Allman-Ac Vol VII

Nationwide, home prices are falling, sales are sluggish and the number of foreclosures is mounting. Ask any economist and you’ll hear that things are bad, and likely to get worse. Unless you live in Seattle, where the market is slowing but fundamentals remain strong.

Also primed for a stable year are Pittsburgh, Columbus, Ohio, and Dallas. They follow Seattle in our ranking of the country’s 10 most stable markets. All are projected to have median home sale price increases next year, thanks to a combination of factors including lower-than-average inventory levels, little price volatility and high job growth.

We teamed with Moody’s Economy.com to develop three prediction models based on a range of factors that affect how prices move. These include, among other things, the state of local economies, new construction contracts, foreclosure rates, local credit markets, sales rates, affordability and inventory. Each of America’s 40 biggest cities was ranked on all three models, with price appreciation counting one half and sales rates and credit models accounting for the other half. Data were drawn from the U.S. Census Bureau, National Association of Realtors, Equifax and Moody’s Economy.com.

The first model looks at projected median existing home price growth from fourth-quarter 2007 to fourth quarter 2008. Factors influencing this data include the market’s inventory of unsold homes and the amount of new construction underway, both of which have obvious effects on supply. Housing affordability and local construction costs also play a role, acting as indicators of the market’s ability to accommodate first-time buyers and new construction. Next is job growth, which attracts people to the area and increases their ability to buy a home. Most of the top performers, however, are affordable, high-job growth markets like Dallas and San Antonio.

Moody’s second predictive model examined market activity by calculating sales rate, which measures how quickly unsold inventory is expected to sell, and turnover, which measures how much of the overall housing stock those sales represent.

The last measure took into account delinquency and foreclosure predictions. Regarding this measure, “it’s important to differentiate between how many people are late relative to their most recent due date and how many people are in the process of losing their home,” says Douglas Duncan, chief economist of the Mortgage Bankers Association. “Ninety percent of all 30-day late pays get fixed.” Forbes.com, October 2007

Despite recent financial turmoil and a dismal housing market, there are key reasons why the economy will continue to expand, albeit at a modest pace, and not go into recession. Businesses are well poised to absorb a period of weaker product demand and are unlikely to significantly alter their hiring and investment behavior. Consumer spending is supported by rising incomes. Exports are strong. And monetary policy is consistent with sustained growth in domestic demand. Next year, we will look back and once again marvel at the flexibility and resilience of the economy.

To be sure, there is bad news. The surge in home ownership, which rose dramatically to nearly 70% in 2005 from 64% in 1994, has proved just as unsustainable as the reliance on subprime mortgages. That surge has begun to recede, and lower prices and onerous adjustable – rate mortgage resets point toward a modest further decline.

The good news is that other factors will provide an offset. First is international trade. Strong U.S. exports and less reliance on imports, reflecting healthy economies overseas and the weaker U.S. dollar are boosting production and job creation here. Second, U.S. businesses are poised to withstand contraction. Third, Fed monetary policy points toward sustained growth in nominal spending. Despite the financial turmoil, credit remains available to basic businesses and the vast majority of households, and a general “credit crunch” is highly unlikely to unfold. Fourth, a wide array of business executives in an assortment of non-financial industries suggest that they have not materially altered their hiring plans, despite heightened concerns about general economic conditions.

Once again, turmoil on Wall Street doesn’t necessarily translate to contraction on Main Street.
Wall Street Journal, October 2007

Despite the downturn of the mortgage market, a type of home loan has remained surprisingly sturdy: one extended to illegal immigrants.

Now, the question is whether these loans will continue to hold up. A number of factors – including a possible government crackdown on illegal workers and a slowdown in job prospects for undocumented laborers –threaten the ability of these borrowers to keep paying. And there are signs of a slowdown as some lenders have raised the interest rates they charge because of the recent mayhem in the credit markets.

Known as ITIN mortgages because applicants must have an individual tax-payer identification number, the fixed-rate loans are designed for immigrants who can prove they are credit worthy and pay taxes even though they don’t have legal permanent residency in the U.S.

The mortgages represent a fraction of the $2.8 trillion mortgage market. But they are a bright spot in today’s gloomy mortgage industry.

