Tuesday, March 25, 2014

Housing and Government Stats

A Rare American Species
For the last few months I have been trying to figure out a pithy article on the current state of housing in the United States. But all I can see, based on news programs, news articles, and self-serving government reports is confusion and conflicting statistics.

Here is what we think we know: current 30 year fixed mortgage rates are in the very low 4's (4.13% to 4.20%). 15 year fixed loans are 3.17% and adjustables are in the 2.75% to 3.00%. And the trend over the last few weeks seems to be down or at least steady. Even equity-based loans are in the low 4s. From where I sit loan rates do not seem to be the reason for the lag in sales.

The weather? Potentially this is a big reason, anyone east of Reno, Nevada has seen a winter that blows through once every twenty or thirty years. People in the lower, middle, and upper Midwest stayed in and those in the east never left their fireplaces except to go to work. The last thought for everyone was house hunting. Most were trying to keep warm.

Employment? No one knows how many are really unemployed or underemployed. The government drops from the rolls and stats those unemployed after a period of time; the reason for this is lost to the world of stats and figures. But those are real people and are still living and breathing – but unfortunately they are also not in a position to participate in new homes. So until employment comes back to the historic norm, this will continue to be a drag on construction and sales.

Technology? Here's a thought: Businesses once moved employees to match job needs. This was a serious driver of home sales in suburban areas during the 1950s, 60s, and 70s. This promoted the old saw about home sales peeking in summer to prepare for families moving in before the next school season. This drove a lot of home sales. Now with technology these employees can often stay in place, communicate, and manage projects and employees long distance. The Internet and other protocols allow face-to-face meetings with Cisco and Skype systems. How much this affects new home sales is yet to be determined.

Home Prices: Home prices continue to rise in most parts of the country. But remember that ALL home pricing structures are local. Detroit? Buy a huge home needing some fixing up for less than $30,000. Same home in Pleasanton, California - $1 million plus. Think local! But it is the trends to look at for overall economic activity, for the past year average existing home prices are up almost 10%. Foreclosures and short sales are down 10% in the same period. An interesting figure is that 34% of homes were on the market for less than a month, this does show some velocity to the market. (Article )

Average new home median price is $261,800, down a tic over the last month. The current running annual new home sales estimate is 455,000, half what experts believe is the real demand in a healthier economy. What 500,000 additional new homes would do to average pricing, economic activity, and growth is something serious to ponder. In the years before the Great Recession we were building 1.2 million homes annually, but then again that did contribute to the problem.

Debt: Student debt for those under 33 is a serious drag on sales of first homes. Paying for college education loans severely limits the ability to accumulate down payments and afford monthly mortgages. This is a worsening problem and will continue to affect the first home, under 30, market for years.

My history teacher in high school told me that there are liars, damn liars, and government statisticians. Most of the housing numbers are generated through the Census Bureau and then churned through the media, so my readers consider the source then consider the reality. SOURCE  

Stay Tuned . . . . . .

Monday, March 17, 2014


It seems that at some point in an urban blogger's career they must list the essential acronyms that plague the development process. Most have become overused and as such have lost their required impact of derision and ridicule. And yet others have been sown onto flags and banners and waved at public hearings.

Now I enjoy a good acronym as much as the next person. With texting, we get all sorts with OMG, LOL, BYW, WTF and so many others it would take a SNERT to know them all (see below).

So here are most of the current faves, though some are a bit old. If you have others, please comment.

BANANA - Build Absolutely Nothing Anywhere Near Anyone/Anything, this is the omnibus phrase that takes everything in.

CAVE People - Citizens Against Virtually Everything, this of course has a double meaning as in against and where many live.

LULU - Locally Unwanted Land Use, things like massage parlors, marijuana dispensaries, cigarette stores, porn shops, fast food drive throughs (In-and-Out Burger comes to mind).

The Anti-Development Nots:
NIMBY - Not In My Back Yard, this is the oldest acronym and has become the primary phrase used to depict those against any project.

NIMFYE - Not In My Front Yard Either, obvious expansion of NIMBY, though a stretch I think.

NIABY - Not In Anyone's Backyard, this is the all inclusion form of the above.

NIMEY - Not In My Election Year, the current fall back within communities with tough choices, tells all about the political process.

NACTAE - Not A Chance Till After Elections, see above.

NITL - Not In This Lifetime, I have worked on projects like these.

NOPE - Not On Planet Earth, as we move off planet I am sure this will morph into NOTM (Not On The Moon/Mars).

