Housing Storm Clouds Part For a Little Good News

The last two days have been fraught with housing numbers showing a few rays of good news for an audience who is starved for better times. Enjoy the warm glow offered by a market that is not necessarily showing signs of recovery, but simply is not worsening with the previous velocity.

That the housing market is not getting worse quite as fast is cause for celebration? Well bring out the Freixenet if you must, but not the Crystal. The ominous storm clouds are still looming large. The news headlines clearly show a double-edged sword. It just depends on whose spin you sign up for.

Could this in itself be a sign that we are approaching a tipping point? Perhaps. But lying ahead are the four months typically the slowest for housing, an election and the holidays. Speaking of the holidays, New Year’s Eve should be a huge celebration for real estate professionals of all breeds as the door is forever closed on 2008.

Here are the many flavors of headlines from the last few days as several report cards were posted. If you are only shopping for good news look for the month-to-month comparisons. If you can take the truth, try the year-to-year metrics.

BusinessWeek - Housing: Is the Slowdown Slowing Down? - A relatively upbeat Case-Shiller reading and the slowing pace of home price declines point to hope that the housing market is nearing its bottom .

WSJ - Housing Data Signal Small Pickup - Home-Price Drops, Slow in Big Cities

WSJ - Home Sales Rise but Risks Persist - Unsold Inventory, Mortgage Rates Inhibit Full Recovery

IHT –Raising the Roof - Latest Sales Numbers Reveal Signs of Life in U.S. Property Market

MSNBC – Realty Check - Home Prices Turning Up in Spots

MSNBC – Realty Check - Existing Home Sales Rise (Curb Your Enthusiasm)

WSJ - Housing Story Still Has Many Chapters

Reuters - Mortgage Applications Up for First Time in Weeks -Applications during previous week had fallen to slowest pace since 2000

MSNBC - In Housing Market, ‘Hints of a Bottom’ - Falling prices lure more buyers, but outlook clouded by weak economy

AP - Home Prices Drop by a Record Amount - But data suggest severity of housing slump may be waning

AP - New-home sales rose unexpectedly in July - Heavily-discounted properties attracted cautious house shoppers


With Gustav on the way perhaps I can get away with a hurricane metaphor … nah, never mind.

The World Party Ends, Obama/Biden, Fannie/Fredie, John Edwards and Tropic Thunder

The World Party in Beijing comes to an end. The Olympics were spectacular. The NBC coverage was fantastic - fun, beautiful and inspirational. No, it was the athletes that were inspirational. China and Beijing have reason to be proud. The most watched Olympics, ever.

It looks like Fannie Mae and Freddie Mac will keep their doors open this week without an implosion. The F&F watch continues.

Obama tags Biden. Marketers say they're perfect together because their coupled names will make a balanced bumper sticker. On the heels of the Olympics we now have to face the less than entertaining Democratic Convention. It will be hard to top the Olympic Games but the Clinton's could surprise us and provide an entertainment factor, but don't hold your breath.

The new Pakistani regime is on the verge of collapse less than a week after forcing Musharraflooks out. What now? A revolving door system?

Russia says Georgia is not about oil. Right, just like Iraq is not about oil.

Who is going to be the screw-up this week? John Edwards drew an ace when his shame was washed out by the Olympics. He won't be missed at the Convention. Can't believe the Enquirer actually make the score. Forrest Gump said it best..."Stupid is as stupid does."

What about real estate? With over an eleven month inventory out there, let's talk about something else....I saw Tropic Thunder and Bottle Shock this week. Both were excellent movies although soooo different. Tropic Thunder was a brilliant comedy and Bottle Shock was all about wine.

The Brits can no longer afford to live in the U.K. They're moving to Spain and the Russians are taking over the U.K. Sarkozy hasn't noticed the snub because he's distracted by his beautiful wife and brokering peace in Georgia.

Will the Georgian Conflict Still Russian Millionaires?

Villa Leopolda

Russia has been touted as one of the most promising emerging markets in the world. As Russia settled in with capitalism as their new bed mate, thousands of millionaires were created by the unbridled race to get rich. Their new wealth is being seen all over the world but Europe is their favorite for garnering instant status buying trophy mansions.

