Saturday, May 10, 2008
Immigration Debate Takes Another Turn
After the conference committee discussions on S.392 (Ritchie) produced no agreement between the House and Senate two weeks ago, the Senate took and amended H.3032 (Viers), a House bill relating to immigration reform, to use as a vehicle for the Senate-passed version of immigration bill. Senators sent an amended H.3032 back to the House last week. House members debated and amended H.3032 on Tuesday and Wednesday of this week. As amended, the bill, among other things, removes the additional 5% penalty, includes Senate language on harboring and private employer provisions, uses the Federal e-verify system for new hires only, includes penalties for multiple offenses, and moves the effective date to July 1, 2009. The Senate is expected to take up H.3032 next week, though another bill relating to immigration reform was recalled from the Senate Judiciary Committee this week for use as another potential vehicle.
cigarette tax increases by 50 cents
The Senate spent the vast majority of their week debating H.3567 (Rice), legislation increasing the tax on cigarettes, which they had set for Special Order to be debated this week. H.3567 received second reading Wednesday afternoon and on Thursday received third reading. As amended, H.3567 increases the cigarette tax by 50 cents per pack, generating approximately $159 million in new revenue. Funds will go to expanding components of the State's Medicaid program, health insurance assistance for low income residents, and to the Smoking Cessation and Prevention Trust Fund. H.3567 was sent back to the House on Thursday afternoon.
Bill would allow MMA fighting events in SC
Legislation allowing mixed martial arts competitions in South Carolina is up for discussion next week by a Senate panel.
The measure would repeal South Carolina's ban on such fighting events and direct the State Athletic Commission to regulate the combative sport.
Proponents say the increasingly popular sport would bring money and tourists to the state. They contend South Carolina is losing revenue to neighboring states that allow the sport. North Carolina lawmakers legalized it last year.
Advocates say mixed martial arts has evolved from its no-holds-barred past to a regulated sport broadcast on TV.
The measure would repeal South Carolina's ban on such fighting events and direct the State Athletic Commission to regulate the combative sport.
Proponents say the increasingly popular sport would bring money and tourists to the state. They contend South Carolina is losing revenue to neighboring states that allow the sport. North Carolina lawmakers legalized it last year.
Advocates say mixed martial arts has evolved from its no-holds-barred past to a regulated sport broadcast on TV.
Friday, May 9, 2008
Bike Week Begins
Thousands of bikers are headed to the Grand Strand for the Harley Davidson Spring Rally.
The major hubs for vendors this year are Hard Rock Park off Highway 501, which is a new vendor location.
On the south end, vendors are in the area surrounding SSB and the Inlet Square Mall.
The parking lot of the Harley Davidson shop off Highway 17 is filled with vendors, and on the North end, they're located near the Colonial Myrtle Beach Mall.
The vendors opened at 10am Friday morning and they'll be here until May 18th. So will the bikers. What brings them here, brings them back, and keeps some here for good.
"People are friendly. There's tons to do. There are enough restaurants you could eat at a different restaurant every day of the year," said Michael Kitcho of New York. "It's my 16th bike week. I love it. There's a good chance I'm going to retire here."
Experts predict over the ten day Harley Davidson Spring Rally holiday, more than 300,000 people will hit the Grand Strand, some golfers, some beach goers, but mostly bikers.
Economists tell NewsChannel 15 they'll spend more than $100 million while they're here.
"It's wonderful. There are so many vendors and too much stuff to buy," said Roxanne Ashmore of Georgia.
After 68 years, Myrtle Beach's bike rally has made quite a name for itself.
"We've been to Nags Head and been to Savannah for motorcycle rallies. This is the first time here and it's much nicer."
Major highways will turn into parking lots. For the next 10 days, you'll notice a steady increase of bikes, noise, and perhaps, new locals.
"We've already looked at a couple places," said Kitcho. "We've looked at a condo. I have a realtor down here."
Highway Patrol wants to remind drivers to pay attention and watch out for bikers. Most motorcycle accidents are caused by motorists failing to yield the right of way.
The major hubs for vendors this year are Hard Rock Park off Highway 501, which is a new vendor location.
On the south end, vendors are in the area surrounding SSB and the Inlet Square Mall.
The parking lot of the Harley Davidson shop off Highway 17 is filled with vendors, and on the North end, they're located near the Colonial Myrtle Beach Mall.
The vendors opened at 10am Friday morning and they'll be here until May 18th. So will the bikers. What brings them here, brings them back, and keeps some here for good.
"People are friendly. There's tons to do. There are enough restaurants you could eat at a different restaurant every day of the year," said Michael Kitcho of New York. "It's my 16th bike week. I love it. There's a good chance I'm going to retire here."
Experts predict over the ten day Harley Davidson Spring Rally holiday, more than 300,000 people will hit the Grand Strand, some golfers, some beach goers, but mostly bikers.
Economists tell NewsChannel 15 they'll spend more than $100 million while they're here.
"It's wonderful. There are so many vendors and too much stuff to buy," said Roxanne Ashmore of Georgia.
