The Nation’s Unprecedented Run-Up
The Chicago Tribune reports from Illinois. “For consumers, this is a push-pull moment: Bombarded with contradictory opinions and data about the housing market, it’s difficult to gauge if we’re ‘there’ yet — whether real estate’s free-fall is ending or whether it has a lot further to slide. ‘People who missed the train now are starting to see that the train has backed up and they may be looking at a golden opportunity,’ said Lynette Briggs, a housing counselor for the DuPage Homeownership Center in Wheaton, who said she was surprised by the high turnout, despite the recession, for her organization’s annual homebuyers fair in February.”
“But she cloaked that optimism in ‘ifs’ — the opportunity to buy a house now could, indeed, be golden if the buyer has a job, has good credit, has good savings and plans to stay in the house for a while.”
“‘If I’m spending, say, $180,000 for a house, maybe it’s still got $20,000 worth of wiggle room going down,’ Briggs said. ‘But you have to ask yourself if you could rent for the same amount and have the same quality of life over a period of years. There is an intangible value to home ownership.’”
From Chicago Business. “Not long after Frank Cho got married in 2004, he and his wife, Linda, bought a one-bedroom condo with a den in Lakeview. Two years later, they decided to have a child and prepared to put their condo on the market and buy a bigger home. They got a bad break when a new development sprang up next door, blocking what once was an unobstructed view to the west. Added to that were a declining real estate market and glut of condos in the city. Still, ‘back then, the market seemed better,’ Mr. Cho says.”
“They put their place on the market in January 2007 for $289,900. Months went by with a few nibbles but no takers. In March, his wife gave birth to their son. As their home got more crowded with a growing baby, they decided in August to try to put the condo up for rent, though they didn’t find a tenant right away. In the meantime, unable to buy till they sold their condo, they decided to rent a larger place for themselves in the suburbs. The family is now renting a two-bedroom condo in Wheeling.”
“Just recently, the Chos decided to allow their Chicago tenant to stay another year even though they would prefer to buy their own place as soon as possible. They instructed their real estate agent to take their condo off the listings for now. ‘I’m afraid this market is not going to pick up anytime soon,’ Mr. Cho says. ‘We’re really thankful we were able to find renters.’”
The Chicago Sun Times. “Home sales in Chicago plunged 37 percent in the first quarter from a year earlier, and prices fell 26.8 percent, the Illinois Association of Realtors said Friday. The median price fell 22.8 percent to $187,500 from $243,000.”
“‘There is no doubt that the burgeoning unemployment rates are dampening recovery in the housing market, but positive numbers in the month-to-month sales suggest that the second quarter may offer the promise of some modest gains in sales and some recovery of median prices,’ said Geoffrey Hewings, director of the University of Illinois Regional Economics Applications Lab.”
The Rockford Register Star from Illinois. “The real estate market is down. Why is my property value assessment up? Beverly Campion, Winnebago County supervisor of assessments, said her third-floor office should have a revolving door. ‘The place has been busy all day,’ she said. ‘We had to stop our voice mail because we were getting 40 messages on there above and beyond the calls that we were answering.’”
“Campion said strong housing sales in 2005, 2006 and 2007 contributed to equalization factors that brought assessments to a higher level. Poor housing sales in 2008 will be reflected in next year’s property-tax bill.”
“Jason Loomis, a 10-year Rockford resident living on 21st Street, called his property taxes a ‘rip-off.’ ‘Last year, my taxes went up $200, and this year it went up $180. It’s ridiculous. I have a house next door that’s foreclosed.’”
The Indystar from Indiana. “A federal tax credit is helping first-time buyers jump into the Central Indiana housing market, according to experts. ‘It was definitely a part of buying the house,’ said Jeff Milligan, 21, who recently moved into his first home.”
“Milligan, a construction worker who had lived in an apartment for two years, was waiting on the sidelines before deciding to buy his 2,000-square-foot home in Wanamaker. ‘It would have been hard to get into a house without the tax credit,’ he said. ‘It will allow me to make some improvements, including a security fence, once I get moved in.’”
The Journal Gazette in Indiana. “Indiana lawmakers took time during the recent legislative session to tackle the continuing problem of home foreclosures. ‘Indiana’s high rate of foreclosures has adversely affected property values, and we risk letting home values drop even lower as the foreclosure crisis continues,’ said Sen. Karen Tallian, D-Portage, the author of the bill. ‘It is in the public’s best interest for the state to encourage homeowners and lenders to work out foreclosure alternatives.’”
The Des Moines Register from Iowa. “The recession that began in Iowa about eight months ago and in the nation 17 months ago started tugging at Pella Corp. three years ago, CEO Mel Haught says. The nation’s unprecedented run-up in the housing market led to an unprecedented fall.”
“Q. How does the housing market look as Pella Corp. moves into the building season? A. ‘We’re still looking for the bottom. How far down is it going to go yet, especially as it relates to new construction?…Consumers are just not sure what’s going on, and it’s impacting all segments. … We still think we’ve got a ways to go.’”
“Q. Have you seen a recession like this before? A. ‘You mean an old guy like me? It’s really hard to put into context because we’ve never been through anything like this before. We’ve had snippets of it. … but nothing short of the 1920s and ’30s. We had this big run-up in housing and now we’re having this big drop-off.’”
The Journal Sentinel from Wisconsin. “With the demand for downtown condos in the dumps, some developers are putting their unsold units up for rent while waiting for the market to rebound. So far, the additional rental units have not affected rents for downtown or east side upscale apartments, according to housing developer Robert Monnat.”