The newly rich often are the objects of journalistic fodder and the newly minted Russian elites are no exception. Recently every international paper covered the story that a member of the Russian Oligarchy, Mikhail Prokhorov, had bought the €500 million Villa Leopolda, the 1902 French seaside estate built near Villefranche by Belgian King Leopold II. By the way, that's about $745M in the U.S.

The International Herald Tribune reported that a spokesman from Prokhorov's company however has recently denied the claim and stated that he “will not make any business in France” until he receives an official apology for a prostitution-related raid on his chalet in Courchevel last year. That angle has been extensively covered by the Daily Telegraph. You can catch the whole sordid story here.

So no one is quite certain if there is a buyer for the villa, and if so who it might be. But there are plenty of other wealthy Russians around who could make the purchase. Their real estate enthusiasm is running to instant status of established estates and high profile residences. With the UK's real estate market suffering under its own burst housing bubble, and other European countries showing signs of real estate stress as well, the Russians are welcomed with open arms.

They're an estate agent's dream. Russian oligarchs - for whom money is no object - now account for the purchase of one in five properties in the UK priced over £6million. This month it emerged that Russia's richest woman, the Mayor of Moscow's wife Elena Baturina, snapped up London's biggest private house bar Buckingham Palace for £50 million. Daily Mail Reporter

What are these new millionaires and billionaires thinking as they see their global status and economic well being threatened by the cold war tactics employed by their government in Georgia? I would guess that the cocktail chatter has turned a little icy as investors eye the backtracking ideology of the Russian government.

Check out many of the recent high priced mansions bought by the wealthy Russians.

Bear Housing Market

"In a bear market, everyone loses, and the winner is the one who loses the least."

Richard Russell

Compliments to The Big Picture Capital Markets Blog

FBI and DOJ on Opposite Sides of Commission Rebates

The Federal Bureau of Investigation is investigating as criminal fraud what the Department of Justice promotes as healthy competition.

Confused? Well so am I. The FBI is mad; the DOJ is self-righteous. The FBI and the DOJ need to compare notes. What the DOJ calls fair price competition for the real estate agent community is being perceived as possible mortgage fraud by the FBI. “Houston, we have a problem.”

The problem is real estate commissions that are rebated to buyers after closing. The FBI is alleging that such a rebate that is not disclosed to the lender could be construed as mortgage fraud. The DOJ takes a contrary position and supports the real estate commission rebate as the removal of the barriers that inhibit competition in the marketplace.

The DOJ describes and promotes commission rebates as follows: “Some real estate brokers offer consumers cash refunds or non-cash incentives to encourage them to use that broker’s services. Rebates are typically cash payments from the real estate broker to his or her client after closing. Incentives may include gift certificates, closing-cost payments, or free ancillary services such as home inspections or moving services.”

Two worlds collide.

Let me first set the stage, with the help of the Wall Street Journal, on the FBI investigation of home builders whose generous incentive programs, including commission rebates, crossed the line into mortgage fraud.

“When home sales began to slow at the start of the downturn, home builders offered buyers incentives -- instead of reducing prices -- to stimulate demand. The incentives included cars, tuition and credit-card payments, and even cash. Now, federal investigators are questioning whether some of those incentives misled lenders and caused them to write mortgages that were artificially inflated, contributing to today's home-price crash."

Following on the heels of the DOJ report last year, the hackles started rising as I read the implied threat that real estate agents could be guilty of mortgage fraud because they were rebating commissions, a practice condoned by the DOJ. (Caveat insertion - scale and intent of the rebate must apply.) The FBI is not singling out real estate agents by any means and their dragnet includes just about every party to the transaction. I call this cross-collateralized pressure to get the transaction closed.

“Using incentives to sell homes has long been a marketing tool for builders. When properly disclosed and structured, the practice is legal. But the Federal Bureau of Investigation is looking into allegations that home builders, brokers and appraisers defrauded lenders by not disclosing unusually large incentives to buyers, which could have added as much as $100,000 to the price of a home.”

The creative and extreme incentives became prevalent in 2006 in the most stressed markets like California, Nevada and Florida when the housing market first began to falter. The WSJ reports that interviews with real estate agents, home buyers and former employees at home builders “describe an industry where competitive pressures fueled unusually creative giveaways in a last-ditch attempt to prevent price cuts. Home builders hate to cut prices, not only because it reduces profit, but also because their customers who paid full price complain.” As it became apparent that the housing downturn was not going to be short lived, the efforts to support 2004/2005 prices became futile.

