Tag Archives: housing market

“More U.S. cities set to enter default danger zone”

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A Reuters story suggests more municipalities are having trouble keeping up with their debt:

Bond defaults were $25.355 billion in 2011, or nearly five times the value of defaults in 2010, according to Lehmann. In 2012’s first quarter, defaults totaled $1.245 billion, or more than double the $522 million of last year’s first quarter.

Municipal bankruptcies, such as last November’s landmark, $4.23 billion Chapter 9 filing by Alabama’s Jefferson County mainly because of its excessively expensive sewer system mocked as a Taj Mahal project, have picked up, too.

Chapter 9 municipal bankruptcy filings doubled to 13 in 2011 from six in 2010, but still remain rare among the more than 60,000 issuers, with only 49 of the 264 cases since 1980 being towns, cities, villages or counties, according to James Spiotto of Chapman and Cutler LLP. States are ineligible for Chapter 9.

Outsized pension-deficit payments and other liabilities, as well as depressed local economies or failing government projects such as Harrisburg’s trash incinerator, often herald crises, according to Ciccarone.

While much of the focus has been on the national debt and national figures (such as unemployment, jobs created, where to set the tax brackets, etc.), all of this is trickling down to the local level. Since many municipalities and local taxing bodies are heavily dependent on property taxes, a decrease in housing values and a continued sluggish housing market suggests many communities will struggle to find revenue. In other circumstances, local bodies might be able to look to states and the federal government for monetary help but they have their own issues during this economic crisis.

I would love to see experts speculate on where this all will end up in five or ten years. Are we legitimately in danger of a lot of municipal governments defaulting? If so, how will this affect local services? How will residents respond to what will be more fees and taxes even as their services might decrease? Could the wealthier people respond with their feet and move to more financially solvent communities?

More foreclosures on the way in 2012?

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While many might hope for economic progress during 2012, some are suggesting that another wave of foreclosures will hit during 2012:

In 2011, the “robo-signing” scandal, in which foreclosure documents were signed without properly reviewing individual cases, prompted banks to hold back on new foreclosures pending a settlement.

Five major banks eventually struck that settlement with 49 U.S. states in February. Signs are growing the pace of foreclosures is picking up again, something housing experts predict will again weigh on home prices before any sustained recovery can occur…

Online foreclosure marketplace RealtyTrac estimated that while foreclosures dropped slightly nationwide in February from January and from February 2011, they rose in 21 states and jumped sharply in cities like Tampa (64 percent), Chicago (43 percent) and Miami (53 percent).

One big difference to the early years of the housing crisis, which was dominated by Americans saddled with the most toxic subprime products — with high interest rates where banks asked for no money down or no proof of income — is that today it’s mostly Americans with ordinary mortgages whose ability to meet payment have been hit by the hard economic times…

Is this the final wave?

If it is primarily “hardworking, everyday Americans” who bear the brunt of the 2012 foreclosures, will the coverage of foreclosures and the proposed remedies change? In previous years, it has been easy for some to suggest that those who made and accepted subprime mortgages deserved what they had coming as they extended their credit and debt too far. If this year’s foreclosures are now occurring to people who didn’t overextend themselves yet still fell prey to the economic crisis, will the narrative change?

Economist Robert Shiller: “we will never in our lifetime see a rebound in these [housing] prices in the suburbs”

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Economist Robert Shiller suggests there is a “real chance” we may have a long way to go before the US housing market recovers:

Many young people are choosing to live at home for a longer period of time instead of buying. Moreover, would-be homebuyers are settling into modern apartments and condominiums, further hindering a housing rally. Shiller says the shift toward renting and city living could mean “that we will never in our lifetime see a rebound in these prices in the suburbs.”

A perpetually sluggish housing market, which Shiller believes has become “more and more political,” might push the country in a “Japan-like slump that will go on for years and years.”

