WBEZ | Crisis In The Housing Market http://www.wbez.org/tags/crisis-housing-market Latest from WBEZ Chicago Public Radio en Low Rates Alone Not Seen Reviving Housing Market http://www.wbez.org/story/2011-08-14/low-rates-alone-not-seen-reviving-housing-market-90583 <p><p>The turmoil in the financial markets has been pushing mortgage rates lower. Thirty-year fixed-rate mortgages have now fallen to about 4.3 percent, which is very close to the lowest level on record.</p><p>But many Americans can't qualify for those low rates, and analysts say these historic interest rates aren't likely to do much to help the housing market.</p><p>That is, unless the government intervenes.</p><p>Millions of Americans could be putting hundreds of dollars of more spending money in their pockets every month, if only they could refinance their home loans. But about half of U.S. homeowners can't.</p><p>"Yeah, well basically, we're not qualifying any new people," says Guy Cecala, publisher of Inside Mortgage Finance. "Ironically, the people who are looking to refi are the people who may have refied two years ago and qualified."</p><p>So maybe they can save a little more money refinancing again.</p><p>"We're certainly not picking up anybody who's been sitting on the fence for three years and suddenly waking up and saying, 'Woah, maybe I should go refi,'" Cecala says.</p><p><strong>Locked In</strong></p><p>He says there are many people who've been locked into higher interest rate loans for many years now.</p><p>Cecala explains that in order to get the lower rates, you need very good credit, and your house has to be worth 20 percent more than what you owe on it.</p><p>So with falling home prices, many people with decent jobs just don't have enough equity.</p><p>"We're pretty much stuck with the well-heeled borrowers that have a bunch of equity in their home — those are the people who are able to capitalize on low rates," Cecala says.</p><p>But he is hoping that the precarious economic situation right now might rekindle some interest in Washington to do something to help homeowners. And more support may be in the works for the housing market.</p><p>"We're seeing renewed calls from many circles, and the administration is again looking for creative solutions to the housing problem," says Chris Mayer, a housing economist at Columbia Business School.</p><p>"Until we solve the housing problem we're not really going to see the economy recover," he adds.</p><p>Mayer and his colleague Glenn Hubbard have, for some time now, been calling for a plan to boost the economy and the housing market by helping people refinance — people who can't qualify on their own.</p><p>"Under our proposal we would love to help 25 million families save hundreds of dollars a month on their mortgages and help get out of their financial problems," he says. "This would be a big positive effect on the economy in terms of consumer spending. And it would reduce the incentive for people to walk away from their mortgages."</p><p><strong>Government Action Needed</strong></p><p>Mayer says Fannie Mae and Freddie Mac are already on the hook for these millions of home loans, and the government already guarantees the loans.</p><p>"We should reduce the risk of those mortgages by extending a guarantee to a new mortgage that somebody would get at a lower interest rate," he says.</p><p>Critics say mortgage bond investors wouldn't make as much money if they didn't keep collecting the 7 or 8 percent interest rates that some borrowers are stuck paying.</p><p>And they say the plan may not be fair to investors. But with the weakening economy, a growing number of economists are saying that the government should be taking some kind of new action to stimulate growth.</p><p>"This is the worst time imaginable to have fiscal austerity," says Martin Barnes, the chief economist at BCA Research, an investment research firm. "You do not normally follow a path of fiscal austerity when the economy is skirting the edge of recession."</p><p>Barnes says that in the long term, we need to lower the national debt. But in the short term, he says, the government should be engaged in stimulus, including something to stabilize housing.</p><p>"If you're going to do something about housing, you should make it available to everyone," he says. "And some kind of national refinancing program, I think, would be kind of nice. You allow all and any homeowners to refinance at low interest rates with no penalties, etc."</p><p>One advantage of a big refinancing program is that it would be a long-term stimulus. Homeowners would be saving thousands of dollars a year, for many years to come.</p><p>And there appear to be at least some officials in Washington who would support a move like that. <div class="fullattribution">Copyright 2011 National Public Radio. To see more, visit <a href="http://www.npr.org/">http://www.npr.org/</a>.<img src="http://metrics.npr.org/b/ss/nprapidev/5/1313393835?&gn=Low+Rates+Alone+Not+Seen+Reviving+Housing+Market&ev=event2&ch=130729880&h1=Crisis+In+The+Housing+Market,Around+the+Nation,Economy,Business,U.S.,Home+Page+Top+Stories,News&c3=D%3Dgn&v3=D%3Dgn&c4=139582321&c7=1017&v7=D%3Dc7&c18=1017&v18=D%3Dc18&c19=20110815&v19=D%3Dc19&c20=1&v20=D%3Dc20&c21=3&v21=D%3Dc2&c31=130729880&v31=D%3Dc31&c45=MDA0OTc2MjAwMDEyNjk0NDE4OTI2NmUwNQ001"/></div></p></p> Sun, 14 Aug 2011 23:01:00 -0500 http://www.wbez.org/story/2011-08-14/low-rates-alone-not-seen-reviving-housing-market-90583 Economic turmoil rattles unsettled housing market http://www.wbez.org/story/2011-08-09/economic-turmoil-rattles-unsettled-housing-market-90334 <img typeof="foaf:Image" src="http://llnw.wbez.org//npr_story/photo/2011-August/2011-08-10/Home for sale Elgin_Getty_Scott Olson.jpg" alt="" /><p><p>For most people, their biggest investment is their home. Following Standard and Poor's downgrade of U.S. credit, as well as Fannie Mae and Freddie Mac, there may be even more uncertainty about buying or selling a home right now.</p><p>Russell Zanca, 47, has a three bedroom, one and a half bath vintage brick Georgian house on the market. The anthropology professor's home is on a quiet tree-lined street on Chicago's North Side.</p><p>"It's just a nice solid house," Zanca says.</p><p>He's selling because he is getting married and will soon move into his fiancé's house, but he's been thinking about selling for quite some time.</p><p>"Really since 2008, I kept thinking, well, next year can't be worse than this year, but once we decided to get married, which was more than a year ago, that's when we started talking about what are we doing with the houses," Zanca says.