After 68 years, Myrtle Beach's bike rally has made quite a name for itself.
"We've been to Nags Head and been to Savannah for motorcycle rallies. This is the first time here and it's much nicer."
Major highways will turn into parking lots. For the next 10 days, you'll notice a steady increase of bikes, noise, and perhaps, new locals.
"We've already looked at a couple places," said Kitcho. "We've looked at a condo. I have a realtor down here."
Highway Patrol wants to remind drivers to pay attention and watch out for bikers. Most motorcycle accidents are caused by motorists failing to yield the right of way.
Timing may be right for real estate investors
It's the worst time since the Great Depression to buy real estate, right?
Not so, according to some individual investors, who think the market slump has made selected pockets of the Bay Area more desirable than they've been in years.
"Look at this," said Dan Shiner of Mill Valley, one such investor who was en route with his agent to visit properties for sale in Santa Rosa last week. "This duplex sold for $599,000 two years ago and now it's listed for $414,900. That's why people like me are coming out of the woodwork."
Shiner, who works in finance, said he avoided investing in local real estate for years because prices were so ridiculously high. But the current market has drawn him back in because suddenly he sees relative bargains. Last week he looked at a dozen Sonoma County duplex and triplexes, and had offers accepted on two.
"The way prices have come down is absolutely amazing," he said. "I think it's a phenomenal opportunity for the small investor to buy their first rental properties."
While many buyers, whether potential residents or investors, are staying on the sidelines, largely from fear that prices will continue to plummet, some private investors think there's no time like the present to take advantage of a market in freefall.
Unlike the "fix and flip" speculators of recent years, these investors are in it for the long haul. They see chances to be cash-flow positive - which had been a pipe dream in the Bay Area without putting down wads of cash - and to build appreciation over many years.
Overall, homes sales have plunged to record lows. However, the percentage of investors in the market is edging up, according to DataQuick Information Systems, a real estate information service.
"The reason you (have) seen investors coming in, at least in small ways, is that in certain neighborhoods across the Bay Area and across (the) state, you've had significant depreciation and it now makes sense for some investors," said Andrew LePage, a DataQuick analyst.
"They're adding to what little demand exists out there by snapping up foreclosure resales because some of those have bigger discounts. The savvy ones probably realize that few, if any, of us are going to time the bottom correctly."
Credit still tough
Of course, investors face the same constraints as any buyer. The mortgage crunch means financing is limited to people with excellent credit, money to put down, and proof of income.
Jeffrey Lerman, a San Rafael attorney who specializes in real estate investor issues, said many investors are still waiting for a bottom.
"We are seeing some contrarian-type investors who are looking for and doing deals in this economy," he said. "The vast majority are not. They follow the herd."
Those investors who do plunge in are "returning to fundamentals," running the type of due-diligence equations that seem obvious now but got forgotten in the frenzied years when speculation was king, Lerman said.
Advice for investors
Those who are buying now stick to several rules of thumb:
-- Find locations where depreciation rules. David Campbell is bullish on Vallejo. That's not because he owns a real estate company, Fourth Dimension, there, because most of his business is out of state.
Instead, he said, it's because the town has some neighborhoods where property values are down 50 percent from their peak, while its long-term growth fundamentals - universities, medical center, jobs in heavy and light industry, transit, military training and a planned 200-acre cancer treatment center - remain strong. He thinks the city's brush with bankruptcy could be a benefit if it negotiates better contracts with its public employees.
"A Vallejo three-bedroom, two-bath single-family home can be purchased for $200,000 and will rent for $1,400 a month," he said. "Vallejo studio condos can be purchased for $75,000 and will rent for $750 a month."
At 20 percent down and an interest rate in the high 6 percent range, those properties would break even or generate modest cash flow, he said.
-- Don't count on chichi areas. Amit May, principal with May Properties, a real estate development and investment company in San Francisco, said in an e-mail that deals in the city are few.
"We have not seen drastic price reductions," May wrote. "I still think this is a good time to buy residential property in San Francisco, such as two- to six-unit (buildings), but the problem is that the inventory is so low now, there are not a lot of bargains."
Investors uniformly emphasized that areas with high foreclosure rates have the best bargains. That means Solano County, Richmond, Rodeo, eastern Contra Costa County, parts of San Jose and parts of Oakland.
Moneymaking potential
-- Consider cash flow. Most investors said they are unwilling to swallow big monthly differences between a property's expenses and income. Realistically, few single-family homes in the Bay Area will generate significant cash flow, assuming down payments of 20 percent or so. (Obviously, the more cash one puts down, the greater potential for positive cash flow.)
Even the pockets that have huge drops in price take some careful calculations to make sure the rental demand is there. But small multifamily properties with two or more units do have potential for making money, several investors said, while single-family homes at least might break even.
Properties bought under distressed circumstances, such as those sold at the huge foreclosure auctions happening every couple of months, may be sufficiently cheap to bring in income.
For those who really want cash flow without significant money down, looking outside the Bay Area might be the best bet. "If you go out to the Central Valley, Modesto and those areas, you can flow cash at 10 percent down," said Michael Yesk, regional manager and attorney for IPX1031, a company that handles tax-deferred exchanges on investment properties.