I imagine there are a lot of people who hope Shiller is very wrong. If you watch the full video here, Shiller also suggests there is a chance for a rebound. The discussion is based on this data:

Home prices in January were flat compared to the prior month, suggesting stabilization in the market, but home values fell for the fifth-straight month and prices dropped to their lowest levels since 2003, according to the Standard & Poor’s/Case-Shiller Home Price Index. Housing prices declined 3.8 percent on a year-over-year basis. The index measures the value of home prices in 20 U.S. metropolitan cities.

The key prediction here is that suburban housing prices may not rebound for decades. What are the implications of this? I wonder if this means that we may finally witness a suburban growth plateau, meaning that because people will have more difficulty moving in and out of their houses, suburban growth will have to slow. Of course, this may change after a few years as people adjust to their mortgages and either move out of being underwater or pay enough off to make some money when they sell. But there would still be fewer people looking for homes, leading to less demand for new homes.

 

A surplus of 5 million McMansion in the United States?

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In the middle of a review of the Foreclosed exhibit at MoMA, a housing analyst makes an interesting statement about the surplus of housing currently in the United States:

It’s still easier to borrow for a McMansion, even though the U.S. has about five million too many of them, according to Arthur C. Nelson, a housing analyst who directs the Metropolitan Research Center at the University of Utah.

Nelson was also cited in stories about turning McMansions into affordable housing that I wrote about back in October 2011. In that story, it was said that there “America [is] saddled with about 30 million more homes on large lots than the market needs.” Whether the number if 30 million or 5 million or even 1 million, that is still a large glut of homes that must be hampering the housing market.

I wonder if Nelson is defining a McMansion just by square footage. This is the most basic trait of a McMansion when the term is generally used though it is unclear how big a home has to be in order to be called a McMansion. Is 3,000 square feet big enough? Is 10,000 square feet more of a mansion than a McMansion? We could also ask whether a home this size necessarily is a McMansion as it may be an older home or it may have more architectural quality than a McMansion is assumed to have.

 

Toll Brothers still moving forward

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While some may claim that the McMansion era is over, one of the prominent builders of some of these homes is still moving forward. Here is an update on Toll Brothers:

Luxury-home builder Toll Brothers has rebounded impressively since the start of October, along with its industry. The stock has risen by two-thirds and now trades at 71 times forward earnings estimates.

This is the case even with a reported quarterly loss announced Monday:

Toll Brothers Inc. swung to a fiscal-first-quarter loss as fewer deliveries and increased cancellations weakened revenue for the luxury-home builder.

But the company, known for its sprawling suburban homes and high-end urban condos, said it was optimistic because contracts were the highest for any first quarter in five years. It also sees recovery along Florida’s east coast and in Phoenix, markets hard hit by the housing crash…

Revenue dipped 3.6% to $322 million. Analysts expected a per-share profit of two cents on $361 million in revenue, according to a survey conducted by Thomson Reuters.

It sounds like some are optimistic that the housing market is turning a corner or has already reached its bottom. On the other hand, it sounds like there is still a lot of potential volatility. Here is a mixed report:

Homebuilders have struggled to compete as foreclosed properties sell at a discount and the U.S. unemployment rate remains above 8 percent. Toll Brothers depends on people selling their homes and buying its more expensive residences.

Sales of previously owned U.S. homes rose in January to an annual pace of 4.57 million, the highest level since May 2010, the National Association of Realtors reported today from Washington. The results were below the median forecast of 4.66 million by 74 economists surveyed by Bloomberg…

Toll Brothers’ earnings miss wasn’t “significant,” because it was caused by the longer period needed to complete high-rise condos in New York, which accounted for its most profitable sales, Chief Executive Officer Douglas Yearley Jr. said on Bloomberg Television today.

“This is the best we’ve felt in about five years,” he said on “Street Smart” with Trish Regan. “For the first three weeks of February, our orders are up significantly. We’re seeing deposits up. We’re seeing traffic up.”

My translation: we are still far from clearly positive results in the housing market.