</p><p>He has a buyer and hopes to close in a month or so. Still, the troubling financial news of the last several days is making him a little nervous.</p><p>"I just started thinking, what is this gonna mean, you know. And I did think, I'm glad that it looks like I have this contract and it looks like I'm getting rid of this thing now, rather than hearing this and having the house on the market and not knowing if anyone was even going to come and see it."</p><p>What worries Zanca more is what the housing market might be like a year from now when he and his new wife plan to start looking for a bigger house.</p><p>For now, the S&P's downgrade has had only one tangible impact on the housing market: It pushed nearly historic low interest rates even lower. Does this mean it's a good time to buy?</p><p>"Absolutely, absolutely." says Ron Haddad, a senior mortgage banker with Baird and Warner Financial Services in Chicago.</p><p>"The affordability for the cost of ownership is at an all-time low," Haddad says. "Interest rates are so low; the prices with a lot of the properties in our area are absolutely at amazing levels. It makes sense to buy."</p><p>Mabel Guzman of the Chicago Association of Realtors agrees.</p><p>"For the person on the street it's about jobs," Guzman says. "So if they have job security, they're going to make that long term investment into real estate. If they don't and they feel, well, I feel the trend is changing, I could be downsized, I'm not seeing a lot of growth in my sector that I work in, then I will make short term decision to rent, until I feel things have turned around."</p><p>Guzman adds that even buyers, who are in a good position right now, and sellers for that matter, might find the frenetic pace of financial news lately and the huge volatility in the markets, to be too much.</p><p>"They're overwhelmed." Guzman says. "Their head is exploding and unfortunately there are dollar signs coming out of it."</p><p>Real estate experts and economists say it's really still too soon to tell if the financial news of the last week or so will have any long-term impact on the housing market.</p><p>But to be sure, it wasn't great to begin with and is still struggling to recover from the last housing crisis and it doesn't need another. <div class="fullattribution">Copyright 2011 National Public Radio. </p> Tue, 09 Aug 2011 23:01:00 -0500 http://www.wbez.org/story/2011-08-09/economic-turmoil-rattles-unsettled-housing-market-90334 Debt Drama Could Be Another Blow To Housing http://www.wbez.org/story/2011-07-20/debt-drama-could-be-another-blow-housing-89438 <img typeof="foaf:Image" src="http://llnw.wbez.org//npr_story/photo/2011-July/2011-07-20/img_2784.jpg" alt="" /><p><p>Members of Congress appear closer to reaching a deal in the ongoing drama over raising the nation's debt ceiling. The economic stakes are high, and top investors and executives at major companies have been putting increasing pressure on lawmakers to strike a deal.</p><p>Take the housing market for example: Industry insiders there worry that if the political theatrics continue much longer, that could spook investors, drive up interest rates, push down home prices and hurt the economy.</p><p>Right now, interest rates are low, and that means the government can borrow money cheaply to finance its huge debt load. Likewise, many home buyers can get low mortgage rates, which is a rare bright spot for the beaten down housing market.</p><p>"Rates are unbelievable, they've been unbelievable for a while," says Patrick Fortin, who runs Century 21 Commonwealth. "It's a huge factor, it's kept the market from being in much worse shape."</p><p>Fortin, who has 500 real estate agents and 18 offices around Boston, has been watching the ongoing political fight over the debt ceiling. He thinks it's hurting the housing market and other industries because lawmakers are making many Americans nervous about the economy.</p><p>"I'd like to see them get it done and work it out and move on," he says. "You know, whether you're selling cars or hamburgers or houses, when people are concerned that we could have major economic issues, it impacts everything. Buyers don't want to buy if they think there's bigger issues out there."</p><p>Many economists agree that consumer confidence is taking a hit from all this. Their other big concern is that investors have been starting to get nervous too. And it's possible that that could end up driving interest rates higher, which would not be good at all for Fortins' mortgage business.</p><p>"Oh, there's no question, any sort of bump is an impact, a substantive bump would be dramatic," he says.</p><p><strong>Losing Faith</strong></p><p>Here's how this would work: If the debt ceiling isn't raised, the U.S. Treasury could default on its debts. The Treasury says it would run out of the money it needs to make payments on some of its Treasury bonds.</p><p>"Treasuries are essentially the holy of all holy credits," says Scott Simon, one of the top bond investors at Pimco, which manages more than $1 trillion on behalf of pension funds and other customers. He says financial markets are based on trust, and investors around the world have tremendous faith in U.S. Treasury bonds.</p><p>"If the U.S. defaults, or appears like it's going to default intentionally, I think that puts huge questions into the credibility, the sanctity the holiness of U.S. Treasuries," he says.</p><p>And that means investors could demand higher interest rates to loan the U.S. government money. But it could also drive up interest rates for all kinds of things, including home loans.</p><p>Simon explains that U.S. lawmakers even just flirting with default, as they have been, has already raised some scary questions in the investing world. If Treasuries are no longer sacred, what about home loans that are guaranteed by the government-backed mortgage firms Fannie Mae and Freddie Mac? What if the U.S. someday doesn't honor those guarantees?</p><p>International investors have started to shy away from Fannie and Freddie mortgages, in spite of the explicit support of the U.S. government.</p><p><strong>Increasing The Pressure</strong></p><p>There's talk of ratings agencies downgrading Fannie and Freddie. If more investors lose faith, Simon believes that would push interest rates way up and severely restrict millions of Americans' ability to qualify for loans.