In some cases, builders paid “over the market” commissions to real estate agents who then rebated that money back to the buyer without the knowledge of the lender.

“At the height of the real-estate boom, commissions in Las Vegas regularly reached double digits, real-estate agents say. Kurt DeWinter, a Henderson, Nev., agent, received a $70,000 commission on a $550,000 home from Beazer Homes USA Inc. two years ago. He says he gave half of that to the buyer.”

Some builders are slow learners and are still offering over-the-top incentives. Wagner Homes Inc., a local home builder outside of Las Vegas, advertises "$130,000 commission any way you like it!" for his homes. Wagner's new homes listed in July for $530,000 even though similar model homes in that development sold for $400,000 two years ago. $130,000 cash-out may be worth something to somebody. That phone number is 1-800-GO STRAIGHT TO JAIL. The WSJ said that representatives of Wagner Homes didn’t return calls seeking comment. No kidding.

Let’s get back to the Department of Justice’s heartburn and their support of the real estate commission rebate. In April of 2007 the Federal Trade Commission in conjunction with the Department of Justice published a report entitled "Competition in the Real Estate Brokerage Industry".

The biggest complaint of the DOJ in the report is the ban of (commission) rebates by certain states – 13 to be exact: Alabama, Louisiana, Oregon, New Jersey, Kansas, Alaska, North Dakota, Oklahoma, Mississippi, and Missouri.

The DOJ sees the ban on rebates as a barrier to competition: “Rebate bans inhibit price discounting and thereby harm consumers.” The report cites that in states allowing rebates, some brokers rebate one-third to one-half of their commission to their buyers.

Here’s a modest scenario of the real estate commission rebate promoted by the DOJ:

A house sells for $750,000 and the commission at 6% is $45,000. $20,000 of that commission is rebated after closing to the Buyer. Isn’t $730,000 the real fair market value of the house? The answer is yes if the Buyer was not willing to buy the house without the $20,000 rebate: the value is $730,000. But the lender has made a loan based on $750,000 and has $20,000 less collateral than he thought he had. As a neighborhood comparable, the next sucker who puts his house on the market immediately assumes that $750,000 is a legitimate expectation of value, all things being equal. And the Buyer will pay real estate taxes off an inflated value for as long as he lives there.

Call me old fashioned. I always felt that commissions were compensation for services rendered by a professional and that the commission should be negotiated based on the value of those services. The commission rebates have mutated, in many cases, into an ATM for buyers.

Before rebates were acceptable in most states, and as is still the case in the 10 states listed above, commissions were only allowed to be paid to licensed real estate agents. If a real estate commission was reduced it had to happen within the confines of the transaction and the purchase price was reduced or expenses paid that were transparent on the closing statement. A rebate is nothing more than a kickback, which on the part of the seller is considered criminal.

This is not an argument to support any certain commission arrangement, amount, or type business model. Remove the dollar issue off the table. It is an argument for clarity and disclosure.

This is really muddy water as is evidenced by the contrary positions by two fed giants. The net results of a commission negotiation should be transparent in the transaction. After all, transparency is touted as the aspiration of the day.

Occupying White Space

My last post was on August 14 and today is the 18th. I’ve been thinking a lot during that empty white space. This morning I read an interview with Jim Collins, author of Good to Great in which he said “What we know about people who are really effective is that they think. The key is to build pockets of quietude into your schedule.” He called this “white space”. So in retrospect I’m claiming that’s what I’ve been doing, reveling in the “white space”.

Yeah, that's right...I've been thinking.

I’ve had plenty of time to devote to this sacred area of the third dimension and I think if I could just come up with a way to save the world I might be able to make a buck. Heck, if I could just save the housing market for this year I could rule the world.

Now, back to my cogitating.

Moving Beyond Greenspan

Why should we believe Greenspan? Good question. Our noble leader through the glory days of the housing boom is now, in hindsight, more often maligned as the cause of the bust. Laying the blame for the housing woes at Mr. G's feet, may be just too easy and simple but Greenspan clearly contributed to the current housing and credit crisis by keeping interest rates too low too long.

Greenspan has been over exposed of late, mostly defending his economic intellect and corresponding actions, but the mere mention of his name still makes most of us sit up and take notice. At least we still listen even if his opinions are infused with a grain of salt.