-- Factor in demand for rentals. All the folks losing their homes to foreclosure and all those potential homeowners who decide to wait for the market to hit bottom have to live somewhere, many investors point out. They expect that to increase demand and rates for rental housing - as has already been happening in recent month.
Shiner of Mill Valley said he likes properties that already have long-term tenants in place. That rules out foreclosures, however, because banks seem to uniformly evict tenants when they take possession of a foreclosure.
Consider interest rates
-- Look at prices versus interest rates. Investors acknowledge that they probably could get some properties cheaper by waiting longer - but then they risk paying higher interest rates, which would wipe out those savings.
For instance, a 30-year fixed-rate mortgage for $300,000 at 7 percent is $1,995 per month. If the mortgage amount were 10 percent lower - $270,000 - but the investor is paying 8 percent interest, the monthly payment is almost identical at $1,981.
On the other hand, investors who have large cash reserves to plunk down might be better served to wait for even lower prices.
-- Buy from the bank. A huge percentage of properties for sale in recent months are bank-owned foreclosures. These lenders are the ultimate motivated sellers.
Still, bankers are not fools. Anyone making a lowball offer should be prepared with information on very recent comparable sales in the neighborhood to justify the price. Some bank-owned properties are generating bidding wars - admittedly usually for less than the asking- but that gives the banks more of an edge.
Bank-owned foreclosures can have maintenance issues. The previous homeowner may have stopped making repairs when money got tight.
Five-year plan
-- Make sure you can afford it. While this may seem obvious, lots of folks didn't think it through in 2005 and 2006, which is why there are now so many foreclosures. Investors need to be sure they can hold on to property for the long term, probably at least five years.
Putting extra oomph into that equation is that investment loans, unlike those on a primary residence, usually are "recourse loans." That means the bank can come after your personal assets if you renege.
And investors should not expect a return to the no-money-down days, which means they already have cash on the line as soon as they buy.
Shiner, the Mill Valley man investing in Sonoma, said he has a long-term horizon.
"As Warren Buffett says, lethargy bordering on sloth - that's me," he said. "The fact that the market is not turning around in the next year isn't significant. If you wait long enough, the market has always gone up since the days of the caveman."
Not so, according to some individual investors, who think the market slump has made selected pockets of the Bay Area more desirable than they've been in years.
"Look at this," said Dan Shiner of Mill Valley, one such investor who was en route with his agent to visit properties for sale in Santa Rosa last week. "This duplex sold for $599,000 two years ago and now it's listed for $414,900. That's why people like me are coming out of the woodwork."
Shiner, who works in finance, said he avoided investing in local real estate for years because prices were so ridiculously high. But the current market has drawn him back in because suddenly he sees relative bargains. Last week he looked at a dozen Sonoma County duplex and triplexes, and had offers accepted on two.
"The way prices have come down is absolutely amazing," he said. "I think it's a phenomenal opportunity for the small investor to buy their first rental properties."
While many buyers, whether potential residents or investors, are staying on the sidelines, largely from fear that prices will continue to plummet, some private investors think there's no time like the present to take advantage of a market in freefall.
Unlike the "fix and flip" speculators of recent years, these investors are in it for the long haul. They see chances to be cash-flow positive - which had been a pipe dream in the Bay Area without putting down wads of cash - and to build appreciation over many years.
Overall, homes sales have plunged to record lows. However, the percentage of investors in the market is edging up, according to DataQuick Information Systems, a real estate information service.
"The reason you (have) seen investors coming in, at least in small ways, is that in certain neighborhoods across the Bay Area and across (the) state, you've had significant depreciation and it now makes sense for some investors," said Andrew LePage, a DataQuick analyst.
"They're adding to what little demand exists out there by snapping up foreclosure resales because some of those have bigger discounts. The savvy ones probably realize that few, if any, of us are going to time the bottom correctly."
Credit still tough
Of course, investors face the same constraints as any buyer. The mortgage crunch means financing is limited to people with excellent credit, money to put down, and proof of income.
Jeffrey Lerman, a San Rafael attorney who specializes in real estate investor issues, said many investors are still waiting for a bottom.
"We are seeing some contrarian-type investors who are looking for and doing deals in this economy," he said. "The vast majority are not. They follow the herd."
Those investors who do plunge in are "returning to fundamentals," running the type of due-diligence equations that seem obvious now but got forgotten in the frenzied years when speculation was king, Lerman said.
Advice for investors
Those who are buying now stick to several rules of thumb:
-- Find locations where depreciation rules. David Campbell is bullish on Vallejo. That's not because he owns a real estate company, Fourth Dimension, there, because most of his business is out of state.
Instead, he said, it's because the town has some neighborhoods where property values are down 50 percent from their peak, while its long-term growth fundamentals - universities, medical center, jobs in heavy and light industry, transit, military training and a planned 200-acre cancer treatment center - remain strong. He thinks the city's brush with bankruptcy could be a benefit if it negotiates better contracts with its public employees.