</p><p>"That is our worry: We think housing is fragile, it's very easy to break and very difficult to fix if you break it," Simon says. "My biggest personal fear is that the Congress, in trying to get a good headline, accidentally breaks the housing market and you want to avoid that desperately."</p><p>Simon says another crash in housing could bring the banking system with it. An actual default on Treasury bonds could be even worse.</p><p>This is why many top business people are putting pressure on politicians to basically stop the madness and raise the debt ceiling. Many think lawmakers are playing a dangerous game that could push up interest rates. And if that happens:</p><p>"It's going to have a staggering impact on the economy," says Richard Smith, the CEO of Realogy Corp., which owns Century 21 and Coldwell Banker. He says he's on the phone every day to his lobbyists in Washington who are pushing lawmakers to reach a deal. He says many other CEOs are too.</p><p>"Running up to the last minute is just completely irresponsible on the part of the government. This is inexcusable," he says. "To take the entire business community to the edge. What do you think is going to happen for the past several months? Nothing. People are not investing, not making major business decisions, they're not hiring — they're holding their cards."</p><p>So investors and CEOs are hoping Congress pushes a deal through quickly. <div class="fullattribution">Copyright 2011 National Public Radio. To see more, visit <a href="http://www.npr.org/">http://www.npr.org/</a>.<img src="http://metrics.npr.org/b/ss/nprapidev/5/1311220840?&gn=Debt+Drama+Could+Be+Another+Blow+To+Housing&ev=event2&ch=130729880&h1=Crisis+In+The+Housing+Market,Around+the+Nation,Economy,Politics,Business,U.S.,Home+Page+Top+Stories,News&c3=D%3Dgn&v3=D%3Dgn&c4=138543667&c7=1006&v7=D%3Dc7&c18=1006&v18=D%3Dc18&c19=20110720&v19=D%3Dc19&c20=1&v20=D%3Dc20&c21=2&v21=D%3Dc2&c31=130729880&v31=D%3Dc31&c45=MDA0OTc2MjAwMDEyNjk0NDE4OTI2NmUwNQ001"/></div></p></p> Wed, 20 Jul 2011 16:40:00 -0500 http://www.wbez.org/story/2011-07-20/debt-drama-could-be-another-blow-housing-89438 Homebuilder 'Rolls' Along, Deals With Hard Times http://www.wbez.org/story/2011-06-16/homebuilder-rolls-along-deals-hard-times-87982 <img typeof="foaf:Image" src="http://llnw.wbez.org//npr_story/photo/2011-June/2011-06-17/img_1211.jpg" alt="" /><p><p>Construction of new homes rose more than expected last month. But with the glut of foreclosures and other houses already on the market, home prices in many places continue to fall. For homebuilders it remains a very tough market, and many are struggling to survive.</p><p>Martha Rose has been building houses for nearly four decades, and despite the hard times, she still loves it. The Seattle-area homebuilder refers to herself as a building nerd and worries about every detail, from the overall plan and energy efficiency of a project to how a particular corner will be built.</p><p>On a recent morning, she was clad in a blue bomber jacket with the name Martha stitched on the front — poring over construction drawings at the site of her latest project. She's building two town houses in the city's Qnee Anne neighborhood.</p><p>Rose is friendly and given the circumstances, surprisingly upbeat. She says you have to be an optimist to build on spec — that means you build a house and then hope someone will buy it a at price that allows you to turn a profit.</p><p>Rose says she's not usually nervous during construction; that part comes later.</p><p>"It's not until we are getting ready to list the property for sale, that's when the nerve-racking time [is]," she says. "If you build it will they in fact come? Does that work?"<strong> </strong></p><p>It hasn't worked very well over the past three years. She built lots of houses, and lost money on just about all of them.</p><p><strong>'Throwing The Dice'</strong></p><p>Obstacles were and still are everywhere. For example, in the boom years, getting a construction loan was easy. But by 2009, Rose says, the routine approval process had turned into a two-hour ordeal.</p><p>"Sometimes you felt you were in a deposition," she says "You were grilled. It was intense."</p><p>She was rejected 10 times by 10 banks.</p><p>Rose ultimately got a small bank loan, but not before she drew down her savings so she could begin what she thought would be a fabulous four-house cluster.</p><p>"I gambled, I did," she says. "I threw the dice."</p><p>It was a terrible bet. For example, she had hoped to sell one of the houses for $639,000, but it didn't work out that way.</p><p>"It got down to 439 and people are offering 398, it felt like I was laying on the ground and people were kicking me," she says.</p><p>Asked why she kept building when the market was falling, Rose says simply that she's a builder. It's who she is and what she does, adding, sometimes you have to spend money to get yourself out of a hole.</p><p><strong>Making Adjustments</strong></p><p>In an effort to stay afloat, she's made some changes in the past few years. The biggest one is that she no longer has employees.</p><p>Instead she hires general contractors and subs only when she needs them. Gone is the expense of Social Security, unemployment and workers compensation payments. The latter could cost up to $3 an hour per worker. The staffer who dealt with all the forms is gone, too.</p><p>"I can't see having a business that is that complicated again," she says. "The idea is to get leaner and meaner, not literally meaner, but to get your business down to bare essentials."</p><p>Worrying about all this is tough, but Rose has discovered the perfect place to get away and gain perspective.</p><p>She's headed off to go roller skating.</p><p>She says she goes there and thinks about staying on her feet and not falling down.</p><p>"The floor is slippery until you get used to it, and you go with the flow, you do your best, you pay attention and you try to stay vertical," she says.</p><p>Just like she's trying to do in her business.</p><p>Rose slips into the crowd and makes the first turn looking confident. <div class="fullattribution">Copyright 2011 National Public Radio. </p> Thu, 16 Jun 2011 23:01:00 -0500 http://www.wbez.org/story/2011-06-16/homebuilder-rolls-along-deals-hard-times-87982 Economy Leaves Homebuyers Cautious To Commit http://www.wbez.org/story/2011-06-08/economy-leaves-homebuyers-cautious-commit-87598 <p><p>It turns out that the housing market works a lot like love. At least for some people.