This blog is the voice of the Bay Area's home building community. It is a forum for discussion of housing-related news and issues pertinent to the region's 7.2 million residents. All comments are welcome.

Greenspan Speaks (Again)
10.10.08

“There is a good chance of coming out of this in good shape, but average housing prices are likely to be down this year relative to 2005. I don’t know, but I think the worst of this may well be over.”

Alan Greenspan                                                                                               October 6, 2006

"Most of the negatives in housing are probably behind us. It's taking less out of the economy."

Alan Greenspan

October 26, 2006

"I think the worst is behind us.We are in the midst of a very significant inventory liquidation of unsold new homes."

Alan Greenspan                                                                                           February 7, 2007

Former Federal Reserve Chairman Alan Greenspan has been consistently wrong about the housing downturn. So, as much as I’d like to believe him, I can’t take seriously his latest prediction, published today in Emerging Markets magazine, that “conclusive signs of pending home price stability are likely to become visible in the first half of 2009.”

I think the former Fed Chair is seeking some sort of absolution for the part he played in the current housing crisis. Why else does the octogenarian keep writing articles defending the monetary policy the Central Bank pursued on his watch, while also almost wishfully predicting a housing recovery?

While Mr. Greenspan refuses to acknowledge it, I maintain that the current housing malaise is almost entirely attributable to the Fed’s 18 consecutive interest rate hikes over a mere two year span.  

That unprecedented campaign to hike rates – orchestrated by Mr. Greenspan – killed the home refinance business, which, in turn, sank the sub-prime home loan business, which ultimately brought down the entire housing market. 

So, as far as I'm concerned, no revisionist essays by the former Fed Chair, no wishful predictions about the housing market, will absolve him of his role in the worst housing downturn since the Great Depression.  

A Bright Spot
10.09.08

Perhaps it was just a one-month aberration, but it sure is nice to see the latest index of pending sales of previously-owned homes.

The monthly index, produced by the National Association of Realtors, was expected to decline by 1.5 percent in August. Instead, the index actually rose 7.4 percent – a surprise to most analysts.

NAR Chief Economist Lawrence Yun said the unanticipated increase in pending sales was attributable to home buyers responding to improved affordability.

“What we’re seeing,” he said, “is the momentum of people taking advantage of low home prices, with pending-home sales up strongly in California,” among other states.

The jump in NAR pending-sales index is welcome news for the home building industry as the inability of prospective new home buyers to sell their existing homes has impeded their purchase of new homes. As pending sales of previously-owned homes increase, new home sales also will increase.

Both are positive developments for the ailing housing market.

McCain's Housing Plan
10.08.08

Listening to last night’s post-debate analysis on CBS and CNN, unofficial house organs of the Democratic National Committee, one might have come away with the impression that the defining moment in the second of three face-to-face matchups between Sens. John McCain and Barak Obama was when the Republican standard bearer referred to his Democratic opponent as “that one.”

As usual, the MSM (Mainstream Media) got it wrong. The defining moment, the potential “game changer,” was Sen. McCain’s dramatic proposal to “keep families in their homes, avoid foreclosures, save failing neighborhoods, stabilize the housing market and attack the roots of the financial crisis.”

Under the Republican presidential nominee’s “Homeownership Resurgence Plan,” the federal government would purchase mortgages directly from home owners and mortgage servicers, replacing them with manageable, fixed-rate mortgages that would keep struggling families in their homes.

The McCain campaign estimates that the direct cost of the plan would be roughly $300 billion because the purchase of some mortgages – like here in California, where home values have declined precipitously in recent years – would relieve home owners of “negative equity” in their homes.

“Is it expensive?” McCain asked, during last night’s debate. “Yes,” he answered honestly. “But we all know, my friends, until we stabilize home values in America, we’re never going to start turning around and creating jobs and fixing the economy.”

Candidate McCain is right on with his analysis of the current economic crisis in which the nation finds itself; right on with his proposed Homeownership Resurgence Plan.

If Sen. Obama was honest, he’d admit that he wishes it was he, rather than his Republican opponent, who was bold enough to announce it during last night’s debate  

As Goes Housing
10.07.08

A news analysis of the $700 billion financial bailout plan, authored by Associated Press business writer Stevenson Jacobs, is perhaps the most cogent piece I’ve read on the subject.

Experts, he writes, say the most important thing that has to happen if the biggest bailout in U.S. history even has a chance of working is that home prices must stop falling. “That would send a signal to banks that the worst has passed and it’s safe to start doling out money again.”

The problem is the lending freeze, he continues. Combined with the foreclosure crisis, it has made it exceedingly difficult  “to pare down the glut of houses built when times were good.” The housing market has to work through that glut, that excess inventory, before home prices start appreciating.

Jacobs is one of the few business writers who fully understands the absolutely vital role that housing plays in this nation’s economic fortunes.

“Housing is a critical component to the U.S. economy,” he writes. “Roughly one in eight U.S. jobs depends on housing directly or indirectly – from construction workers to bank loan officers to big brokers on Wall Street. “

That’s why, he reasons, it is so important to revive the near-moribund housing market. “A turnaround in housing prices would boost confidence in the wider economy,” he writes. That, in turn, would “goad banks into lending again.”

Indeed, the $700 billion bailout that became law last week will just be money down the proverbial rat hole unless it unfreezes lending, enabling Americans to start buying up the excess supply of homes on the market.

Good For Countrywide
10.06.08

More than $3.4 billion in troubled home loans here in California are expected to be modified under an agreement announced today between Countrywide Financial and the attorneys general of California and 10 other states.