The Wall Street Journal reports today that Greenspan now predicts that U.S. housing prices will begin to stabilize in the first half of next year. This dovetails nicely with Credit Suisse's prediction, reported yesterday by the WSJ, of a housing market stabilization in the first quarter of 2009.

In an interview this week Greenspan said, "Home prices in the U.S. are likely to start to stabilize or touch bottom sometime in the first half of 2009." This was followed by a CYA ...

"Tracing a jagged curve with his finger on a tabletop to underscore the difficulty in pinpointing the precise trough, he cautioned that even at a bottom, 'prices could continue to drift lower through 2009 and beyond'."

I don't understand how a bottom can be declared if prices continue to decline forcing even more upside-down mortgage defaults. Isn't price stabilization synonymous with the beginnings of a housing recovery and creating asset stability for the financial markets? Call me crazy.

In October 2004 Greenspan reassured us, "While local economies may experience significant speculative price imbalances, a national severe price distortion seems most unlikely in the United States, given its size and diversity." Eight months later, he said if home prices did decline, that "likely would not have substantial macroeconomic implications."

In October 2006 the former Fed chairman proclaimed the housing ills short lived. "I think the worst of this may well be over." The WSJ quips, "Housing prices, by his preferred gauge, have fallen nearly 19% since then. He says he was referring not to prices but to the downward drag on economic growth from weakening housing construction." Whatever.

I find his recent remarks really scary:

"It'll stabilize at some level of prices ( he is referring to an example of a commodity, say grains, where even with oversupply the price will never go to zero) where people are willing to hold the excess inventory. We have little history, but the same thing is surely true in housing as well. We will get to the point where there will be willing holders of vacant single-family dwellings, and that will no longer act to depress the price level."

Again I disagree. Greenspan has applied a purely economic principle here. True the price of a home will never reach $0 (except maybe in Detroit) but the key here is vacant single-family dwellings. An oversupply of vacant homes is not going to stabilize the housing market because we're not talking about grain sitting invisible in a silo. We're talking about glaringly empty homes in a neighborhood. Excess inventory in the hands of "holders" may remove the risk from the credit holders but it will not improve the perceived value to buyers. Prices will continue to decline. Who cares if a house is owned by a bank, a builder or a holder? It's still unoccupied and will continue to deteriorate in value.

Perhaps Greenspan should retreat and cease to act as the nation's soothsayer on all matters economic. His crystal ball is on the blink.

It's time to move on.

The following is from the Goodbye to Greenspan series by Erin Crowe. Time to make a graceful exit, Mr. G. . .

Too much? For sure.

"Back to the Bunker"

It feels like Groundhog Day in August. Sun’s out and shadows galore. Credit Suisse advises we go back in our cave and come out again in the first quarter of 2009. Hang on just a little longer.

The brief rally in financial stocks now seems a distant memory. The momentary exhilaration is gone and we’re back to volatility in the markets. At least there were a few happy moments when the pundits were calling for a bottom. Regardless, I’m told to still be optimistic on fundamentals and so I am. A believer in financials and real estate.

When looking for a bottom, does it really matter whether we’re talking about housing or the credit market? Only in that the housing market will have to stabilize before the financials feel a positive effect.

"Credit markets are as unsettled as ever. And that will continue until the price of houses, the key asset underlying many credit products, starts to stabilize. That doesn't look likely to happen soon… The financial crisis started a year ago with housing. That is where it also has to end. It is just going to take more time before that happens.” Wall Street Journal

Credit Suisse is predicting that the housing inventory will likely peak in early 2009 with inventory standing at a 13 month supply. In the same breath Freddie Mac increased expectations for national “peak-to-trough” home price losses from 15 percent to between 18 and 20 percent. So we’re not done yet.

Mark your calendars for February 2 and hold onto your assets.

Worthy Nods

This week's Worthy Nods from the news and around the blogs:

BusinessWeek: Homebuilders: When Will Things Turn Around? - S&P ratings answer key questions about the health of the sector—and its prospects for recovery.

The Wall Street Journal: Owners Think Home Values Have Risen - Zillow's 2nd quarter survey said that 62% of respondents thought their home value had risen although data shows that 77% of homes had decreased in value during same time.