For loans more than 90 days in arrears, ITIN mortgages have a delinquency rate of about 0.5%, according to independent estimates. That compares with 1% for prime mortgages and 9.3% for subprime mortgages extended to those with spotty credit histories. Many lenders who have sought this business remain bullish.
Wall Street Journal, October 2007

North Texas already has a stable of high-profile corporate headquarters, and it’s in a good position to woo more as companies seek to move from expensive areas to cheaper ones, a New Jersey relocation consultant says.

Of 30 major U.S. cities, the Dallas-Fort Worth area offered the fourth-lowest annual operating cost for corporate headquarters, according to a recent study by John Boyd, head of the Boyd Co., a relocation consulting firm based in Princeton, N.J.

His study takes into account “geographically variable operating costs” such as labor and utilities costs that are involved in operating a headquarters – in other words, the expenses you can change by moving somewhere else.

New York still leads the nation, with 45 headquarters for companies on the Fortune 500 list of the largest U.S. corporations. Houston is No. 2, with 22, followed by Atlanta, with 12, according to the 2007 Fortune 500. Dallas ties with Chicago for fourth place, with 11 headquarters. But add in companies based in Fort Worth, Plano, Irving and other local cities, and the Dallas-Fort Worth area’s tally climbs to 24. (As a state, Texas ranks second, behind New York but ahead of California in the number of corporate headquarters.)
Dallas Morning News, August 2007

D-FW recently was ranked the fourth most populous metropolitan area in the nation, a top five media market and the 12th largest regional economy in the world – yes, the world.

Other data rolls in constantly, and may even surprise the most ardent D-FW booster.

For example, the Federal Deposit Insurance Corp., or FDIC, reports more insured deposits here than Houston, San Antonio and Austin combined – a staggering $155 billion compared to $146 billion in Texas’ other major metropolitan areas.

One in four Texans resides in the D-FW region. We account for one-third of the value of all goods and services produced in Texas. That makes ours the most productive region in the state. The range of high-value products and services made here is impressive and diverse. The distribution of jobs throughout our major economic sectors closely mirrors the national pattern.

Over the past few years, Texas has been consistently recognized by Site Selection magazine as a top state for new and expanding corporate facilities. Care to guess which metro area is far and away the biggest contributor to corporate locations and expansions in our state? That would be the D-FW region.

D-FW continues to move up on a lot of charts and is increasingly positioned as the most significant metropolitan area in the U.S. behind the “big three” of New York, Los Angeles and Chicago.
Dallas Business Journal, September 2007

A group of homeowners is holding firm on an ambitious goal – to break the record for the most expensive home sale in American history. The price to beat is $103 million.

Two years ago, only a handful of homes in the U.S. had ever been listed for $75 million, let alone $100 million. Even the highest residential sale to date – investor Ron Baron’s $103 million purchase earlier this year of a 40-acre compound in East Hampton, N.Y. – was never publicly listed.

There are five contenders for the current prize, including a Beverly Hills compound once owned by William Randolph Hearst and Marion Davies that’s listed for $165 million; the Aspen home of Saudi Prince Bandar bin Sultan, which has been visited by the past three U.S. presidents ($135 million); and an estate overlooking Lake Tahoe with a staircase modeled after the one aboard the Titanic (a dark horse at $100 million). All have come on the market since summer 2006.

Robert Kass, who is co-listing the fourth contender – a Los Angeles chateau for $125 million – recently spent a month traveling to London, Moscow, Istanbul, Dubai and the Côte d’Azur, meeting with potential customers.

Donald Trump, whose Palm Beach estate rounds out the list at $125 million, dismisses Prince Bandar’s $135 million asking price as a case of “some character putting on a price just to try to top Trump.”

The international home sale record is thought to be held by a London property that sold in 2004 for £70 million (about $128 million at the time). A Paris home is on the market for €100 million, or roughly $135 million.
Wall Street Journal, August 2007

According to a national consumer survey on the outdoor living trend in the United States by the Propane Education & Research Council (PERC), consumers across the country are spending more time at home and are showing an increasing interest in outdoor rooms.

