sales are surging where house prices have corrected, and home sales have stalled where prices have not corrected, what is that saying?
Does it suggest that sellers of new and existing might take control of their own destiny in this dynamic? If foreclosure prices can move buyers off the sidelines, and if the second-tier foreclosure flip from investor to home purchaser can get buyers to move, why is the conclusion that there will be no spring selling season?
The conclusion could be that home builders and developers are going to have to short-sell a lot of their inventory and deal with a lot of red ink for the market to clear.
The limbo housing is in is largely self-induced, and will have to self-resolve.
The populace will be part of that resolution because the populace became part of the bubble. There’s a tax penalty for becoming part of the bubble and we’re going to learn how big the penalty is for what we began to take for granted when times boomed.
Meanwhile, April 2009 may be a low point for those who are trying to work through what they hold in assets to gain cash enough to work through more tomorrow. But it’s not because the NY Times has drawn attention to this issue. It’s because structural issues–prices, credit, job trends, household spending, household formations, etc.–have locked into a negative feedback loop or a “downward spiral” and this is part of a storyline that housing veterans have seen before.
They don’t call it “very, very ugly.” They call it a tough but inevitable part of doing business in new residential real estate.
Have a look at the Times’ ”very, very, ugly” infographic.
Click on image for larger NY Times version of the information.
This is a technical analysis. We don’t believe real estate markets obey technical analyses. We believe uncertainty clouds the bottom, but that price-correction will be the only solid floor for housing.
Job Aches and Labor Pain
One four-letter word. Jobs.
Find out why Calculated Risk looks at the numbers and concludes:
Year over year employment is strongly negative (there were 4.2 million fewer Americans employed in Feb 2009 than in Feb 2008). This is another extremely weak employment report …
We’re big fans of the Zandi man, so we wanted to share this link to CNBC’s tee-up of the jobs report this morning. [we'll have the player up later].
Jobs Data Whoa-ful
ADP and Challenger, Gray & Christmas, Inc. jobs data surfaced today, in advance of the Bureau of Labor Statistics release on February jobs and unemployment trends on Friday.
The Wall Street Journal toplines the story this way.
Private sector jobs fell 697,000 in the U.S. in February, according to a national employment report published Wednesday by payroll giant Automatic Data Processing Inc. and consultancy Macroeconomic Advisers.
That’s higher than the 630,000 loss forecast in a Dow Jones Newswires survey, and would be the largest number of jobs lost in one month during this recession. The figure for January was revised to show 614,000 jobs lost, compared with the initial figure of 522,000.
Here’s CNBC’s report, with commentary from Joel Prakken, CEO of Macroeconomic Advisors, on ADP’s overshoot of economists’ expectations on job losses.
Trust Calculated Risk for a take that will provoke rabid agreement, disagreement, and rat-a-tat gleeful distemper among the blog’s loyal hord of Riskalantes.
Then, again, for even more relevant take-away on the more direct implications of ADP numbers have in residential construction, remodeling, design, and real estate sales, etc., have a look at a Mish’s Global Economic Trend Analysis post on the issue.
Since ADP dwells as a payroll services provider in the world of small to medium-sized businesses, Mish rightly points out the advantages and flaws of the data as a benchmark.
Medium sized businesses, defined as 50-499 employees are now leading the decline in jobs lost as of summer 2008. Small sized companies (1-49) employees were hanging very tough until July 2008. That is no longer the case.
What are most of the companies in the residential and light commercial real estate space? Small to medium sized companies. This is where there’s a lot of hurt going on in the housing crisis landscape.
As Toll Rolls, Others May Follow
There are bigger public home builders than Toll Brothers, and there are certainly ones with more mainstream product offerings and conventional business models. Why is it, then, that the financial markets and the media regard Toll as the canary in the coal mine among home builders?
For one, it’s arguably the best known brand name in home building. And if that point is debatable from a national perspective, it’s hardly in question when one shrinks the geography to the northeast corridor of the United States. There’s likely to be a significant correlation between owners of Toll Brothers homes and denizens of Wall Street. It’s a name that simply means home building for many of the investor breed. The world may be Freidman flat, but many of its residents are parochially focused, which still means that West of the Hudson is that wide unknown expanse that is like a foreign concept to many Wall Street players. Which makes Toll the go-to home builder.