</p><p>Take Christina Huang. She fell in love with a $969,000 house in Northern Virginia. She could picture raising a family. But there were a few red flags after an inspection, and she realized it wasn't going to work.</p><p>It took her several months to go on a proper date with her husband. Her housing search has taken considerably longer.</p><p>Huang flirted with buying a house before the recession four years ago. She sat it out and dodged a bullet. Since then she has survived layoffs that cut half the staff from her division.</p><p>"The great recession has emotional damage," she says. "We are facing a world with great uncertainty. So are you going to feel comfortable to make a commitment?"</p><p>Home prices are back to where they were a decade ago and low interest rates mean borrowing is still relatively cheap, but buyers are still hesitant.</p><p>Huang is something of a housing market nerd. In her job, she conducts financial due diligence on companies before they merge. So when it comes to her personal decision to buy a house, she considers everything from high unemployment to the European debt crisis.</p><p>She worries where interest rates are headed and about a large inventory of foreclosed homes. She even frets over the political debate over the debt ceiling. All of which, she thinks, creates a little uncertainty around her own commitment to buying a house.</p><p>"The more volatile the economy becomes, the more fear we have," she says.</p><p><strong>'A Bad Breakup'</strong></p><p>Huang's hesitation speaks volumes about the market. Although there may be bargains, the continuing decline of home prices makes many buyers nervous. And uncertainty over jobs makes buyers less willing to make gambles on big investments.</p><p>Marshall Park is a real estate agent for Redfin, an online brokerage. He says with the past two weeks of bad economic news, buyers have pulled back.</p><p>"I think people are playing the field to fall in love. And I think in the back of their mind the whole time is the ex-girlfriend, which is probably the economy right now," he says.</p><p>For her part, Huang says she's still open to finding housing love. But her approach is very calculated.</p><p>"So it means that do your homework, have a parameter set up, so that you fall in love within that parameter," she says.</p><p>It turns out Huang likes this whole idea of falling in love within a set of safe boundaries. She did it with her husband.</p><p>They met at a friend's party. Then for months they talked on the phone, but only discussed business and politics. They finally shared personal stories. She discovered he helped his elderly neighbors. And only much later did she venture to say she liked him.</p><p>"So I guess maybe it is like the house," she says. "Like set up the parameters and then fall in love within those parameters." <div class="fullattribution">Copyright 2011 National Public Radio. To see more, visit <a href="http://www.npr.org/">http://www.npr.org/</a>.<img src="http://metrics.npr.org/b/ss/nprapidev/5/1307563249?&gn=Economy+Leaves+Homebuyers+Cautious+To+Commit&ev=event2&ch=130729880&h1=Crisis+In+The+Housing+Market,Around+the+Nation,Economy,Business,U.S.,Home+Page+Top+Stories,News&c3=D%3Dgn&v3=D%3Dgn&c4=137040078&c7=1017&v7=D%3Dc7&c18=1017&v18=D%3Dc18&c19=20110608&v19=D%3Dc19&c20=1&v20=D%3Dc20&c21=2&v21=D%3Dc2&c31=130729880&v31=D%3Dc31&c45=MDA0OTc2MjAwMDEyNjk0NDE4OTI2NmUwNQ001"/></div></p></p> Wed, 08 Jun 2011 14:57:00 -0500 http://www.wbez.org/story/2011-06-08/economy-leaves-homebuyers-cautious-commit-87598 As Home Construction Falls, Builders Feel The Pinch http://www.wbez.org/story/2011-05-17/home-construction-falls-builders-feel-pinch-86674 <p><p>For homebuilders, it hardly feels like an economic recovery.</p><p>Nearly two years after the recession ended, the pace of construction is inching along at less than half the level considered healthy. Single-family-home building, the bulk of the market, has dropped 11 percent in that time. And there's no sign it will improve soon.</p><p>Builders are struggling to compete with waves of foreclosures that have forced down prices for previously occupied homes. The weakness is weighing on the economy.</p><p>Though new homes represent a small portion of overall sales, they have an outsize impact on the economy: Fewer new homes mean fewer jobs.</p><p><strong>'I Might Have To Lay Off My Son'</strong></p><p>Skip Howes, a homebuilder in Woodland Park, Colo., has managed to stay in business only after laying off two workers in the past few years. He's now running a two-man operation in the small town outside Colorado Springs. The other man is his son.</p><p>But business hasn't improved. Before the housing boom, he built as many as six homes a year. Last year, he built only one. This year, he's had no home projects.</p><p>"We've been holding on for years," Howes said. "If I can't diversify, and if things don't improve, I might have to lay off my son."</p><p>The Commerce Department said Tuesday that new-home construction plummeted last month to a seasonally adjusted rate of 523,000 homes a year. A big drop in volatile apartment-building construction pulled down the monthly figures. Tornadoes and flooding also disrupted construction projects throughout the South.</p><p>David Crowe, the chief economist of the National Association of Homebuilders, says levels are at the lowest on record since the 1940s.</p><p>Remarkably, says Crow, "although our population expanded four-fold since the '40s, we aren't building any more new homes than we were in the '40s."</p><p>And that's bad news for the whole economy. At the end of most recessions, Crowe explains, housing picks up and usually gives the economy a boost.</p><p>"In a recovery, homebuilders hire construction laborers, homebuilders buy appliances, carpets that were made in a plant somewhere else," he says. "And then the people that move into the house buy furniture and window coverings and plantings. And so there's a whole cycle of economic activity that usually stimulates the economy in a recovery that is not taking place on this cycle."</p><p>That's because this recession was caused by excessive risk-taking in the housing market and the financial system.</p><p>Steve Blitz, a senior economist at ITG Investment Research, says homebuilders just built way too many houses during the bubble. He says the rule of thumb over the years was that building 1 million new homes a year in the U.S. pretty much matched demand. But during the housing bubble, he says, "we were building 2 million homes a year."