I don’t know how many houses the biggest builders build but the figures from Toll Brothers are intriguing. Toll Brothers attracts a lot of attention but they “delivered 564 homes in the latest quarter, down slightly from 570 homes a year earlier.” This is not a lot of homes. I assume Toll Brothers gets more attention then because they tend to build high-end homes?

Exploring the Gen Y home

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The International Builders Show that recently concluded featured a Gen Y home. Here is what it involved:

The so-called Gen Y House, one of a trio of Builder Concept Homes constructed for the show, also departs from housing’s (and the trade show’s) long-running obsession with the baby boom generation.

Its 2,163 square feet marry indoors with outdoors: One all-glass exterior wall literally disappears, folding away to open the home to the patio and pool. The party-hearty vibe is hard to miss…

It’s a wide-open floor plan that emphasizes flexibility and gives a nod to the fact that, being in Florida, relatives and friends are likely to show up to visit: There’s a separate studio apartment with kitchenette just off the front courtyard. That courtyard provides a roomy alternative to the traditional notion of a front yard. Out back, there’s that pool and hot tub; a separate entrance from the master bedroom leading to the pool practically screams “midnight swim.”

The architect said that homes have to have contemporary styling for this age group.

One architect quoted in the story suggests that Generation Y “can lead out of this [down housing] market.” Thus, it sounds like builders and others think there is a lot of money in designing homes for the younger generation.

Four thoughts about this home:

1. Does it work outside of Florida? This home seems to take advantage of its setting but it might look a little different for a Gen Yer in Minneapolis.

2. This goes along with a larger industry theme that smaller might be better today. Again, however, this home is not short on features and has a price tag of $300,000. This is not exactly affordable housing though it appears that people want to make clear it is not a McMansion.

3. Would this home stand the test of time? What I mean here is whether this home would look dated in 15 to 20 years or if it is so geared to a particular group that it would have little appeal for the larger market. Styles and accoutrements do change over time but I assume builders don’t want to limit who would purchase these homes.

4. This home seems to emphasize fun and entertainment. Would these homes encourage sociability in the long run or reinforce a lack of attachments to civil society a la Bowling Alone?

All those new Facebook millionaries won’t be buying McMansions

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As Facebook prepares its IPO, you might not have considered how it would affect the real estate market in Silicon Valley:

Typically clients pay cash for the homes, he said, which can range anywhere from 4,000 to 15,000 square feet (372 to 1,393 square meters) depending on the size of the family.

Real estate agent Dawn Thomas said she is already seeing home prices rise in areas surrounding Facebook’s Menlo Park headquarters and expects that to continue…

Thomas described her tech-savvy homebuyers as “very, very green-minded” and in search of smaller, tech-equipped, energy-efficient homes with high-end amenities.

“They don’t want ‘McMansions,'” she said, referring to super-sized houses that can gobble up energy.

The implication: the young and wealthy wouldn’t be caught dead buying a home that could be considered a McMansion. If the home is indeed big, and I would say 4,000 square feet is McMansion territory and 15,000 square feet is a just a plain mansion, it has to be green and energy-efficient. Is this the same argument that Gisele Bunchen tried to make recently?

This makes me think that we might need a new term to describe an abnormally large home that is intentionally not a McMansion. A “green home” or “eco-home” doesn’t cut it because these homes are still much larger than the average size of the new American home (around 2,400 square feet). A “greenwashed mansion” but be more accurate but I don’t think these tech-savvy buyers would like the connotations of this term either. Playing off the “Not So Big House,” how about the “not so polluting house”?

Worst year ever for sales of new homes

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Here is another indicator that the American housing market has a long way to go before it is fully turned around: 2011 was the worst year for new home sales with records dating back to 1963.

About 302,000 new homes were sold last year. That’s less than the 323,000 sold in 2010, making last year’s sales the worst on records dating back to 1963. And it coincides with a report last week that said 2011 was the weakest year for single-family home construction on record…

Economists caution that housing is a long way from fully recovering. Builders have stopped working on many projects because it’s been hard for them to get financing or to compete with cheaper resale homes. For many Americans, buying a home remains too big a risk more than four years after the housing bubble burst.