What’s more, it has a fiscal year that gets out of the gate Oct. 1, so its financials always seem to be a step ahead of most of the rest of the class. Not to mention Bob Toll, the patriarch of the 42 year old company. Bob opens his mouth, and people listen. Why? He’s funny, and intellectual, and doesn’t seem to be afraid to say what’s really going on. So people listen.
This morning Toll Brothers first quarter financials are out.
The financial media, The Wall Street Journal and CNBC, each sounded the theme that Toll’s performance comped better year on year than the same period in 2008, which echoes the language of the company’s Q1 press release.
HORSHAM, Pa., March 4, 2009 — Toll Brothers, Inc. (NYSE:TOL) (www.tollbrothers.com), the nation’s leading builder of luxury homes, today reported a FY 2009 first quarter net loss of $88.9 million, or $0.55 per share diluted, which included pre-tax write-downs totaling $156.6 million. This compared to FY 2008′s first quarter net loss of $96.0 million, or $0.61 per share diluted, which included pre-tax write-downs totaling $245.5 million.
Excluding write-downs, FY 2009′s first quarter earnings were $9.6 million ($9.55 million of which resulted from the net reversal of a prior tax provision), or $0.06 per share diluted, compared to $57.3 million, or $0.35 per share diluted for FY 2008′s first quarter.
In FY 2009′s first quarter, revenues were $409.0 million, backlog was $1.04 billion and net (after cancellations) signed contracts were $127.8 million. These totals represented declines of 51%, 56%, and 66%, respectively, in dollars, and 45%, 51% and 59%, respectively, in units, compared to FY 2008′s first-quarter results.
The Company ended FY 2009′s first quarter with $1.53 billion in cash, compared to $956.6 million at FY 2008′s first-quarter-end. The Company’s cash position was down slightly from $1.63 billion at FY 2008′s fourth-quarter-end, principally due to the payment in 2009′s first quarter of previously accrued taxes and the retirement of purchase money mortgages and other debt. In addition, the Company had $1.32 billion available under its bank credit facility, which matures in March 2011.
The Company ended 2009′s first quarter with a net-debt-to-capital ratio(1) of 14.5%, its lowest level ever at first-quarter-end, compared to 26.8% at 2008′s first-quarter-end. Stockholders’ Equity at FY 2009′s first-quarter-end of $3.16 billion was down 2% compared to $3.24 billion at FYE 2008 and 7% compared to $3.41 billion at FY 2008′s first-quarter-end.
Big Builder offers a brief post-up of Q1 earnings, quoting the quotable CEO Robert I. Toll in his observation of the primary culprit for continued concern.
“We believe weak buyer confidence still impedes the market,” said Robert I.Toll, chairman and CEO. “We have not yet seen a pick-up in activity at our communities other than ordinary seasonal increases for this time of year.”
In UBS equity research analysis of the sector, analysts Eric Crawford and David Goldberg, note faint silver-lining observations in the data and explication from senior management.
As reported on 2/11, net unit orders -59% YOY, averaging just 1 per community for the Q. Despite this, we are encouraged to hear that mgmt is seeing early indications that pricing on land is becoming increasingly attractive, as we continue to believe this is an early indicator of a trough in housing. With its robust liquidity (the co’s net debt-to-cap was 15% at the end of F1Q), we believe Toll is well positioned to take advantage of these opportunities and gain market share from more capital constrained peers.
Michael Rehaut, executive director for JP Morgan equity research on home building punches the data into his Toll model, and out comes this topline take:
Following its 2/11 release of orders, can rate, closings, backlog, and a charges range of $100-200 mil., TOL reported a 1Q (Jan.-end) loss of -$0.55/share, below the Street’s -$0.41 and our $0.47E, featuring land-related charges of $157 mil., which we note was roughly at the midpoint of guidance, as well as core operating margin of only 1.0%, solidly below our 4.7%E and down sharply from the prior four quarters’ 9-11% range. Additionally, TOL noted that the recent pickup in activity was largely seasonal, which we point out is consistent with our view and most other builders’ view of the recent improvement in activity, and therefore is not indicative of a positive trend in the market, in our opinion. Lastly, it also reiterated limited FY09 guidance featuring ranges for closings (2K to 3K) and ASPs ($600 to $625K). Positively, we do note that TOL continues to maintain a strong balance sheet with strong liquidity. None theless, we continue to look for orders and pricing to remain highly challenged, and given our outlook for continued overall difficult conditions in the housing market well into 2009, we continue to expect large impairment charges for the company and the overall industry. Accordingly, we maintain our Neutral rating on TOL amidst our negative sector stance.