</p><p>The nation's largest homebuilders — including PulteGroup, Lennar, D.R. Horton and KB Home — have survived the turbulent stretch by cutting prices and offering more incentives.</p><p>KB Home CEO Jeff Mezger says a new condo development his company is building in Los Angeles is environmentally friendly — and he's hoping that saving 50 percent on utility bills with better insulation and solar power will attract homebuyers to these green building projects.</p><p>"We're trying to find ways to differentiate from the existing housing stock, and in an odd way we're making the homes we built five years ago obsolete," he says.</p><p>Small and midsized homebuilders haven't been as fortunate. Many small builders are staying in business either by working on a few choice properties or focusing on remodeling and renovation projects.</p><p>"Everybody is feeling the pinch," said Greg Ugalde, a midsized homebuilder in Torrington, Conn., who is building a third of the homes he built in years before 2003, when the housing boom began.</p><p><strong>A Smaller Pool Of Homebuyers</strong></p><p>High unemployment and stricter lending requirement have greatly reduced the number of potential buyers who could qualify for a mortgage. And those who are eligible have more incentive to buy a previously occupied home.</p><p>Millions of foreclosures and short sales — when the lender agrees to accept less than what is owed on the mortgage — have lowered prices for existing homes. The median price of a new home was about 34 percent higher in March than the median price for a resale. That's more than twice the markup in healthy housing markets.</p><p>In some cities, prices are half of what they were before the housing market collapsed in 2006 and 2007. Many potential buyers who could qualify for loans are worried that prices will fall further. Others are hesitant to put their own homes on the market when prices are dropping.</p><p>"There are very few signs of recovery in residential construction," said Celia Chen, senior director at Moody's Analytics. "Absent evidence of stronger demand for housing, homebuilders will remain reticent to put up new homes."</p><p>Single-family-home construction, which represents 80 percent of the housing market, has helped lead the country out of past recessions. Each new home built creates an average of three jobs for a year and generates about $90,000 in taxes, according to the National Association of Home Builders.</p><p>After the six economic downturns between 1960 and 2001, construction jumped an average of 35 percent in the first 22 months, according to Credit Suisse Securities.</p><p>But that hasn't been the case since the Great Recession ended in June 2009. Single-family building actually fell 11 percent in that time.</p><p>Some factors are unpredictable, such as harsh weather. Violent tornadoes and flooding along the Mississippi River contributed to a 23 percent drop in building throughout the South, analysts said. Reconstruction efforts might lead to a "bounceback in May," according to Paul Dales, senior U.S. economist at Capital Economics.</p><p>Most builders say they don't expect a housing recovery until they see fewer homes in foreclosure and looser credit requirements. In the meantime, Howes, the Colorado homebuilder, said he has broadened his services to include painting, kitchen remodeling and other home improvements to stay in business. Many others are doing the same.</p><p>"We need to diversify in order to survive," Howes said. "It's not like it used to be and we need to try new things."</p><p><em>NPR's Chris Arnold contributed to this report, which contains material from The Associated Press</em> Copyright 2011 National Public Radio. To see more, visit <a href="http://www.npr.org/">http://www.npr.org/</a>.<img src="http://metrics.npr.org/b/ss/nprapidev/5/1305670334?&gn=As+Home+Construction+Falls%2C+Builders+Feel+The+Pinch&ev=event2&ch=130729880&h1=Crisis+In+The+Housing+Market,Economy,Business,U.S.,Home+Page+Top+Stories,News&c3=D%3Dgn&v3=D%3Dgn&c4=136389723&c7=1017&v7=D%3Dc7&c18=1017&v18=D%3Dc18&c19=20110517&v19=D%3Dc19&c20=1&v20=D%3Dc20&c31=130729880&v31=D%3Dc31&c45=MDA0OTc2MjAwMDEyNjk0NDE4OTI2NmUwNQ001"/></p></p> Tue, 17 May 2011 17:00:00 -0500 http://www.wbez.org/story/2011-05-17/home-construction-falls-builders-feel-pinch-86674 How Some Made Millions Betting Against The Market http://www.wbez.org/story/2011-04-29/how-some-made-millions-betting-against-market-85939 <img typeof="foaf:Image" src="http://llnw.wbez.org//npr_story/photo/2011-May/2011-05-02/cdo-panel-5.jpg" alt="" /><p><p>In 2006 and 2007, several banks and hedge funds realized what was happening to the U.S. economy while it was happening — and then made vast fortunes by betting against the markets.</p><p>"Lots of bankers knew that things were in trouble, and they went on — they did it anyway," says ProPublica reporter Jesse Eisenger. "Some of them did it because they could bet against it. Some of them did it because they could make fees by helping clients who were betting against it. And some of them did it just to keep the machine do it and make huge bonuses."</p><p>Eisinger and his colleague Jake Bernstein recently received the 2011 Pulitzer Prize for National Reporting for a series of stories about the banks and hedge funds engaged in questionable financial practices that contributed to the near-collapse of the nation's financial system.</p><p>On Monday's <em>Fresh Air</em>, Bernstein and Eisinger talk to Dave Davies about their Pulitzer Prize-winning series of stories on Wall Street's short-sighted greed — which counteracted the popular notion that no one foresaw the financial crisis coming.</p><p><strong>Magnetar</strong></p><p><strong> </strong></p><p>In 2007, a suburban Chicago hedge fund named Magnetar seemed to outsmart the rest of the financial industry. As the U.S. economy tanked, Bernstein and Eisinger discovered that the hedge fund made a vast fortune by betting against the market.</p><p>In 2006 and 2007, Magnetar created and repackaged a series of complicated and risky financial securities — called collateralized debt obligations (CDOs). The securities were made up of subprime mortgage-based bonds bundled with mortgage securities — and banks were more than happy to get rid of them.</p><p>At the same time, Magnetar pushed for risky investments to go inside those CDOs. They also secretly placed even larger bets against the CDOs using an instrument called a "credit default swap" — essentially insurance on a corporate loan.