The New York Times: In Various Ways, Economists Try to Find Right Price for a Home - Economic models can't tell the whole story but they do provide some glimmer of hope.

The Economist: Risk and the Credit Crunch - Confessions of an insider; in January 2007 the world looked almost riskless.

The Big Picture Blog: Who Doesn't Understand the Pending Home Sales Index? - The press and Wall Street. Get the big picture from the Pending Home Sale numbers.

Wired Magazine: How to Get More From Google Reader - My reader of choice. Easy review of hundreds of news sources and blogs.

Wired Magazine: Lotus Makes Hybrids Sound Like Real Cars - Lotus tosses a speaker under the hood of that great silent killer, the Toyota Prius, and pumps engine noises through it so people can hear it coming. Blind people and those with earbuds rejoice.

Wired Magazine: Watch the Olympics Online - A list of online destinations and sources.

The Most Expensive Apartments in the World - $100M - An Exercise In Over-The-Top

Would you think this is the most propitious time to build the most expensive apartments in the world? Rahem Brennerman, CEO of BLV Group, seems to have a great deal of bravado about his plans to build 14 residential units in the tony Belgravia neighborhood in the heart of London.

Simply called 3-10 Grosvenor Crescent (how do you get 14 out of 3-10?), the palaces (I hate to call a $100 million residence a unit or an apartment ((very provencial I suppose))) are surrounded by some of the most expensive real estate in the world.

These VS apartments carry a VS price tag of £10 million to £50 million (about $20 million to $100 million), and will feature "rooms of ambassadorial proportions". I guess.

With the real estate market tanking in Great Britain, Brennerman laughs and confirms the only people buying luxury homes in London these days are from Russia, India and the Middle East.

"Grosvenor Crescent will also offer buyers in-house dining by top chefs, use of a custom yacht and access to the development’s chauffeur-driven Rolls Royce Phantom, which will feature an interior designed by Thierry W. Despont."

Here are some excerpts of an interview with Brennerman from the International Herald Tribune:

Has the market changed for your kind of project?

Not really. The typical buyer is mostly from India or ex-Soviet countries, but in terms of demand, the demand is still there for this kind of product.

Have the market conditions affected that at all?

No. Our client base and the buyer for this project are not… When you buy a £20 million apartment, I don’t think you are relying on mortgage or bank financing to be able to buy that.

What do you find resonates with buyers these days?

It’s the same thing that resonated with them about a year or two years ago. I think it’s the fact the thing they are buying into the most exclusive club in the world. The fact that owning a Belgravia apartment gives you that status. What you don’t hear from this buyer is, ‘We’re moving into London, we’re looking to buy a family home.’ It’s usually, ‘Oh, I have another apartment around the corner. I just want to buy this as my second apartment.’

So they’re not checking out the schools.

It’s crazy. I spent yesterday talking to three different clients, one that made a £33 million offer on a property. I asked him if he was looking at moving here. He said, “No, I just bought one around the corner and I thought that this was good also.”

Is that type of person looking at it as an investment?

It’s a trophy.

What kind of amenities appeal to these buyers?

In terms of the amenities and the sense of detail, there are some things we don’t even talk about because it’s well expected. It’s not just producing a kitchen for this clientèle, but actually going to the best kitchen manufacturer and getting them to custom-make the kitchen just for that development.

I think that’s what the clientèle wants. It’s going above and beyond. That’s what’s required for this kind of project. It’s setting the residents apart from next door.

That makes it sound like it has more to do with bragging rights.

That’s what it is, to be honest. When you talk to a client, he’s not buying because he needs it. He’s buying because he wants to tell his friend he has a better apartment than he does. That’s what it’s all about.

You said some things are simply expected. What would you include on that list?

If we have a fully integrated security system with TV cameras all around and motion detection sensors and infrared detection sensors and window sensors, that is expected. That is standard. That’s where you start from.

I know you don’t formally launch until January, but what can you tell me about how sales are going?

We didn’t want to do pre-sales, but the clients that want this will find it and know where it is and how to get it. When we get an offer, it’s hard to turn around and say go away we’re not selling now. Sales are going great, going more than expected. The problem is always that we will have more demand than product to sell.