"A Vallejo three-bedroom, two-bath single-family home can be purchased for $200,000 and will rent for $1,400 a month," he said. "Vallejo studio condos can be purchased for $75,000 and will rent for $750 a month."
At 20 percent down and an interest rate in the high 6 percent range, those properties would break even or generate modest cash flow, he said.
-- Don't count on chichi areas. Amit May, principal with May Properties, a real estate development and investment company in San Francisco, said in an e-mail that deals in the city are few.
"We have not seen drastic price reductions," May wrote. "I still think this is a good time to buy residential property in San Francisco, such as two- to six-unit (buildings), but the problem is that the inventory is so low now, there are not a lot of bargains."
Investors uniformly emphasized that areas with high foreclosure rates have the best bargains. That means Solano County, Richmond, Rodeo, eastern Contra Costa County, parts of San Jose and parts of Oakland.
Moneymaking potential
-- Consider cash flow. Most investors said they are unwilling to swallow big monthly differences between a property's expenses and income. Realistically, few single-family homes in the Bay Area will generate significant cash flow, assuming down payments of 20 percent or so. (Obviously, the more cash one puts down, the greater potential for positive cash flow.)
Even the pockets that have huge drops in price take some careful calculations to make sure the rental demand is there. But small multifamily properties with two or more units do have potential for making money, several investors said, while single-family homes at least might break even.
Properties bought under distressed circumstances, such as those sold at the huge foreclosure auctions happening every couple of months, may be sufficiently cheap to bring in income.
For those who really want cash flow without significant money down, looking outside the Bay Area might be the best bet. "If you go out to the Central Valley, Modesto and those areas, you can flow cash at 10 percent down," said Michael Yesk, regional manager and attorney for IPX1031, a company that handles tax-deferred exchanges on investment properties.
-- Factor in demand for rentals. All the folks losing their homes to foreclosure and all those potential homeowners who decide to wait for the market to hit bottom have to live somewhere, many investors point out. They expect that to increase demand and rates for rental housing - as has already been happening in recent month.
Shiner of Mill Valley said he likes properties that already have long-term tenants in place. That rules out foreclosures, however, because banks seem to uniformly evict tenants when they take possession of a foreclosure.
Consider interest rates
-- Look at prices versus interest rates. Investors acknowledge that they probably could get some properties cheaper by waiting longer - but then they risk paying higher interest rates, which would wipe out those savings.
For instance, a 30-year fixed-rate mortgage for $300,000 at 7 percent is $1,995 per month. If the mortgage amount were 10 percent lower - $270,000 - but the investor is paying 8 percent interest, the monthly payment is almost identical at $1,981.
On the other hand, investors who have large cash reserves to plunk down might be better served to wait for even lower prices.
-- Buy from the bank. A huge percentage of properties for sale in recent months are bank-owned foreclosures. These lenders are the ultimate motivated sellers.
Still, bankers are not fools. Anyone making a lowball offer should be prepared with information on very recent comparable sales in the neighborhood to justify the price. Some bank-owned properties are generating bidding wars - admittedly usually for less than the asking- but that gives the banks more of an edge.
Bank-owned foreclosures can have maintenance issues. The previous homeowner may have stopped making repairs when money got tight.
Five-year plan
-- Make sure you can afford it. While this may seem obvious, lots of folks didn't think it through in 2005 and 2006, which is why there are now so many foreclosures. Investors need to be sure they can hold on to property for the long term, probably at least five years.
Putting extra oomph into that equation is that investment loans, unlike those on a primary residence, usually are "recourse loans." That means the bank can come after your personal assets if you renege.
And investors should not expect a return to the no-money-down days, which means they already have cash on the line as soon as they buy.
Shiner, the Mill Valley man investing in Sonoma, said he has a long-term horizon.
"As Warren Buffett says, lethargy bordering on sloth - that's me," he said. "The fact that the market is not turning around in the next year isn't significant. If you wait long enough, the market has always gone up since the days of the caveman."
Pattern points to housing bust’s end
Forget soaring foreclosures and the free-fall in home prices. The battered real estate market may have finally hit bottom, a nationally known Boston real estate expert is declaring.
Bucking widespread gloom about the state of real estate, Wellesley College housing market guru Karl Case sees strong signs of a possible rebound.
And he even thinks it might be time for a little bargain hunting as well.
Case is basing his optimism, which stands out in a sea of gloomy predictions, on a key economic indicator. It’s not the first time he’s courted controversy. Back when real estate prices were headed skyward, Case was a lone voice predicting a painful real estate downturn.
“Every single time we have gotten to this point, at this time, almost to the exact decimal point, things start to rebound,” Case said.
According to Case, the decline in housing starts nationally has reached a key threshold, dropping below the 1 million mark last month.
Over the past 30 years, this has signaled the end of a real estate market downturn. Housing construction rebounded sharply in the ’70s, ’80s and ’90s after reaching this low point, Case said.
He expects the same phenomenom to be true this downturn as well.
“Eventually, steam runs out of the downturn,” Case said.
Moreover, the Boston area, which has suffered from serious hangovers after past real estate booms, may get off more lightly this time around than the rest of the country.