Independent housing and economic analyst, Calculated Risk, has a more stark assessment.
In summary: More losses. More write-downs. More cancellations. No guidance. No pick-up in activity.
Statements from Bob Toll himself focus investors on the company’s balance sheet management strength amid continuing headwinds. But he also took a swing for the political fences with remarks that indicate home building leadership has not by any means abandoned its goal for more decisive government policy intervention aimed at spurring demand for new residential housing.
Click on image for access to Big Builder profile.
“Many experts continue to believe we must first stem home price declines before we can resolve the nation’s economic and financial crisis. The recent stimulus bill shows that Washington is paying greater attention to our industry; however, we think more is needed. We advocate a buyer tax credit of $15,000 to be made available to all buyers of homes, not just first-time buyers: We must motivate the entire food chain of home buyers to stop the decline of home prices. Creating a sense of urgency is necessary to motivate buyers to act now; therefore the credit should only be available for a limited period of time.
“If home prices are stabilized, financial institutions, which today cannot value the mortgage-backed securities on their balance sheets, will once again be able to trade these securities; this, in turn, will help stabilize the financial system.
“Housing starts are at their lowest level since measurement began fifty years ago and the resulting job losses have been brutally damaging to the U.S. economy. The new home industry, combined with the related service, building products and home furnishings industries, are together, perhaps, the largest employer in the United States. If Congress and the Administration can effectively call the bottom and thereby put a floor under home prices, we believe the housing market will recover sooner, jobs will be created, bank balance sheets will improve, and millions of people will be able to return to the workforce.”
No doubt, we’ll hear a similar refrain from home building’s CEO breed as Spring financial results surface in the weeks ahead.
Where the Most Houses Aren’t Homes
The “negative feedback loop” is a fancy new name business folks are giving to the Catch-22, vicious cycle, self-confirming prophecy that has foreclosures, home price declines, job loss, lower consumer spending, reduced earnings, and more job loss in Brian Eno hell …
A key factor in the negative feedback loop is absolute vacancies, the number of home units capable of housing people but aren’t. This factor erodes motivation to act on the part of consumers, and stands as the distance between the recovery of demand and the eerily silent inertia that reigns o’er the housing economy.
If there’s no fear that one will miss an opportunity of a lifetime by not buying now, then there’s little trigger to jump in off the sidelines.
CNBC has pulled together a U.S. Census-based ranking of the 10-metropolitan areas with the most homeowner vacancies, and cobbled a slideshow to highlight the markets.
Have a look-see.
Cramdown Jam Part Deux
Solutions often cause new problems. Economics solutions invariably create dismal science side-effect issues. Economic policy solutions cobbled together by Capitol Hill concessioneering engender issues with attitude. Bad attitude.
There are only two kinds of criticisms of President Barack Obama’s multi-pronged aspirations to “stop the downward spiral” of home prices, keep people in homes they can pay for [with a little help from their friends, the U.S. taxpayer], and restore some balance to housing’s convulsing economy. One is that he’s not doing enough. The other is that he’s doing too much.
Among housing economy experts, the key deficiency of the Obama Housing Affordability and Stabilization Plan is that it did not get at mortgage principal reductions–thereby obviating the potential effectiveness of mortgage rate buydowns contained in the strategy.
Debate about the consequence of principal reductions–the side-effects or estuarial run-off of the economic solution that they’d offer–focuses on their immediate economic efficacy and their related psycho-behavioral ramifications.
Importantly, we’re faced with urgency in understanding economics — both the math of it and the social implications of it — to a greater degree than most of us thought we’d ever have to. It’s fortunate, then, that there are places to turn for clear, accessible explanations and insight on a series of complex issues and events.