Call me crazy...better yet call me a cynic... but that's a very big dose of bravado. gd

NAR's Study on International Buyers Misses a Piece of the Puzzle

This week the National Association of Realtors released the results of a study that reports fewer Realtors worked with foreign buyers this year as compared to a year ago. This story has been the topic of many real estate blogs this week and there is no need to recite the findings once again (you can find the original study here), nor am I criticizing the NAR (I know you’re shocked). The study simply lacks a piece of the puzzle when it comes to property types purchased by global buyers.

Most of the survey findings are not particularly surprising. Foreign travel to the U.S. in general is off this year even with the weak dollar, so it could follow that realty sales might suffer. Many foreign economies are also showing signs of stress, particularly Europe. Foreign buyers like many U.S. buyers may be reluctant to purchase while housing prices are still falling.

Completely predictable, Florida was by far the top destination for international buyers and the primary purpose for the purchase was for vacation purposes.

The most surprising finding in the study was that about three-fourths (75.2 percent) of foreign buyers purchased single-family homes, with 19.2 percent purchasing condominiums or apartments and 6 percent purchasing town homes.

I’m just not buying into the fact that 75 percent of foreign buyers, most of whom are only allowed to live in the U.S. six months out of the year (the study found that on average buyers planned on staying in their U.S. residence 2.6 months out of the year) are buying single-family residences versus something that is “lock and go.”

I find it inconceivable that only 25 percent of international buyers, absent from their property by law at least 50 percent of the year (unless they have a working visa) are buying a maintenance-free lifestyle.

I think where the NAR numbers may fall short of the big picture is that many foreign buyers are completing transactions without a Realtor because of the type property they are buying. Many buyers, international or domestic, find it easy enough to buy new condos or other multi-family product by researching the web and through the developer’s often lavish on-site sales centers. Massive promotional efforts draw buyers to a destination purchase and are often so well orchestrated as to make a buyer feel secure in their buying decision without outside representation.

There is no right or wrong to this, it is just the nature of the beast. Whereas it is difficult to buy existing inventory without a Realtor, it is very easy to buy new multi-family product on your own which is marketed with a “take no prisoner” mindset. And there is plenty, absolutely plenty of new buildings to choose from in all the major markets. Even New York is softening a little.

In all fairness to the NAR, this survey was based on Realtor response. They just reported the findings. Their findings just don’t reflect a full spectrum of market activity when it comes to new construction and/or second and vacation homes. They need to stick to what they know when assessing the market for general consumption – existing housing.

An Argument for Optimism

The blogosphere has been strangely quiet this week. Perhaps everybody but me is at the beach for one last hurrah, or preparing for the kids to return to their respective schools. Another possibility is that there is simply a dearth of fresh material relating to the real estate industry. Dog days.

That’s when I rely on “other important stuff.” Today I borrow from an excellent financial post that puts our various markets into much needed perspective.

Joe Rollins, Rollins Financial, published today a 360-degree epic piece taking a realistic look at the positive sides of investing, our current financial and housing markets, the state of the economy, and energy markets. And political ramifications of the upcoming election. He did not cover the Olympics but NBC has a lock on that.

Joe offers his expertise and analysis and provides a short cut to a view of the overall markets and the forces at pressure. I offer a few excerpts below, particularly as it relates to the housing industry, but don’t miss the market review in its entirety. It is well worth a read. Just grab a pot of coffee or a bottle of wine and settle in for some reserved but merited reasons for optimism.

But before you can revel in the soft light of optimism, Joe puts the housing woes and Wall Street into their proper corners…

This past week also brought out the shadowy figure, Dr. Alan Greenspan. He once again made national news by opining that the U.S. economy had a 50/50 chance of recession. It’s somewhat interesting to note that at this same time last year, Dr. Greenspan was forecasting the odds of a recession in the United States to be 70%. It seems that his projection has fallen as the months pass. A recession has yet to be realized.

I couldn’t help but note Dr. Greenspan’s thoughts on deflating the financial bubble in housing. He should be a prime candidate for understanding how the bubble could be deflated. Since he is the one who created the bubble, surely he must know how to pop it. If there is any question that I didn’t correctly predict Dr. Greenspan’s missteps, please read any of my prior writings on the subject of his fallacies.

Furthermore, just so I’m clear, I have no empathy for the problems on Wall Street. The housing industry didn’t create the troubles on Wall Street; it was completely the other way around – Wall Streeters created the housing problems. Due to Dr. Greenspan’s irrational setting of low interest rates in the early years of this decade, Wall Street abused what was originally the banks’ function of lending on housing and created its own chaos.