Countrywide, the nation’s largest mortgage lender and loan servicer, had been sued by the states for predatory lending practices which, in the words of California AG Jerry Brown, “turned the American Dream into a nightmare for thousands of Californians who now face foreclosure.”

Under its agreement, Countrywide will reduce interest rates for some distressed home owners and reduce principal balances for others. In all cases, modified loan payments will not exceed 34 percent of the home owner’s income.

Countrywide’s sweeping new loan modification program – the largest, most comprehensive ever by a mortgage lender – was put in place by Bank of America, which acquired Countrywide this past summer and which is “committed to a very different set of business practices going forward,” a B of A spokesman said today.

The move by Countrywide is good news not just for the lender’s beleaguered customers here in California, but for the entire housing industry here in the Golden State. That’s because untold thousands of foreclosures will be averted because of Countrywide’s mandatory modification program, which means thousands fewer properties added to the overall inventory of vacant homes.

Cars and Homes
10.03.08

I mentioned yesterday that President Bush just signed legislation bestowing a whopping $25 billion worth of federal loans upon Detroit’s Big Three automakers. By contrast, I noted, neither the President nor Congress has been nearly as magnanimous to the nation’s home builders.

In my view, the government’s reluctance to aid the struggling home building industry – as it has come to the aid of the auto industry – is shortsighted. For, if Washington had taken affirmative measures to soften the housing market downturn, it would not have been forced to shell out the $25 billion to Detroit.

An article published in yesterday’s Contra Costa Times bolsters my argument. It reports that U.S. new-vehicle dealership closures may rise as much as 40 percent this year because of slumping sales. Indeed, sales of GM vehicles were down 16 percent in September from a year ago (owing to its offer of employee pricing on most of its vehicles).  Chrysler was down 33 percent and Ford 34 percent.

The financial woes of Detroit’s Big Three automakers are directly attributable to the housing market downturn, as Peter Welch, President of the California New Car Dealers Association, explained to the Times.

“A year to 16 months ago, probably about four out of 10 vehicle purchases were done with home equity loans,” he said. Now a lot of people no longer have equity in their homes. That source of financing has gone away.”

If lawmakers in Washington had not let nearly two years pass before addressing themselves to the housing market downturn, had they not sat idly by as millions of Americans saw their home equity decline, there would have been no precipitous decline in auto sales.

And the federal government would not have been forced to cut multi-billion dollar bailout checks to Ford, GM and Chrysler.

Home Builders Slighted
10.02.08

With saturation news coverage of Congressional debate on the proposed $700 billion bailout of the nation’s financial industry, hardly any attention has been given to the $25 billion bailout the federal government generously bestowed upon the auto industry this week.

I do not begrudge Ford, General Motors and Chrysler the $25 billion loan package they are receiving from the American taxpayers, which is supposed to help Detroit’s Big Three adapt to new emissions regulations.

I just don’t understand how President Bush and Congress could so easily agree on a massive bailout for ailing automakers when they have been so reluctant to come to the aid of hurting home builders, who've lost at least $19 billion since 2006.

I’m not advocating direct government support to home builders, like the multi-billion dollar checks that Ford, GM and Chrysler will receive. I’m talking about indirect support for the nation’s home building industry by stimulating new home sales.

Indeed, the National Association of Home Builders is urging Congress to pass a $15,000 temporary tax credit for all home buyers. It would replace the smaller, ineffectual tax credit lawmakers grudgling approved, and President Bush reluctantly signed into law, back in July.

The problem with the current tax credit is that it offers a maximum of $7,500 and applies exclusively to first-time home buyers. It has proven an insufficient incentive to get prospective home buyers off the fence.

NAHB advocates a $15,000 temporary tax credit for which all home buyers would be eligible. Such a credit would be substantial enough to stimulate the increased home sales that home builders are waiting for.

It has taken the better part of three years for lawmakers in Washington to recognize just how much the health of the housing industry affects the overall U.S. economy.

If Congress and the White House think it prudent to bail out, directly, both the financial industry and the auto industry, then surely it makes sense to invest tax dollars to stimulate new home sales and revive the struggling home building industry.

No Down Payments
10.01.08

The path to home ownership just got tougher for tens of thousands of prospective home buyers. That’s because of a provision of the Housing and Economic Recovery Act that takes effect today that eliminates seller-funded down payment assistance on Federal Housing Administration-backed mortgages.

FHA-backed loans require home buyers to have a 3.5 percent down payment. Up until today, some 40 percent of new home buyers were able to meet that FHA requirement by receiving assistance from non-profit organizations.

The way it worked is that a non-profit – like the Nehemiah Program – would require a new home seller to contribute 1 percent to 6 percent of the final contract sales price to the program. The non-profit would then pass the sum along to the home buyer to cover their down payment and closing costs.

This indirect arrangement – necessitated because FHA does not allow home sellers to provide assistance directly to home buyers – was authorized by the federal government 10 years ago. It has proven a win-win arrangement for home builders and home buyers alike.

Now prospective home buyers have to come up with down payments on their own if they want an FHA-backed mortgage. That’s because lawmakers on Capitol Hill decided this past July to ban down payment assistance programs because a number of FHA borrowers went into foreclosure in the previous year who had taken advantage of such programs.

But the programs themselves were not the problem. For there are just as many home owners who’ve been foreclosed upon in the past year who came up with their own down payment when they originally bought their home, who defaulted on their non-FHA-backed mortgages.