While prices rocketed locally during the recent real estate boom, the Boston area did not see the orgy of construction that flooded markets like Florida and Nevada with new homes.
Still, not everyone is jumping on Case’s bandwagon - including his business partner, Yale economist Robert Shiller.
Shiller, who runs the respected Standard & Poor’s/Case-Shiller home price index with Case, recently made headlines when he predicted the decline in home values would exceed that of the Great Depression.
Fellow economist Nicholas Perna said he would like to believe Case, but he’s not sure, either, that the worst is over.
“I really hope he is right,” Perna said. “If you start seeing signs the housing thing is turning around, you will see housing stocks go up, financial stocks go up. A lot of things ride on this.”
Bucking widespread gloom about the state of real estate, Wellesley College housing market guru Karl Case sees strong signs of a possible rebound.
And he even thinks it might be time for a little bargain hunting as well.
Case is basing his optimism, which stands out in a sea of gloomy predictions, on a key economic indicator. It’s not the first time he’s courted controversy. Back when real estate prices were headed skyward, Case was a lone voice predicting a painful real estate downturn.
“Every single time we have gotten to this point, at this time, almost to the exact decimal point, things start to rebound,” Case said.
According to Case, the decline in housing starts nationally has reached a key threshold, dropping below the 1 million mark last month.
Over the past 30 years, this has signaled the end of a real estate market downturn. Housing construction rebounded sharply in the ’70s, ’80s and ’90s after reaching this low point, Case said.
He expects the same phenomenom to be true this downturn as well.
“Eventually, steam runs out of the downturn,” Case said.
Moreover, the Boston area, which has suffered from serious hangovers after past real estate booms, may get off more lightly this time around than the rest of the country.
While prices rocketed locally during the recent real estate boom, the Boston area did not see the orgy of construction that flooded markets like Florida and Nevada with new homes.
Still, not everyone is jumping on Case’s bandwagon - including his business partner, Yale economist Robert Shiller.
Shiller, who runs the respected Standard & Poor’s/Case-Shiller home price index with Case, recently made headlines when he predicted the decline in home values would exceed that of the Great Depression.
Fellow economist Nicholas Perna said he would like to believe Case, but he’s not sure, either, that the worst is over.
“I really hope he is right,” Perna said. “If you start seeing signs the housing thing is turning around, you will see housing stocks go up, financial stocks go up. A lot of things ride on this.”
Thursday, May 8, 2008
America’s housing bubble / rising fuel costs
While predatory lending and sub-prime mortgages have taken the blame for the dramatic decrease in housing prices and the glut of foreclosures nationwide, a new analysis shows that rising fuel costs played a significant role in the collapse of America’s housing bubble.
That’s according to a new report released by CEOs for Cities titled “Driven to the Brink: How the Gas Price Spike Popped the Housing Bubble and Devalued the Suburbs,” by economist Joseph Cortright.
“The popular narrative on the collapse of housing prices has only blamed exotic lending practices,” said Cortright, “but the much more important story is about how higher gas prices have re-drawn the map of urban real estate values. Vibrant central cities just got a whole lot more valuable.”
The analysis found that while there is overall weakness in housing prices, price declines are generally far more severe in far-flung suburbs and metropolitan areas with weak central cities. The reason for this shift is rooted in the dramatic increase in gas prices over the past five years. Cities and neighborhoods that require lengthy commutes and provide few transportation alternatives to the private vehicle are falling in value more precipitously than more central, compact and accessible places, the study shows.
In fact, growth in housing prices was fueled by low and stable gas prices from 1990 through 2004. The rise in gas prices from less than $1.10 in early 2002 to more than $3 today has dealt a major blow to consumer purchasing power and weighs most heavily on those metropolitan areas and those suburbs where people have to drive the farthest. The decline in housing markets is strongly correlated with auto dependence.
As measured by the change in housing prices over the last year, distant suburbs have seen the largest declines, while values in close-in neighborhoods have held up better, and in some cases continued to increase.
The study looked at housing values in five cities in both close-in and distant neighborhoods and found that in each case, housing prices fared worse in the more distant neighborhood. For example, the average house in the 60618 zip code in Chicago (5.6 miles from the downtown loop) appreciated from $374,000 to $410,000 (an increase of $36,000) between the fourth quarter of 2006 and the fourth quarter of 2007. A house in suburban Buffalo Grove (60089) that sold for the same price in 2006, declined by $30,000 over the course of the year.
The run-up in gasoline prices has re-written the calculus of suburban housing economics in two key ways. First, there has been an income effect: suburban households spend more of their income on transportation and gas and have therefore taken the biggest hit to their budgets. As a result, they have less income to spend on housing. Second, there has been a price effect: because living in distant suburbs requires more driving, potential buyers are now willing to bid less for houses at the suburban fringe.
“These changes will not be short-lived, and they can’t be addressed with short-term fixes,” said Carol Coletta, president and CEO of CEOs for Cities, a national network of urban leaders, which commissioned the study. “Public policy must recognize the new realities by changing land use planning and investment to encourage re-use of existing urban land and less driving. In this new world of high gas prices, strengthening the urban core is not only a matter of civic pride. It makes financial sense for America’s families.”