By packaging and selling literally millions of sub-prime loans, Wall Street allowed builders and perspective buyers to create a complete nightmare. Homes were built that never should have been while buyers with unworthy credit were able to purchase homes with loans that never should’ve been extended to them. It seems somewhat ironic that for the billions of dollars that Wall Street made on selling these toxic sub-prime mortgages, it was they that ultimately paid the dear price. While the homeowners will suffer from the unwinding of this real estate fiasco, it will be Wall Street that suffers the true economic loss. While housing prices have come down over the last 12 months, they still stand substantially above their values going into this decade.

Good news on inflation…

June and July gave us a complete breakdown in commodities speculation. During the last two months, we have seen corn prices plummet. Additionally, coffee, oil, heating oil, soybeans, and natural gas have dropped markedly. While all are still at elevated levels, they are significantly below their levels going into June. There should be no fear in anyone’s mind regarding inflation over the next few years. With the deflating of housing prices and the moderation of the net increase in commodities, inflation should be restrained. The current yield on a 10-year treasury bond is 3.92%. You may rest assured that if bond traders felt that inflation was a significant threat to their principal over the next 10 years, they would not be trading the U.S. Treasury bonds at historic low levels.

And on the limited nature of national media news coverage…

Admittedly, it’s hard to be optimistic in light of the avalanche of bad news we’re barraged with. While I try to remain objective, it’s sometimes difficult to sift through the negative news and focus on the optimism built into these stories. Yes, I understand that if you get your news solely from the national media, you need to understand that it is extraordinarily limited. If you put the entire script of the nightly news in print, it would probably only cover less than one-half the front page of the New York Times. Given the documented bias by some of the major news outlets meant to affect the political outcome of the upcoming election, I think you would be better served to review and analyze the news from other sources.

Click here for the post in its entirety.

Joe Rollins is the President and CEO of Rollins Financial Counseling, Inc. and Rollins and Associates, P.C.

Cash, Courage, and Conviction - Housing Survival Forumla

Cash, courage, and conviction - in large amounts - is what is needed to weather the current housing market. The most important of these is cash. But it doesn't require a genuis to grasp this truth.

Big builder, D.R. Horton is growing cash and reducing inventory and costs. Reporting a $399 million loss for their fiscal third quarter ending June 30, Horton is trending toward the positive considering losses during the same quarter last year dipped the scales in the red to the tune of $823 million.

The losses, attributed to the write downs, show a substantial improvement as inventory is depleted and land is stripped from the ledger as the nations largest builder walks away from more land inventory.

It is not a sign of the bottom but the bleeding is ebbing as the big builders shrink in size.

Horton's building revenue for the quarter totaled $1.4 billion, a 44% drop from $2.5 billion in the same quarter of fiscal 2007, but again this is in large part due to the downsizing of their operations.

This is a scenario that is repeating itself over the country as many builders fight for survival continue to hope for a bottom. But the storm clouds will have to part on the foreclosure numbers before an overall market bottom can be celebrated.

Worthy Nods

This week's Worthy Nods from the news and around the blogs:

IHT/Raising The Roof Blog: Dueling Reports Tell Different Stories About the U.S. Market - Data released Tuesday from the Standard & Poor’s/Case-Shiller index paints a much darker picture of the market in the United States than numbers released last week by the National Association of Realtors.

Wall Street Journal: Building a Well to Skirt Water Restrictions - Where There's a Will, There's a Well -- and Water.

Housing Bubble Blog: Waiting to See What Buyers Will Accept in Florida - A word on the housing market in Florida.

Biz Journal: Study: Most Subprime Loans Didn't Go to Low-Income Borrowers

BusinessWeek: The Credit Crisis Turns One - It was a year ago August that the real estate slump turned into a global economic disaster—and it's still growing.

Inhabitat Blog: California Approves First Statewide Green Building Code - Shades of Things to Come?

BusinessWeek: Sam Zell Speaks His Mind - Zell looks back—and forward—on his debt-heavy takeover of media giant Tribune Co. Yes, the deal might be in trouble. But he has no regrets.

New York Times: Whole Foods Looks for a Fresh Image in Lean Times - Can Whole Foods convince consumers they are an economical place to shop?