</p><p>"If it failed, they would make many times what they had put into it," explains Bernstein.</p><p>After the housing bubble burst, the pools of loans underneath the CDOs started to default and Magnetar began to profit. Bernstein and Eisinger reported that many of the bankers who worked on the securities deals at Magnetar pocked millions of dollars in bonuses. And the firm did "spectacularly well."</p><p>"[Their main fund was] up 76 percent in 2006," says Bernstein. "Their main fund made hundreds of thousands of dollars on this. But quantifying exactly how much they made is very hard to do because hedge funds are fairly opaque and they don't have to report great detail about their performance."</p><p>At least nine banks helped Magnetar with their deals, including Merrill Lynch, Citibank, UBS and JPMorgan Chase. By propping up the CDOs, says Bernstein, the banks and Magnetar helped prolong the financial crisis by masking a problem with the risky investments.</p><p>"The incredible damage to the economy, in large degree, was because it went on for several more years than it should have and Wall Street really just inflated the heck out of it," he says. "So Magentar had a big role in that."</p><p>Bernstein and Eisinger had extensive conversations with Magnetar and have published all of their written correspondence on the ProPublica website.</p><p>"From what we've learned, there was nothing illegal in what Magnetar did; it was playing by the rules in place at that time," they wrote last April. " And the hedge fund didn't cause the housing bubble or the financial crisis. But the Magnetar trade does illustrate the perverse incentives and reckless behavior that characterized the last days of the boom."</p><p><strong>Creating Fake Demand</strong></p><p>Bernstein and Eisinger also discovered that Wall Street banks created fake demand for CDOs in order to preserve their quarterly earnings and executive bonuses.</p><p>"What we found was that the banks were orchestrating sales [and] swapping sales [with other banks,] says Bernstein. "They were doing 'You buy mine and I buy yours' type of deals. They were essentially having this kind of daisy chain of demand."</p><p>Though there weren't real buyers, the banks could profit by keeping the artificial demand for CDOs up — because each bank received fees for orchestrating purchases of the CDOs.</p><p>"A typical CDO could net the bank that created it between $5 and $10 million — about half of which usually ended up as employee bonuses," wrote Bernstein and Edelstein. "But the strategy of speeding up the assembly line had devastating consequences for homeowners, the banks themselves and, ultimately, the global economy."</p><p>Eisinger explains that the entire business model was "extraordinarily fake."</p><p>"It was based on demand that wasn't there and promises that couldn't be kept," he says. "So when we came out of meetings [and we were] starting to get glimmers of understanding about this — that this business that had been worth supposedly hundreds of billions of dollars was really on a edifice of tissue — we were astonished. It was scary. But there were all deals that largely had no substance behind them."</p><p>Jesse Eisinger is a veteran business reporter who wrote for <em>The Wall Street Journal</em>. He is also the former Wall Street editor of the <em>Conde Nast</em> Portfolio. Jake Bernstein is a former writer and executive editor for the investigative bi-weekly, <em>The Texas Observer</em>.</p><p><strong><br /></strong> Copyright 2011 National Public Radio. To see more, visit <a href="http://www.npr.org/">http://www.npr.org/</a>.<img src="http://metrics.npr.org/b/ss/nprapidev/5/1304356331?&gn=How+Some+Made+Millions+Betting+Against+The+Market&ev=event2&ch=130729880&h1=Crisis+In+The+Housing+Market,Fresh+Air+Interviews,Economy,Business,U.S.,Home+Page+Top+StHome+Pageories,News&c3=D%3Dgn&v3=D%3Dgn&c4=135846486&c7=1017&v7=D%3Dc7&c18=1017&v18=D%3Dc18&c19=20110429&v19=D%3Dc19&c20=1&v20=D%3Dc20&c21=13&v21=D%3Dc2&c31=130729880,125637934&v31=D%3Dc31&c45=MDA0OTc2MjAwMDEyNjk0NDE4OTI2NmUwNQ001"/></p></p> Fri, 29 Apr 2011 15:24:00 -0500 http://www.wbez.org/story/2011-04-29/how-some-made-millions-betting-against-market-85939 Mortgage Brokers Decry Loan Payment Reforms http://www.wbez.org/story/around-nation/2011-03-28/mortgage-brokers-decry-loan-payment-reforms-84399 <p><p>New federal rules go into effect on April 1 that will change the way mortgage brokers across the country can make money. They will no longer be allowed to earn a bigger commission for giving a customer a loan with a higher interest rate.</p><p>Consumer groups are applauding the change, but the mortgage industry says the rules are unfair and could drive lots of smaller brokers out of business.</p><p>In the past, a broker arguably had an incentive to steer potential homebuyers or existing homeowners who want to refinance their house into a loan with a higher interest rate. Of course, many honest and reputable mortgage brokers would never mislead their clients.</p><p>"They've basically received a kickback from the lender," says Ira Rheingold, the executive director of the National Association of Consumer Advocates in Washington, D.C. He says mortgage brokers have "made more money when they were able to stick you with a loan that was worse than what you otherwise would have qualified for."</p><p><strong>The Debate Over Yield Spread Premiums</strong></p><p>The practice has been perfectly legal until now. Brokers get the extra money through what's called a "yield spread premium." And Rheingold is happy to see new rules from the Federal Reserve that will ban brokers from making extra money this way.</p><p>"It's about time," he says, adding that the new rule will begin to "create a place where consumers have a better chance of not being cheated in the marketplace when they're buying a mortgage."</p><p>Many mortgage brokers have a different perspective.</p><p>Robert Petrelli, the owner of Mount Vernon Mortgage Corp. in Weymouth, Mass., has been in the banking and mortgage business since 1971. And he's a former president of the state's mortgage broker trade group.</p><p>"Yield spread isn't a kickback," he says. At his desk, he pulls out a home loan rate sheet from a major bank and explains how mortgage brokers make their money.</p><p>Basically, he says, brokers get a wholesale price for a loan from a bank <em>-- </em>the same way retail shoe stores or supermarkets pay wholesale prices.