Though new-home sales represent less than 10 percent of the housing market, they have an outsize impact on the economy. Each home built creates an average of three jobs for a year and generates about $90,000 in tax revenue, according to the National Association of Home Builders.

A key reason for the dismal 2011 sales is that builders must compete with foreclosures and short sales — when lenders accept less for a house than what is owed on the mortgage.

While several experts are quoted in this story suggesting this likely means the housing market has bottomed out, I am interested in whether this will become the “new normal.” In other words, perhaps we won’t ever get back to the level of new homes sales that we have seen in the past. This could take place for several reasons:

1. These foreclosures clogging up the housing market will continue to take years to clear.

2. There is less demand for new homes from consumers who decide to do other things with their money.

3. Policy makers turn their attention away from new homes and instead promote renting or rehabbing older homes.

4. Population growth is relatively small, driving down demand throughout the housing market.

The assumption I’ve seen from a number of commentators is that the housing market will bounce back at some point. Is this such an inevitable event?

Official existing home sales statistics to be revised downward

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The National Association of Realtors announced that existing home sales figures for recent years will be rechecked and revised downward after some errors in counting were discovered:

Data on sales of previously owned U.S. homes from 2007 through October this year will be revised down next week because of double counting, indicating a much weaker housing market than previously thought.

The National Association of Realtors said a benchmarking exercise had revealed that some properties were listed more than once, and in some instances, new home sales were also captured.

“All the sales and inventory data that have been reported since January 2007 are being downwardly revised. Sales were weaker than people thought,” NAR spokesman Walter Malony told Reuters…

Early this year, the Realtors group was accused of overcounting existing homes sales, with California-based real estate analysis firm CoreLogic claiming sales could have been overstated by as much as 20 percent.

So if you thought the existing real estate market was in bad shape in recent years, it was actually worse than you thought. However, it will be interesting to see how much these statistics are revised and then how these changes affect things like the stock market. A little change may not matter much.

This is a reminder about trusting “official” figures too much. On one hand, it would be hard for the average citizen to gather this information. Therefore, we have to trust certain data sources. On the other hand, official measurements can be affected by a variety of factors and always should be considered probabilistic since they are often based on surveys and not 100% counts or “proof.”

“Muck mansions” and “bungalow bliss” in Ireland

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The United States is not the only country with housing issues. Here is a description of some of the issues in Ireland, complete with references to “muck mansions” and “bungalow bliss”:

A major study of the impact of the Celtic Tiger property boom on the Irish landscape has slammed the damage done to the countryside, to rural towns, and to people who have to endure long commutes…

It says that the damage done by the ‘McMansions’ or ‘Muck Mansions’ of the past decade is worse than the effect of the ‘bungalow bliss’ era in the 1970s…

“The mark left on the landscape by the Celtic Tiger society has been profound. A sense of lifestyle entitlement is reflected in the one-off ‘McMansion’ housing in rural areas, with SUVs on cobble-lock driveways, satellite dishes and decking that is seldom used but always seen.”

The McMansions are on a bigger scale, the book says, referring to “a conspicuous two-storey house faced in either red brick or stone, with protruding conservatory and a detached garage. Frequently sited in commanding locations, they dominate the landscape, reflecting their role as status symbol as well as home.”

The description of a McMansion is intriguing. On one hand, there are similar traits compared to American McMansions: ties to SUVs, “entitlement” culture, conspicuous design, sprawl and long commutes, and status symbols. On the other hand, there are some differences: Irish McMansions are said to be in rural areas (though I’m not sure they really have suburbs like the US does so maybe this is similar), the garage is separate, and they are placed in “commanding locations” where everyone else can see them. The general connotation that these are undesirable places and that such homes are either symbols or causes of economic troubles is very similar.

There is something to this alliteration: “muck mansions” and “bungalow bliss.” Any good ideas about similar terms that could apply to the US housing market?