Cul-De-Sac Streets Going the Way of Suburban Sprawl

Who doesn’t want a home on a cul-de-sac? After the sale of over a thousand lots I can say from experience that 9.9 out of 10 buyers prefer a house location or building lot on a cul-de-sac. The standard answer in Georgia is “I want a cul-de-sac lot, basement, side entry garage, level driveway, and a flat back yard.” I didn’t really need to ask, now did I?

That's if they're looking in the suburbs. That's one of the advantages of suburban sprawl - you can pretty much find whatever you want. Most buyers know they can't approach that kind of specificity intown.

I have never once had a buyer step up to the plate and state they wanted a corner lot, or a lot at the top of a hill with a steep driveway, or even a lot on a busy street. So what is happening to the darling of residential development? Is the cul-de-sac lot losing its allure? Not for buyers, but apparently the cul-de-sac is now anathema to land planners and architects who are moving in the new urbanist circles.

Many buyers will pay significantly more for a cul-de-sac lot finding greater privacy, larger backyards and a safer environment for children. While the market still wants the cul-de-sac, the new urbanism movement decries the cul-de-sac lot as the incarnation of low-density, traffic congested suburban sprawl. The design movement claims that cul-de-sac streets isolate a community's residents in these dead end pockets.

Large-scale master planned community designs (often referred to as Traditional Neighborhood Developments "TND") that follow the philosophy of new urbanism lay out streets in a grid pattern like city blocks. No dead end streets. In our part of the world (southeast) we have topo issues to deal with so a grid pattern land plan does not often work. We have to follow the ridge lines for roadways, where ever they may take us.

But all things being equal, a community with a grid design with long expanses of straight streets quickly becomes monotonous. Houses lined up like soldiers at guard need a lot of interest at the street to mitigate the repetitive streetscape. The problem with the visual of a grid design is that it discourages “layers” within the community. A street that moves and undulates creates a vastly improved street sense and a visually pleasing experience. The houses are at different relations to the street and cul-de-sac streets create a different off-shoot, another connected, mini neighborhood.

Interestingly, in some states local governments have actually passed laws to curb the cul-de-sac street. Ninety percent of cities in Oregon for instance have taken such measures. Other cities in the states of Washington, North Carolina, and Pennsylvania have followed suit.

One important argument against the cul-de-sac street is that it creates a disconnect within the community by cutting off the residents on those streets. Many developers have combated that by creating walkways and bike trails to better incorporate the dead end streets and utilizing the new urbanism principles yet retaining the desirable elements of cul-de-sac streets.

You know the old saying, “Give the customer what he wants”? No matter what the new urbanists want, buyers still go for the cul-de-sac lot or the cul-de-sac street - every time. Are we really ready to say that is not good for the buyer? Many developers will be hard pressed to give up community design features that sell so well.

Good News, Bad Source: NAR Gets Nailed By Glenn Beck

As a constant critic of the National Association of Realtors and their chief economist, Lawrence Yun, in particular, I am happy to say that there is no need for me to pen another harangue because Glenn Beck has done it wayyyyyyy better than I could.

This video is making the real estate circuit and I have received two emails this morning with a pointer to "Prediction vs. Reality".

If you haven't already done so, watch this very funny and entertaining video about the NAR and its historic, consistently wrong, predictions over the last several years. The NAR seems to be single-handedly ruining the image and credibility of Realtors in general.

As a member of the NAR and the local Atlanta Board, but not a Realtor with one of the big brokerages, I am free to utter my disgust with the drivel that continues to be issued from the NAR podium. This video is truly hilarious if you see the humor in the nonsense NAR dishes out. But if you're a Realtor strictly following the party line, you may want to skip this and move straight to Realtor.org.



Past posts on the brilliance of NAR:

NAR & NAHB at Opposite Poles of Economic Forecasts

Yun Speaks to Miami Realtors After Lobotomy

The Great State-of-the-Real-Estate-Market Debate Continues

NAR Oracle Named Among Top Economist Forecasters: Las Vegas Realtor Arrested for Mortgage Fraud

NAR Optimists Market Mantra Regurgitated Again

NAR Wisdom - An Oxymoron

Truth in Advertising - NAR Teeters on the Edge

NAR Responds to CBS: Methinks Thou Doest Protest Too Much