The PERC survey showed that creating a space to relax and entertain is among the top reasons homeowners decide to add or remodel an outdoor room. Other survey results include:
• Half of all American homeowners (50 percent) say that they are spending more time at home than they were five years ago.
• When it comes to spending time at home, four in five (80 percent) also say that it is important to have an outdoor living space where they can relax and entertain.
• More than one in three homeowners (35 percent) have a finished outdoor room, and 34 percent say they are planning to design one in the next one to two years.
• The most important reason homeowners decide to add or remodel an outdoor room is to create a space to relax (89 percent), followed by spending more time outside (87 percent), adding value to a home (70 percent), extending a home’s living space (78 percent) and creating a space to entertain (74 percent).
• When it comes to outfitting an outdoor room, most homeowners say they are likely to include outdoor lighting units (94 percent) and a gas grill (86 percent). Many would be likely to include mosquito eliminators (79 percent), an outdoor fireplace or pit (67 percent), and just over half (53 percent) are likely to include patio heaters.

Living large outdoors is a luxury everyone is embracing.
Realty Times, October 2007

If you want to know the direction of your customers’ homebuying preferences, think big cars and big screens. Almost 60 percent of home buyers are prepared to spend more for a house with an oversized garage, and almost 40 percent would do the same to get a house that’s ready for cable or satellite TV, NAR research shows.

Both of these figures up are up substantially from 2004, when NAR conducted similar research. With their rise, oversized garages now rank second among the most desired features buyers want, up from fifth place three years ago. TV readiness has also edged up. Of all the preferred features, central air conditioning is far and away the most important. That was the case in 2004, and it continues to be No. 1 this year.

Other important features: walk-in closets in the master bedroom and separate showers in the master bath. Also big: patios, porches, and fencing. New on the list: backyards with a play area and wiring for high-speed Internet. The NAR survey for the first time asks about preferences for energy efficient features. In their responses, buyers say they want such features, with more than 90 percent saying the features are either very or somewhat important.

Despite these green leanings, big houses remain the norm. The typical home was 1,840 square feet in the 2007 survey, up almost 7 percent from the median home size of 1,727 square feet in 2004. What’s more, 12 percent of homes in the 2007 survey were more than 3,000 square feet, compared to 9 percent of homes in 2004.

The good life increasingly is the only life, buyer’s preferences indicate. More buyers than in the previous survey say it’s very important for homes to have granite counters in the kitchen (23 percent compared to 17 percent in 2004), a whirlpool tub in the bathroom (13 percent vs. 9 percent), and hardwood floors throughout (28 percent vs. 21 percent).

The only interior features of decreasing importance: a sitting area in the master bedroom.

The trend toward enhancing living shows up in buyers’ room preferences. Of declining interest are traditional rooms like the living room, den, and dining room, while interest is rising in exercise rooms and in-law suites.
NAR, September 2007

Everybody has read the headlines: Home sales are down 11 percent across the country over the last 12 months, median home prices are down, and inventories of unsold homes are bulging.

But look more closely at the numbers. In the latest quarterly study conducted by the National Association of Realtors, about two thirds of the 149 markets surveyed registered price gains year to year. Some of those increases were exceptional, thanks to strong local economic growth and affordable housing prices.

Counter-trend patterns can be found inside large metropolitan areas as well, where select micro-marketsneighborhoods and entire Zip codes defy national, regional and state downcycles. For example, in the Washington D.C. area, two contiguous Zip code areas – 20815 (Chevy Chase/Bethesda, Maryland) and 20015 (portions of Northwest D.C.) – have been relatively unscathed by the softness that plagues the regional market.

In the Miami-South Dade metropolitan area, close-in areas such as Coral Gables are far outperforming the overall market’s well-publicized reverses.

Similar patterns can be found in the Los Angeles and San Francisco areas, according to local brokers. In San Francisco, highly-regarded, close-in neighborhoods such as Pacific Heights and the Marina are little affected by the credit crunch and mortgage problems.

As a general rule, oasis micro-markets are characterized by: higher than median household incomes; convenience to employment centers and cultural attractions; excellent school reputations and household educational attainments that are well-above metropolitan norms. The key, however, is that the underlying metropolitan economic fundamentals must be strong, with plenty of job creation, especially jobs with above-average compensation.
Realty Times, August 2007

Home prices fell in California, Nevada, Michigan and Massachusetts during the last year, while Utah and Wyoming saw double-digit price appreciation, according to a house-price index based on repeat transactions involving conforming loans of $417,000 or less.

Nationwide, second-quarter home-price appreciation was essentially flat from the previous quarter at 0.1 percent, the lowest growth since the fourth quarter of 1994, the Office of Federal Housing Enterprise Oversight (OFHEO) said in releasing its House Price Index.

Home-price appreciation for the year ending June 30 was 3.2 percent, the lowest annual price change since 1996-97 but still better than the 2.1 percent growth in the Consumer Price Index during the same period.