The report concludes with five policy implications:
– The relative decline in prices in sprawling suburbs is likely to persist because of the continued high price of gas, and governments should plan accordingly.
– The market for higher density and redevelopment in close-in neighborhoods is likely to grow stronger, and local land use plans should accommodate this shift.
– Government can help families save money by making it easy and convenient to live in mixed-use, close-in neighborhoods served by transit.
– Reducing vehicle miles traveled not only saves families money, households that drive less have more to spend on other things, stimulating the local economy. Additionally, reducing oil consumption not only cuts greenhouse gas emissions but lowers the trade deficit.
– Many distant exurban developments may no longer be economical, and propping up building and homeownership in these areas encourages unsustainable settlement that makes families even more vulnerable to future gas price increases.
That’s according to a new report released by CEOs for Cities titled “Driven to the Brink: How the Gas Price Spike Popped the Housing Bubble and Devalued the Suburbs,” by economist Joseph Cortright.
“The popular narrative on the collapse of housing prices has only blamed exotic lending practices,” said Cortright, “but the much more important story is about how higher gas prices have re-drawn the map of urban real estate values. Vibrant central cities just got a whole lot more valuable.”
The analysis found that while there is overall weakness in housing prices, price declines are generally far more severe in far-flung suburbs and metropolitan areas with weak central cities. The reason for this shift is rooted in the dramatic increase in gas prices over the past five years. Cities and neighborhoods that require lengthy commutes and provide few transportation alternatives to the private vehicle are falling in value more precipitously than more central, compact and accessible places, the study shows.
In fact, growth in housing prices was fueled by low and stable gas prices from 1990 through 2004. The rise in gas prices from less than $1.10 in early 2002 to more than $3 today has dealt a major blow to consumer purchasing power and weighs most heavily on those metropolitan areas and those suburbs where people have to drive the farthest. The decline in housing markets is strongly correlated with auto dependence.
As measured by the change in housing prices over the last year, distant suburbs have seen the largest declines, while values in close-in neighborhoods have held up better, and in some cases continued to increase.
The study looked at housing values in five cities in both close-in and distant neighborhoods and found that in each case, housing prices fared worse in the more distant neighborhood. For example, the average house in the 60618 zip code in Chicago (5.6 miles from the downtown loop) appreciated from $374,000 to $410,000 (an increase of $36,000) between the fourth quarter of 2006 and the fourth quarter of 2007. A house in suburban Buffalo Grove (60089) that sold for the same price in 2006, declined by $30,000 over the course of the year.
The run-up in gasoline prices has re-written the calculus of suburban housing economics in two key ways. First, there has been an income effect: suburban households spend more of their income on transportation and gas and have therefore taken the biggest hit to their budgets. As a result, they have less income to spend on housing. Second, there has been a price effect: because living in distant suburbs requires more driving, potential buyers are now willing to bid less for houses at the suburban fringe.
“These changes will not be short-lived, and they can’t be addressed with short-term fixes,” said Carol Coletta, president and CEO of CEOs for Cities, a national network of urban leaders, which commissioned the study. “Public policy must recognize the new realities by changing land use planning and investment to encourage re-use of existing urban land and less driving. In this new world of high gas prices, strengthening the urban core is not only a matter of civic pride. It makes financial sense for America’s families.”
The report concludes with five policy implications:
– The relative decline in prices in sprawling suburbs is likely to persist because of the continued high price of gas, and governments should plan accordingly.
– The market for higher density and redevelopment in close-in neighborhoods is likely to grow stronger, and local land use plans should accommodate this shift.
– Government can help families save money by making it easy and convenient to live in mixed-use, close-in neighborhoods served by transit.
– Reducing vehicle miles traveled not only saves families money, households that drive less have more to spend on other things, stimulating the local economy. Additionally, reducing oil consumption not only cuts greenhouse gas emissions but lowers the trade deficit.
– Many distant exurban developments may no longer be economical, and propping up building and homeownership in these areas encourages unsustainable settlement that makes families even more vulnerable to future gas price increases.
Wednesday, May 7, 2008
Weekly Mortgage Applications
The Mortgage Bankers Association (MBA) released its Weekly Mortgage Applications Survey for the week ending May 2, 2008. The Market Composite Index, a measure of mortgage loan application volume, was 655.4, an increase of 15.6 percent on a seasonally adjusted basis from 567.0 one week earlier. On an unadjusted basis, the Index increased 15.9 percent compared with the previous week and was down 4.4 percent compared with the same week one year earlier.
The Refinance Index increased 19.3 percent to 2273.8 from 1905.2 the previous week and the seasonally adjusted Purchase Index increased 12.1 percent to 381.3 from 340.1 one week earlier. The Conventional Purchase Index increased 11.7 percent while the Government Purchase Index (largely FHA) increased 13.2 percent.