One such resource is Macroblog–done by the Atlanta Fed–which has a recent post that opens up and illuminates the mysteries of loan modifications’ impacts for those who are economically dumb as a doorknob, which includes us.
Here’s part of a Macroblog Kristopher Gerardi, research economist and assistant policy adviser at the Atlanta Fed, did on ” Foreclosure Mitigation: What We Think We know.”
Many borrowers might have been able to afford their mortgages while employed but can no longer do so after they have lost their jobs. When housing prices are rising and homeowners enjoy positive equity, then distressed borrowers are able to sell their homes to pay off their mortgages. Alternatively, such borrowers can undertake cash-out refinances to gain some much-needed liquidity. Note that problems can occur for people in this situation even when positive future equity is a realistic hope. If the borrower is unemployed and liquidity constrained, the cost of waiting to default is very high and potential future price gains are of little value. Default in this case is much more likely, even though future prospects might be reasonably good. In this case, foreclosure-prevention policy could simply be used to eliminate the financial friction. In this case a lender would offer “forbearance,” in which the borrower pays significantly lower payments for some period, with the arrears made up (with interest) later on. In this light, it is notable that the administration’s key payment reduction plan has a five-year window.
However, one important concern regarding the plan is that servicers/investors don’t have enough incentives to substantially decrease current DTI ratios. For example, if a household has a DTI of 60 or 70 because of a job loss, the servicer is responsible for modifying the loan to get DTI down to 38 and then still has to kick in a 50 percent match to further reduce it to 31. The costs borne by the servicer/investor are much larger than those borne by the government, which may not be such a bad thing in principal but in practice may result in low participation rates.
Now, about giving bankruptcy judges license to modify loans for homeowners who file for Chapter 13 protection, you can now give the matter more thought and with the insight of the Macroblog, you can weigh in more knowledgeably about which side-effects of the cramdown issue you want to throw your support behind.
Here’s an update from The Wall Street Journal on the status of Congress’s debate about cramdowns.
The legislation’s fate remains up in the air after Democratic leaders last week postponed a vote on the measure until Tuesday after support softened among some of the rank-and-file. That vote is now likely to happen no earlier than Wednesday due to a snowstorm that disrupted the House schedule.
According to one person familiar with the matter, Democrats may push consideration of the measure until later in the week in order to allow time to hash out a compromise with the measure’s Senate sponsor, Sen. Richard Durbin (D., Ill.)
Led by Rep. Ellen Tauscher, (D., Calif.), a group of centrist pushed last week to lengthen from 15 to 30 days the advance warning borrowers must give to lenders before seeking a judicial modification. Borrowers would also have to prove they provided the lender with statements of income, expenses and debt.
But many Democrats still have misgivings about the bill, with 26 voting Thursday against a related procedural motion, which has spurred the fresh talks.
Lawmakers from conservative districts remain wary of supporting legislation they fear will be watered down by the Senate. Republicans, who largely oppose the measure, hold considerable sway in the upper chamber.
Stay tuned.
Other States Wonder, Is California Dreamin?
California, home to world entertainment capital Hollywood, has just attracted a new audience. As California begins to roll out a spending plan that allocates $100 million in new-home buyer tax credits so as to give new-home sales a cardiac jolt, other states’ legislators want front-row center seats to see how the plot develops.
Georgia lawmakers are considering a form of tax credit for home buyers, in addition to other stimulative programs to assist a new-home building economy that has seized up, according to Big Builder senior editor Lynn Norusis in an article called: “California Tax Credit Breeds Optimism.”
Whether The Golden State’s plan is a success–generating new-home reduction in inventory, jobs, and municipal revenues–or not won’t be known for months as a complex process of applying for the state’s new home purchase credit plays out.
California’s credit allows any primary-resident buyer of a new home–resales are not eligible–an amount equal to the lesser of 5% of the home purchase price or $10,000, with a total budget package of $100,000,000 enough available for approximately 10,000 to 12,000 new home sales. The credit begins March 1 and will last a year, or until the state appropriate runs out.
The program comes on top of a nationally available $8,000 home buyer tax credit that’s included in the stimulus package Congress and the President enacted into law on Feb. 17th.