States with the highest annual appreciation were Utah (15.28 percent);Wyoming (12.84 percent);Washington (9.12 percent); Montana (9.06 percent); New Mexico (8.81 percent); Idaho (8.42 percent); Oregon (8.18 percent); North Carolina (7.1 percent); Texas (6.94 percent); and Mississippi (6.73 percent).
Office of Federal Housing Enterprise Oversight, August 2007

The chairman of a key congressional committee has provided new details on his controversial plans to deny mortgage interest deductions to people who own large homes.

Rep. John D. Dingell (D-Mich), who as chairman of the Energy and Commerce committee is one of the most powerful leaders in the House, unveiled a draft of his forthcoming “carbon tax” legislative reform package. As expected, the bill would impose new federal taxes of $50 a ton on coal, petroleum, natural gas and other carbon-based fuels; a new 50 cents per gallon tax surcharge on gasoline, jet fuel and kerosene; and “phase out the mortgage interest deduction on large homes.”

Dingell defines large as 3,000 square feet or more of interior space. The draft language does not explain who will be responsible for measuring houses’ square footage or how the federal government will audit compliance.

The bill, which will be part of Dingell’s comprehensive plan to address global warming, would offer exemptions to certain “historical homes” built before 1900, houses on farms, and houses whose owners purchase “carbon offsets” to make their properties “carbon neutral.” The bill would also provide exemptions for large houses built to certified high energy-efficient standards.

In a statement, Dingell said he is targeting big houses because they “have contributed to increased sprawl and longer commutes. Despite new houses in and of themselves being more energy efficient,” he said, “the sheer size, sprawl and commutes lead to drastically more energy use-or to put it more simply, a larger carbon footprint.”

In the draft, Dingell offered a detailed phase-out schedule for the mortgage interest writeoff, beginning with houses of 3,000 square feet – which would lose 15 percent of their deductions – and ending with houses of 4,200 square feet and larger, which would receive no deductions at all.

Dingell’s plans have drawn criticism from the National Association of Realtors and the National Association of Home Builders, both of whom questioned its practicality and its focus on square footage rather than energy efficiency and measured usage. The NAR estimated that roughly 10.4 million single family homes in the U.S. have more than 3,000 square feet, and represent 27 percent of the total valuation of single family units.

Dingell’s legislation is still at the drafting stage, but is heading for introduction in the weeks ahead. Dingell’s committee has congressional jurisdiction over energy issues, but tax proposals must go before the Ways and Means committee, where the limitation on mortgage interest deductibility is likely to meet strong, bipartisan opposition.
Realty Times, October 2007

Each year, our population continues to grow and with that growth comes many changes to the average American household.

• By 2010 over 40 percent of all households will comprise an age group over 55 years.
• The number of citizens over the age of 65 years will jump from 34.7 million in 2000 to nearly 70 million by 2030 (a mere 30 years).
• The Spanish speaking population will increase from 31.4 million in 2000 to nearly 65.6 million in 2030.
• 50 percent of children under the age of 18 (42,853,649) will be a minority in 2030. Total US population is estimated at 400 million in 2030.
• The traditional household (married couple with children) which comprised 90 percent of the households in 1950 will comprise only 65 percent of the households in 2030.
• 29 percent of the US households will be living alone in 2030.
• From 2000 to 2030, the U.S. population will grow by 82 million, 72 million of this growth will occur in the South and the West.
• Worldwide the percentage of the population living in cities is projected to grow from 47 percent to 60 percent by 2030. To deal with the challenges of large cities taxes will increase. Much of the projected future growth will be in Texas, California, Florida, Virginia, Arizona, Nevada, Utah, Colorado, Georgia and North Carolina.
U.S. Census Bureau, September 2007

Wages have not kept up with inflation, which is one of the reasons why nearly one in four people between the ages of 65 and 74 (23.2 percent) are still in the labor force (either working or looking for work) in 2006. That’s an increase from 19.6 percent in 2000.

Among the 20 largest metro areas, Washington D.C., had the highest percentage of people in the labor force in this age group (31.8 percent). Others with high percentages include Boston (28.1 percent), Dallas Fort-Worth (27.9 percent), and Houston (26.5 percent).

Only recently has homeownership receded slightly, but it has increased overall since 2000, with more than two-thirds of all occupied homes (67.3 percent) currently owned by the occupant, compared to 66.2 percent in 2000.