The four week moving average for the seasonally adjusted Market Index is down 2.6 percent to 650.8 from 668.4. The four week moving average is down 0.2 percent to 365.1 from 365.9 for the Purchase Index, while this average is down 4.6 percent to 2332.8 from 2445.6 for the Refinance Index.
The refinance share of mortgage activity increased to 47.1 percent of total applications from 45.7 percent the previous week. The adjustable-rate mortgage (ARM) share of activity increased to 6.8 from 5.9 percent of total applications from the previous week.
The average contract interest rate for 30-year fixed-rate mortgages decreased to 5.91 percent from 6.01 percent, with points decreasing to 1.12 from 1.26 (including the origination fee) for 80 percent loan-to-value (LTV) ratio loans.
The average contract interest rate for 15-year fixed-rate mortgages decreased to 5.49 percent from 5.53 percent, with points decreasing to 1.07 from 1.24 (including the origination fee) for 80 percent LTV loans.
The average contract interest rate for one-year ARMs decreased to 6.77 percent from 6.86 percent, with points decreasing to 1.35 from 1.40 (including the origination fee) for 80 percent LTV loans.
The Refinance Index increased 19.3 percent to 2273.8 from 1905.2 the previous week and the seasonally adjusted Purchase Index increased 12.1 percent to 381.3 from 340.1 one week earlier. The Conventional Purchase Index increased 11.7 percent while the Government Purchase Index (largely FHA) increased 13.2 percent.
The four week moving average for the seasonally adjusted Market Index is down 2.6 percent to 650.8 from 668.4. The four week moving average is down 0.2 percent to 365.1 from 365.9 for the Purchase Index, while this average is down 4.6 percent to 2332.8 from 2445.6 for the Refinance Index.
The refinance share of mortgage activity increased to 47.1 percent of total applications from 45.7 percent the previous week. The adjustable-rate mortgage (ARM) share of activity increased to 6.8 from 5.9 percent of total applications from the previous week.
The average contract interest rate for 30-year fixed-rate mortgages decreased to 5.91 percent from 6.01 percent, with points decreasing to 1.12 from 1.26 (including the origination fee) for 80 percent loan-to-value (LTV) ratio loans.
The average contract interest rate for 15-year fixed-rate mortgages decreased to 5.49 percent from 5.53 percent, with points decreasing to 1.07 from 1.24 (including the origination fee) for 80 percent LTV loans.
The average contract interest rate for one-year ARMs decreased to 6.77 percent from 6.86 percent, with points decreasing to 1.35 from 1.40 (including the origination fee) for 80 percent LTV loans.
Tuesday, May 6, 2008
Mortgage Market This Week
Last week, after rocking and rolling rates ended about .125% better than where they began. Which was quite welcome after the Fed's 25 bps cut in rates and inflation posting slightly higher numbers than what was expected. The week ahead, although light on economic news may still have the opportunity to move rates.
Earlier last week rates improved after the Fed's FOMC statement was released. Although rate cuts tend to drive bond prices lower and rates higher this was anything but the case as investors read through the Fed's statement after the meeting. The statement indicated that the Fed might be taking a break in the rate cuts.
The very next day, rates reversed after the Core Personal Consumption Expenditure Index showed Inflation a hair higher than the Fed's target which bond traders took as a bad sign.
On Friday, the fireworks really began as Non-Farm Payrolls posted a lower than expected loss. This drove bond prices down in a hurry and rates higher. However, as the day went on and investors had a chance to digest the news rates began to recover.
The week ahead, although light on economic news may still push rates. However, it will likely be stocks that drive the push. Many are suggesting that the stock market rally of late is unsustainable. If this proves correct, it is likely that investors will pull money out of stocks in favor of bonds which in turn may push rates lower yet.
The bottom line: Watch the stock market, if the rally stalls rates will likely benefit.
Earlier last week rates improved after the Fed's FOMC statement was released. Although rate cuts tend to drive bond prices lower and rates higher this was anything but the case as investors read through the Fed's statement after the meeting. The statement indicated that the Fed might be taking a break in the rate cuts.
The very next day, rates reversed after the Core Personal Consumption Expenditure Index showed Inflation a hair higher than the Fed's target which bond traders took as a bad sign.
On Friday, the fireworks really began as Non-Farm Payrolls posted a lower than expected loss. This drove bond prices down in a hurry and rates higher. However, as the day went on and investors had a chance to digest the news rates began to recover.
The week ahead, although light on economic news may still push rates. However, it will likely be stocks that drive the push. Many are suggesting that the stock market rally of late is unsustainable. If this proves correct, it is likely that investors will pull money out of stocks in favor of bonds which in turn may push rates lower yet.
The bottom line: Watch the stock market, if the rally stalls rates will likely benefit.
Monday, May 5, 2008
Top 10 Red Flags for Home Buyers
Front Door . com’s Top 10 Red Flags for Home Buyers
1) Mass Exodus from the Neighborhood
Don’t let a home’s curb appeal keep you from glancing down the street. Are there several other homes for sale? Are nearby businesses boarded up or vandalized? Get the scoop from the neighbors. If everyone else wants to leave the street, maybe you should, too - before you’re stuck with a bad investment.