</p><p>And just like a shoe store, to stay in business Petrelli has to charge something extra to cover his overhead and make a living. In the mortgage business, one of the central ways that's done is through yield spread premiums, which are targeted in the new rules.</p><p>Petrelli says there's nothing inherently wrong with receiving the premiums. He says the premiums are just a basic building block of how reputable, honest mortgage brokers make their money.</p><p>These new rules will change the way the industry gets paid. And many in the business say the new rules aren't fair.</p><p><strong>A Bias Toward Big Banks?</strong></p><p>If these rules go into effect on April 1, it will mean, "a tremendous amount of layoffs," says Mike Anderson, the chairman of the government affairs committee for the National Association of Mortgage Brokers. "We are hearing from mortgage brokers across the country that say they're going to let all their loan officers go and become one-man shops."</p><p>Anderson says the Fed's new rules favor big banks at the expense of small mortgage broker businesses. Big banks will have more flexibility in what they charge customers, while mortgage brokers will be locked into a set profit margin that will tie their hands and make it hard to compete, he says.</p><p>Anderson's trade group has filed a lawsuit in federal court against the Fed seeking an injunction to postpone the new rules. Copyright 2011 National Public Radio. To see more, visit <a href="http://www.npr.org/">http://www.npr.org/</a>.<img src="http://metrics.npr.org/b/ss/nprapidev/5/1301382731?&gn=Mortgage+Brokers+Decry+Loan+Payment+Reforms&ev=event2&ch=130729880&h1=Crisis+In+The+Housing+Market,Around+the+Nation,Your+Money,Economy,Business,U.S.,Home+Page+Top+Stories,News&c3=D%3Dgn&v3=D%3Dgn&c4=134858318&c7=1018&v7=D%3Dc7&c18=1018&v18=D%3Dc18&c19=20110329&v19=D%3Dc19&c20=1&v20=D%3Dc20&c21=3&v21=D%3Dc2&c31=130729880&v31=D%3Dc31&c45=MDA0OTc2MjAwMDEyNjk0NDE4OTI2NmUwNQ001"/></p></p> Mon, 28 Mar 2011 23:01:00 -0500 http://www.wbez.org/story/around-nation/2011-03-28/mortgage-brokers-decry-loan-payment-reforms-84399 Pursuing The American Dream, By Renting http://www.wbez.org/story/around-nation/2011-03-27/pursuing-american-dream-renting-84333 <img typeof="foaf:Image" src="http://llnw.wbez.org//forrent.jpg" alt="" /><p><p>The start of spring usually brings a surge in existing-home sales and housing starts.</p><p>But this year, warming temperatures may not be enough to pull the real estate market out of a deep freeze. New homes sales plunged 16.9 percent last month, while the median price slid nearly 14 percent to $202,100, the lowest level since December 2003, according to the Commerce Department.</p><p>And a <a href="http://www.census.gov/const/newresconst.pdf">Census Bureau report</a> showed housing starts plunged more than 22 percent in February — the second worst reading since World War II.</p><p>Rather than buy homes, growing numbers of Americans are renting apartments and houses. The Census Bureau says the <a href="http://www.census.gov/hhes/www/housing/hvs/qtr410/files/q410press.pdf">national rental vacancy rate</a> for the fourth quarter of 2010 was 9.4 percent, a significant improvement over the 10.7 percent rate in 2009. In fact, landlords haven't seen rental vacancy rates this low since the winter of 2003.</p><p>With vacancies down and rents rising, the values of apartment buildings are rising, too, up 16 percent in 2010, according to brokerage firm Marcus & Millichap.</p><p>This shift toward renting is reflected in the Census Bureau's home ownership statistics, as well. The ownership rate jumped up to a record 69.2 percent by 2004. After the housing crisis began in 2007, home ownership rates started dropping. The rate now is 66.5 percent — the lowest level since 1998.</p><p><strong><strong>Foreclosures Boost Rentals</strong></strong></p><p>The move away from home ownership is tied primarily to the foreclosure crisis. Over the past five years, millions of people have lost homes in foreclosures, and now have bad credit ratings. Because they can't meet the tighter lending standards for new mortgages, they won't be able to buy houses for years — if ever.</p><p>In addition, the weak job market and slow wage growth are making it harder for Americans to come up with down payments or qualify for loans.</p><p>Bob Nielsen, chairman of the National Association of Home Builders, said in a statement that the new home market is being pulled down by "extremely tight" credit. As a result, the market psychology has shifted to "a very cautious stance."</p><p>That caution reflects not only current economic conditions, but also the hard experiences homeowners have had over the past five years. Nationally, home prices are down by about a third since their peak in mid-2006, according to the S&P/Case-Shiller U.S. National Home Price Index. Economists estimate that Americans have lost more than $6 trillion in collective housing wealth over the past five years.</p><p><strong><strong>Renting May Help The Economy</strong></strong></p><p>As the housing market has cooled, many jobs have been lost. Real estate agents, brick layers, mortgage brokers, landscapers and so many others have lost jobs. But some economists argue the economy will do better if even more people become renters.</p><p>Here's the thinking: Owning a large home in the suburbs was a reasonable proposition in the past because energy was cheap. In the 1990s, people could afford to air condition lots of rooms with high ceilings and fill their gasoline tanks for long commutes. Fifteen years ago, gas cost about $1.20 a gallon. Today, the price averages three times that.</p><p>With energy prices rising, the total cost of maintaining the big-house lifestyle is going up, too. Instead of buying gas for long commutes, many workers could cut costs by renting an apartment closer to their workplaces. The savings would allow them to steer more of their paychecks into retirement accounts. Those long-term investments may rise much more than the value of residential real estate.</p><p><strong><strong>Mobility Matters</strong></strong></p><p>Renting also would improve worker mobility. Places with high rates of home ownership also tend to have high jobless rates. Workers in, say, Detroit or northeastern Ohio, are likely to own homes, but may not be able to sell them to pursue new job opportunities in other parts of the country.