“Monnat, which develops both apartments and condos, cites two basic reasons: size and service. While downtown condos and upscale apartments often share similar features, such as granite countertops, underground parking and views of Lake Michigan, the rental units tend to be smaller than those that are sold, Monnat said. The typical new two-bedroom downtown apartment is around 1,200 square feet, compared with 1,500 to 1,600 square feet for a two-bedroom condo, he said.”
“Apartments can better offer services that many condo complexes don’t provide, Monnat said. That includes housekeeping tasks, such as watering the plants when the renter is out of town, as well as handling repairs when things go wrong. With condo rentals, the responsibility for those tasks might be a bit murkier, he said.”
“‘You rent a condo, and all of sudden your air conditioning doesn’t work,’ Monnat said. ‘Who’s your landlord?’”
The Columbus Dispatch in Ohio. “Charles and Mary Nitschke offered beer, wine and brie last night to their houseguests, hoping to get a nibble on a more-notable treat: their 1961 custom home in Worthington. The Nitschkes were trying to sell the house in an unusual way: through a cocktail party. Their real-estate agent, Sue Parrish, suggested the party as a way to stand out in a crowded housing market.”
“‘You have to think outside the box in real estate these days,’ said Parrish, who got the idea from a California real-estate agent at a Keller Williams conference in the winter. ‘It’s a unique way to market a unique home in a unique real-estate market.’”
“The asking price, $650,000, is in a particularly fragile range for sellers: The number of central Ohio homes that sold for $500,000 to $1 million dropped 28 percent last year from the previous year, according to the Columbus Board of Realtors. In Worthington, 19 homes have been listed for sale this year at more than $500,000 — including three on Plesenton Drive. Only one has sold, after being on the market for 246 days.”
“One guest…made an offer with his fiancee during the weekend, hoping to get ahead of any interest that the cocktail party might attract. ‘This event came to our attention,’ said the man, who asked not to be identified. ‘It was a very smart sales tactic. I knew, once people had a chance to see it, it would move pretty quickly.’”
From Finance and Commerce. “Elliot Eisenberg, a senior economist with the National Association of Home Builders, told a gathering of the Builders Association of the Twin Cities in Brooklyn Park this week that things should start looking up for the industry within nine to 12 months. From an economic standpoint, Minnesota ‘has underperformed the nation as a whole in the last five, six, seven years,’ Eisenberg observed. When the recovery happens, the demand for new housing will be less than it is in other parts of the country, but ‘it will happen, no question,’ Eisenberg said.”
“State and local governments can play a role in housing’s recovery, Eisenberg said. Under a legislative proposal in Minnesota, the state would ‘monetize’ the $8,000 federal tax credit and homebuyers would be able to apply the money toward a down payment. Ten states have already done that, according to Eisenberg. The key is to get things moving quickly, he said.”
“Nationally, ‘we need an extra 100,000 houses being made now,’ Eisenberg said. ‘Instead of 1.5 million, we will take 1.4 million in two years. That’s OK. We are robbing Peter to pay Paul, because Paul needs it desperately.’”
From USA Today. “The crisis is redefining both the nature of the global financial system and expectations for the United States’ $14 trillion economy, the world’s largest. Historically, economies recover more slowly following financial crises than after garden-variety recessions, according to the International Monetary Fund. ‘We have to re-evaluate potential growth, given the fact that some of the housing (related) growth was not real and the output of the financial system was not real,’ says Harvard University’s Kenneth Rogoff, former chief economist at the IMF.”
“The U.S. economy’s shrunken horizons are a far cry from the halcyon days of 2000, when new Internet and wireless technologies appeared to promise dramatically improved growth. Then, surging productivity far beyond what Europe and Japan were experiencing contributed to a sense of limitless economic possibilities.”
“Now, as the U.S. digs out after twin housing and credit bubbles, significant economic energy is being drained by the crisis and its consequences. The de-leveraging — or debt repayment — process that is underway will be long-lived. As late as 2011 and beyond, corporations still will be confronted with the need to pay off or refinance massive amounts of debt issued during the leverage boom of 2005-07, according to UBS.”
“Across the economy, this reduced appetite for risk may take its toll. From consumers who binged on houses thinking values would only rise to financial institutions that gambled on hopelessly complicated products, investors badly underestimated risk in the pre-crisis years. ”
“Finally, human and financial resources are being reallocated across the economy. A nation that had too many investment bankers and mortgage brokers now must switch focus to other endeavors. Resources will stand idle while that process plays out, further constraining the economy’s potential. And eventually, the tax bill to pay for the enormous government borrowing used to battle the crisis will come due.”
“The IMF says ‘far-reaching changes in the shape and functioning of financial markets’ will be required to provide protection against a repeat crisis. ‘It will look substantially different. All types of securities markets will be a lot more regulated and less vibrant. … The trade-off will be fewer crises,’ said Menzie Chinn, associate director of the Robert M. LaFollette School of Public Affairs at the University of Wisconsin.”
“But not all the changes will necessarily hurt prospects for growth. Much of the fancy financial engineering of recent years, which produced difficult-to-fathom products such as collateralized debt obligations and credit default swaps, actually had little impact on productive investment in the bricks-and-mortar part of the economy.”
“In recent years, the value of derivatives — financial contracts whose price depends upon a second instrument — has soared. One of the defining features of the pre-crisis years, global derivatives, increased in value 303% the past five years. Likewise, U.S. commercial banks increased their derivatives holdings 81%, according to the Peterson Institute.”
“But in the same period, gross fixed-capital investment in the U.S. rose just 26.4% The vast majority of the financial innovation that gave rise to this crisis represented transactions between financial institutions, ostensibly aimed at reducing their risk, rather than productive investment in job-creating companies. ‘The explosion in financial products was interbank. … I’m not sure we’re going to miss it,’ said Adam Posen, a former Fed and European Central Bank consultant.”