Clearly, other states whose economies have relied on new residential construction to fuel revenue growth over the first part of the decade will be interested spectators. Some states, however, like Nevada, don’t have a state income tax via which to extend such a benefit.
A Nick with the Nack and a Trillion Dollar Bill
Nicholas Retsinas, director of the Harvard Joint Center for Housing Studies, weighs in on President Obama’s $75 billion Homeowner Affordability and Stability Plan, in a posting on the JCHS Web site, as noted in The New York Times yesterday afternoon.
Here’s the Q&A:
I think the plan is balanced and innovative. At the same time one should not overestimate the impact of the plan on the most serious housing crisis this country has faced since the Great Depression.
Click on photo for background on Nicolas Retsinas
1. What is your assessment of the president’s plan?
Retsinas was interviewed on February 26, 2009.
The plan attacks the root of the problem in our economy which is the depressed housing market. This would have been a much better plan had it been put into place a year ago. It does however balance the appropriate role of the government in guiding, motivating and rewarding the private sector to make the right decisions to keep responsible borrowers in their homes. It replaces a flawed policy where government was at worst a spectator, at best a cheerleader, in encouraging loan modifications. This plan gives the government a seat at the table.
2. Will the plan assist only those homeowners who are currently in trouble, or could it also help those facing financial challenges in the future?The plan has several components. One part enables homeowners who are current on their mortgage today to refinance and take advantage of lower interest rates. This makes it less likely that they would become delinquent and default on their mortgage in the future and has the added benefit of providing more income for families that they could spend to help bolster our economy.
The other part of the plan, the interest rate subsidy portion, is more directly aimed at borrowers who are having trouble today. In this part of the plan, the government allocates subsidy dollars to make mortgages more affordable. It is predicated on the premise that the borrower will pay their mortgage if they can afford to pay their mortgage, even if they owed more than the house is worth.
3. What other moves could/should be made to help stabilize the housing market?The most important factor in the housing market is the state of the economy, and in particular, whether people are working. This plan can only succeed if the government stimulus package puts people back to work and stops the widespread job losses we have seen in recent months. In many ways, the housing recovery plan is only a part of the solution. The other part is the intervention in the broader economy.
Again, while I am supportive of the plan, one of the missing ingredients was a way to actively simulate demand. This is a difficult challenge given the state of the economy, but one that I think has to be addressed.
4. Is this a good time for savvy buyers to enter the market? How long in your estimation before the housing market rebounds?That depends. Certainly prices are as low as they have been in most markets for the last five or six years. I think a key question a prospective buyer must address is whether or not they are buying a home they intend to live in for an extended period of time. If they are buying a home primarily for investment purposes, this is a very risky market to participate in.
When the market will rebound will in large measure be a function of when the economy rebounds. So to the extent that we are able to put people back to work and are able to stop the job losses, and if this housing recovery plan begins to slow down the number of foreclosures, the housing market will recover. In those markets where there has not been substantial overbuilding, in the northeast for example, it is plausible (subject to an overall economic recovery) that the bottom could be reached at the end of this year or sometime next year. In those markets like the southwest and south Florida, where there was extensive overbuilding, the recovery will be substantially delayed.
Now, no knock on Nick, whose biggest lament about the Obama plan is that it doesn’t pack a more powerful wallop to stoke home buying demand — a la Fix Housing First‘s plan. Still, Big Builder Maine-based sage Trillion-Dollar Bill [William F.] Gloede, who writes the “Wall Street and Maine” column, has a need to vent that sounds like a rant about how Obama’s plan would help the wrong people in the wrong places, … which it is.
So the Obama plan is not a housing market plan at all. It is a $275 billion spending program that will help keep some homes in typical new-home communities from foreclosure but will probably keep as many or more foreclosures from occurring in poor and working class neighborhoods in and right around the big cities. The latter will do nothing for the housing market because home prices there typically have little effect on values elsewhere.
The plan, though, will help to keep urban neighborhoods from the instability caused by vacant foreclosed properties. Which is probably what the Administration intended in the first place. Which is probably why they called it the Homeowner Affordability and Stability Plan.
Some people are born with insight, and some people sweat to find it. Bill’s insights tend to possess him like demons, which makes him a pleasure to work with.