</p><p>And that's achieving the American Dream, too — moving up the ladder to boost income. "Renting improves mobility," said Bernard Baumohl, chief economist with the Economic Outlook Group. If you need a job, "why buy a home and commit yourself to one place?"</p><p>But he added that for many families, "the lure of owning a home will remain" no matter what the job-hopping advantages of renting. "If you can meet the down payment requirement and have a good credit score, then this would be a good opportunity to buy" because both interest rates and home prices are low, he said. Copyright 2011 National Public Radio. To see more, visit <a href="http://www.npr.org/">http://www.npr.org/</a>.<img src="http://metrics.npr.org/b/ss/nprapidev/5/1301225226?&gn=Pursuing+The+American+Dream%2C+By+Renting&ev=event2&ch=130729880&h1=Crisis+In+The+Housing+Market,Around+the+Nation,Your+Money,Economy,Business,U.S.,Home+Page+Top+Stories,News&c3=D%3Dgn&v3=D%3Dgn&c4=134623259&c7=1017&v7=D%3Dc7&c18=1017&v18=D%3Dc18&c19=20110327&v19=D%3Dc19&c20=1&v20=D%3Dc20&c21=10&v21=D%3Dc2&c31=130729880&v31=D%3Dc31&c45=MDA0OTc2MjAwMDEyNjk0NDE4OTI2NmUwNQ001"/></p></p> Sun, 27 Mar 2011 05:45:00 -0500 http://www.wbez.org/story/around-nation/2011-03-27/pursuing-american-dream-renting-84333 In Fla., It's A Great Time For Canadian Homebuyers http://www.wbez.org/story/business/2011-02-18/fla-its-great-time-canadian-homebuyers-82551 <p><p>In especially troubled housing markets such as Florida, foreclosures are down, four years into the housing crash.</p><p>But that's thought to be just temporary. Sales are up in Florida, but in some areas more than half of those sales involve foreclosures.</p><p>There's one group of homebuyers, however, for whom market conditions couldn't be better: Canadians.<strong></strong></p><p><strong>A Piece Of Florida Sunshine<br /></strong></p><p>The cars in a parking lot at Walmart in Hallandale Beach, near Fort Lauderdale, tell the tale. About 1 of out every 10 vehicles is from Canada. It's February; the weather is warm in Florida, so many are visiting tourists. But other Canadians are putting down roots.</p><p>One recent transplant, Doug Flood says, "If there ever was an 11th [Canadian] province, it probably would be Florida."</p><p>Flood moved to Florida from Toronto in 2008. A few years later, he got into real estate. He now specializes in helping other Canadians who want their own piece of Florida sunshine.</p><p>As it turns out, there are a lot of them. Canadians are the largest single group of foreign homebuyers, accounting last year for some 8 percent of total residential sales in Florida.</p><p>The maple leaf has long been a familiar symbol in Florida beach communities, on both the Atlantic and Gulf coasts. But over the past several years, Canadian visitors have increasingly become homebuyers.</p><p>Flood calls it "a perfect storm."</p><p>"If you're Canadian," he says, "you've got very low interest rates at home if you want to borrow against your house. You've got a foreign exchange par, dollar-for-dollar. And prices down here that are 40 to 50 percent lower than what they were five years ago."</p><p><strong>Canada Avoided The Housing Crash<br /></strong></p><p>And here's another factor: Canada largely avoided the collapse in housing prices that devastated American homeowners and the U.S. economy.</p><p>Because of tighter financial regulations, things like subprime lending and securitized mortgages are unknown in Canada. Foreclosures are rare. So Canadian real estate steadily appreciated while property values in Florida, Arizona and other hard-hit U.S. markets went into the tank.</p><p>Brian Ellis, with Florida Home Finders of Canada, a real estate company based near Toronto, says, "It's put a lot of us in a very, very strong position in that we do have a lot of equity in our homes. And now, we can take some of that equity out, pay cash for either an investment property or a second home in the state of Florida."</p><p>Ellis holds seminars in Ontario and Quebec for people interested in buying homes in Florida. His company mostly markets new homes in developments where prices are good and where it can assure clients there are no hidden problems, such as underfunded homeowners associations or Chinese drywall.</p><p>Most buyers, Ellis says aren't planning on moving to Florida. They're investors, "all looking at buying property to rent out today to generate cash flow." Ellis says you can't do that in most major cities in Canada. "You can't buy property and be cash-flow positive. Not even close," he says.</p><p><strong>Who's Buying</strong></p><p>There are wealthy Canadians buying multimillion-dollar beachfront homes. And there are people like Dennis Kivlahan, who recently bought a two-bedroom condo in Fort Myers, Fla., sight unseen.</p><p>Kivlahan is a high school history teacher from Ajax, Ontario. He used money from a home equity loan to pay $56,000 cash for the property in Florida.</p><p>"I liked the price. It was a very straightforward sale," he says. "We went on vacation there myself, my wife and children. And I saw the unit about three months after I purchased it."</p><p>Kivlahan is renting it out with the idea of possibly moving to Fort Myers when it's time to retire.</p><p>It's not just individual homebuyers taking advantage of low Florida prices. The Minto group, a Canadian homebuilder, recently bought nearly 1,000 lots near Tampa.</p><p>For Canadians, it is an investment and something more — a reminder in the depths of winter, they own a place where it's actually warm.</p><p>In a recent phone interview from his home in Ajax, Kivlahan said, "You know right now, as we speak, it's about minus 20 with the wind chill, so I wouldn't mind being down there."</p><p>That as much as anything explains why, through boom and bust, Florida real estate eventually always bounces back. Copyright 2011 National Public Radio. To see more, visit <a href="http://www.npr.org/">http://www.npr.org/</a>.<img src="http://metrics.npr.org/b/ss/nprapidev/5/1298067434?&gn=In+Fla.%2C+It%27s+A+Great+Time+For+Canadian+Homebuyers&ev=event2&ch=130729880&h1=Crisis+In+The+Housing+Market,Economy,Business,World,U.S.,Home+Page+Top+Stories,News&c3=D%3Dgn&v3=D%3Dgn&c4=133864976&c7=1017&v7=D%3Dc7&c18=1017&v18=D%3Dc18&c19=20110218&v19=D%3Dc19&c20=1&v20=D%3Dc20&c21=2&v21=D%3Dc2&c31=130729880&v31=D%3Dc31&c45=MDA0OTc2MjAwMDEyNjk0NDE4OTI2NmUwNQ001"/></p></p> Fri, 18 Feb 2011 09:11:00 -0600 http://www.wbez.org/story/business/2011-02-18/fla-its-great-time-canadian-homebuyers-82551