2) Mediocre Maintenance
Three layers of roofing and gutters with plants growing in them are signs the owners aren’t big on maintaining their home. What else did they neglect?
3) Foundation Failures
Check out the yard grading. If the yard slopes towards the house, it could cause water to run down the foundation walls or into the basement, which will be costly to repair. Scour the foundation for damage. Bulges or cracks bigger than 1/3 inch can mean the house has serious structural issues.
4) Bad Smells - Inside or Outside
Take a big whiff of the air inside and outside the house. Do you smell anything funky? If you can’t smell anything but the huge baskets of potpourri all over the house, this could be a red flag.
5) Faulty or Old Wiring
While you’re probably not an electrician, make sure all the switches and outlets in the house function properly. Flickering lights, circuits that don’t work and warm or hot outlets or faceplates are all symptoms of wiring problems.
6) Fresh Paint… on One Wall
New paint can really spruce up drab walls, but it can also hide bigger problems, like water damage, mildew or mold. If the room smells strange or if you see stains or saggy walls or ceilings, have an inspector look for mold and leaks.
7) Locked Doors and Blockades
Ask about any rooms that are “off limits” during your home tour, and arrange to see them later if you’re interested in the house.
8) Foggy or Non-Functioning Windows
Check for water in between double-paned windows and make sure all the windows are functional.
9) Structural Walls or Floors have been Removed
Sure you love the open floor plan, but was the house always open or did the homeowners renovate? If they removed a load-bearing wall without adjusting the framing, it can shift weight to other parts of the house. Hire a structural engineer if you think any renovations are questionable.
10) Bugs!
No one wants a house with a pest problem - be it roaches, mice or worst of all, termites. Be on the lookout for unwelcome creatures as you tour the house. Even if no foes pop out while you’re there, consider a separate termite inspection if you’re thinking of purchasing the property.
The Bottom Line
Always get a professional inspection for the house you choose to buy. Skipping a home inspection is not a good way to cut costs. You’ll end up paying more in the long run when problems arise.
1) Mass Exodus from the Neighborhood
Don’t let a home’s curb appeal keep you from glancing down the street. Are there several other homes for sale? Are nearby businesses boarded up or vandalized? Get the scoop from the neighbors. If everyone else wants to leave the street, maybe you should, too - before you’re stuck with a bad investment.
2) Mediocre Maintenance
Three layers of roofing and gutters with plants growing in them are signs the owners aren’t big on maintaining their home. What else did they neglect?
3) Foundation Failures
Check out the yard grading. If the yard slopes towards the house, it could cause water to run down the foundation walls or into the basement, which will be costly to repair. Scour the foundation for damage. Bulges or cracks bigger than 1/3 inch can mean the house has serious structural issues.
4) Bad Smells - Inside or Outside
Take a big whiff of the air inside and outside the house. Do you smell anything funky? If you can’t smell anything but the huge baskets of potpourri all over the house, this could be a red flag.
5) Faulty or Old Wiring
While you’re probably not an electrician, make sure all the switches and outlets in the house function properly. Flickering lights, circuits that don’t work and warm or hot outlets or faceplates are all symptoms of wiring problems.
6) Fresh Paint… on One Wall
New paint can really spruce up drab walls, but it can also hide bigger problems, like water damage, mildew or mold. If the room smells strange or if you see stains or saggy walls or ceilings, have an inspector look for mold and leaks.
7) Locked Doors and Blockades
Ask about any rooms that are “off limits” during your home tour, and arrange to see them later if you’re interested in the house.
8) Foggy or Non-Functioning Windows
Check for water in between double-paned windows and make sure all the windows are functional.
9) Structural Walls or Floors have been Removed
Sure you love the open floor plan, but was the house always open or did the homeowners renovate? If they removed a load-bearing wall without adjusting the framing, it can shift weight to other parts of the house. Hire a structural engineer if you think any renovations are questionable.
10) Bugs!
No one wants a house with a pest problem - be it roaches, mice or worst of all, termites. Be on the lookout for unwelcome creatures as you tour the house. Even if no foes pop out while you’re there, consider a separate termite inspection if you’re thinking of purchasing the property.
The Bottom Line
Always get a professional inspection for the house you choose to buy. Skipping a home inspection is not a good way to cut costs. You’ll end up paying more in the long run when problems arise.
Sunday, May 4, 2008
international golf tour
International tour of golfers arrives
More than 50 members of an international golf tour group will arrive today for a five-day stay on the Grand Strand.
This is the first time that the International Association of Golf Tour Operators has had its annual meeting in Myrtle Beach, and local tourism leaders hope they will return with their customers. The tour operators will stay at the Marina Inn at Grande Dunes for five days, play golf and eat at local restaurants.
More than 50 members of an international golf tour group will arrive today for a five-day stay on the Grand Strand.
This is the first time that the International Association of Golf Tour Operators has had its annual meeting in Myrtle Beach, and local tourism leaders hope they will return with their customers. The tour operators will stay at the Marina Inn at Grande Dunes for five days, play golf and eat at local restaurants.
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