In 2006, about 8 million more people spoke a foreign language at home than in 2000. Nationally, one in five (19.7 percent) over age 5 spoke a language other than English at home, compared to 17.9 percent in 2000. Among the states, California (42.5 percent) had the highest percentage in this category, followed by New Mexico (36.5 percent).

The percentage of households, that were married-couple families with children under 18 decreased from 23.5 percent in 2000 to 21.6 percent in 2006.

All states, except Connecticut, saw a percentage point decrease in households in this category since 2000. In 2006, Utah had the greatest percentage of married-couple households with children under 18, at 32.3 percent. Other states with high rates included Idaho (25.5 percent), California (24.8 percent), Texas 24.7 percent), New Jersey (24.6 percent) and Alaska (24.3 percent).

Among the 20 largest metro areas, Riverside, California had the highest percentage in this category (29.6 percent), followed by Dallas-Fort Worth (26.6 percent) and Houston (26.1 percent).
American Community Survey, September 2007

A recent survey by the online brokerage ShareBuilder found that a majority of Americans are much less concerned about the current state of the housing/mortgage market.

The survey found that 67 percent of the respondents were “just as confident” in their ability to make mortgage payments – even in the current declining housing/mortgage market.

With credit getting tighter and many major lenders having to deal with loans that might have not been made in a less boisterous market, the same survey showed 28 percent of those homeowners surveyed planned to increase their spending on home improvements.

Those concerned about the housing market are instead cutting back on entertainment and discretionary spending.

Real estate agents in many areas are noticing a greater willingness by people planning to sell their houses to spend some money to get them on the market. Two years ago, when houses were virtually selling themselves, an agent’s suggestions about making even minor repairs or cosmetic changes went unheeded.

A recent survey of members by the American Institute of Architects showed that for the third consecutive year, home offices are the most popular special function room being requested by clients.

And, while billings at residential architectural firms are representative of the slowdown in the overall housing sector, architectural firms are reporting steady backlogs for projects with an average of 5.3 months of work under contract.

The market environment for home improvement projects, both for additions and alterations as well as kitchen and bath remodels, is reported as very healthy even though growth is not as strong as it was a year ago, according to the AIA.

Still, AIA chief economist Kermit Baker says that overall, the greatest declines over the past year are reported by residential architects in the Midwest, while those in the Northeast report some improvement.
American Institute of Architecture, September 2007

Most of the economists contracted for the most recent survey – 59 percent – still say there’s no national housing bubble, only “significant” local bubbles. Another 8 percent said there’s no bubble at all, and that the market is functioning correctly.

Asked to look five years into the future, 42 percent expected U.S. home prices to remain flat, 41 percent said prices should rise, and 16 percent predicted prices will fall.About three in four surveyed said they would buy a house today if they intended to use it as their primary residence.

Although many of those surveyed by NABE hold advanced degrees in economics and other business-related disciplines, many said they have little or no familiarity with the structure, activities and risks associated with the methods used to finance many mortgage loans today.
National Association of Business Economics, August 2007

FHA– insured home mortgages – marginalized or squeezed out of the market during the subprime loan boom years – are poised to roar back. And if Congress passes a compromise version of FHA reform legislation, maximum loan limits for FHA could rise immediately to $417,000 – or even a lot higher.

The House overwhelmingly approved a reform bill that would cut minimum downpayments to zero, and increase loan limits in high cost areas of California well beyond $500,000. Under the House-passed bill, FHA could insure mortgages as high as 125 percent of the median home price in a market area, or 175 percent of the conforming loan limit for Fannie Mae and Freddie Mac – currently $417,000. In addition, the HUD Secretary could raise limits by another $100,000 if local conditions required such a move.

Meanwhile, the Senate Banking committee reported out its version of an FHA reform bill, but with much tighter loan limits – $417,000 maximum – and a 1.5 percent minimum cash downpayment, down from the current 3 percent minimum. The full Senate is expected to approve the Banking committee’s bill soon, sending the FHA issue to a House-Senate conference committee to work out the differences.

What’s likely to emerge in the final bill sent to the president in the coming weeks? At the very minimum, Congress is now almost certain to make FHA competitive again in high-cost markets.

Realty Times, September 2007

Courtesy of Allie Beth Allman & Associates and Bob Edmonson
Consumers’ Choice Award 2007