NOTE - Not Over There Either, cute but why not over there, or there, or even there!

PIGINIMBY – Phew I'm Glad It's Not In My Backyard, whatever.

IKWIWWISI - I'll Know What I Want When I See It, this is the normal planning and approval process as done in California – this process continues until either the developer pulls the proposal, goes bankrupt, or dies. (I have had clients fall into all these categories).

BANY's - Builders Against NIMBYs, also includes chambers of commerce and other pro-growth groups, often these have little real standing in the process and the club meetings are secret.

CEQA - Consultants Employment Quantity Act (was California Environmental Quality Act), this is a new one to me and has been a significant profit center over the years – doing work that does absolutely nothing to move the project forward except to give political cover.

DUDE - Developer Under Delusions of Entitlement, every client I know has fallen into this category at some point in the process. They learn quickly or die.

SIMBY - Start In My Backyard, this is a group that is usually formed at the developer's request. This includes unions (jobs), schools (jobs), and often politicians who want a pet project in their district.

YIMBY - Yes in My Backyard, variant of SIMBY.

WIIFM - What's In It For Me? The logical extension of the last two.

WYGIWYD - What You Get Is What You Deserve, this often is the result of the planning process when every part of the project that gives it life and soul is extinguished. Color this beige.

IAMS - It's About Me Stupid, this can apply to all participants in the process.

Citizens Involved In The Process:
DINKY – Duel Income, No kids, Yet. The apartment demographic follows these people closely.

MUPPIE - Middle-aged Urban Professional. They were previously a Yuppie – yes, we all are getting older.

GLAM - Greying, Leisured, Affluent, Married – is the GLAMMIE the obvious evolution of the MUPPIE?

NINJA – No Income, No Job, or Assets. Often found living in parent's basements – never seen at planning meetings.

RUB - Rich Urban Biker, often seen in spandex and silly helmets at planning meetings for streets and developments, scary bunch, want everything to be paid for by others.

SINBAD - Single Income No Boyfriend and Desperate, major leader of many movements within the community, cats hair often present on the sweater.

SNERT - Snot-nosed Egotistical Rude Teenager, only shows when there is a skateboard park being planned (or marijuana dispensary as well).

SITCOM - Single Income Two Children Oppressive Mortgage, the result of our government and banks attempts at making housing more available and affordable, these were DINKs three years earlier.

WOOF - Well Off Older Folk (or other similar sounding term), the sweet spot for travel agencies, nice restaurants and luxury car dealers.

WOOP - Well Off Older Person, variant of the above.

Check this SITE out for more. http://www.businessballs.com/acronyms.htm

Stay Tuned . . . . . . . . . .

Friday, March 7, 2014

Housing America and Michael Milken

At the request of associates of Mr. Milken minor corrections have been made to this post and inaccuracies fixed.

I have had, for more than twenty years, a very uncomfortable understanding of Michael Milken. After his conviction for violations of U.S. securities laws, a plea bargain, and his release from prison he returned to again champion and support those advancements necessary to increase survival from cancers (he is a prostate cancer survivor), and other serious diseases. Through his Milken Family Foundation his great work has helped to advance cures to many of the diseases.  (Wikipedia BIO Here) 

But I'm not here to praise Cesare or, for that matter bury him, I'm here to discuss one of the more interesting essays on the current American housing model that Milken posted this week in the Wall Street Journal. For the most part spot on.

According to the essay,  even with aggressive federal housing programs, the poor and middle class have not been helped but hurt, and the median net worth of Americans has dropped and is among the lowest among developed nations. The control (through mortgage lending) of the housing market has shifted from neighborhood banks and savings and loans to the federal government by the lending practices of Fannie Mae and Freddie Mac, who since 2008, have been involved in more than 95% of all new mortgages. Our illustrious congress has tried every trick to increase home ownership yet the national percentage of homeowners has not budged from 65%.

He points to what subsidized mortgages did do and none of them good:

1. The largest housing bubble in American history.
2. Misguided economic priorities.
3. Damage to the environment and public health.

I tend to agree with Milken that the programs and policies that led to easy credit, speculation, and poor lending practices eventually contributed (for some catastrophically) to the housing bubble of the mid-2000s. None of these were sustainable and proved that even smart people do very stupid things. I can quibble with his comparisons to the lifestyles of other regions of the world to American lifestyles, but it is critical that we rebalance the priorities of education, housing, transportation and medical costs.

I also have to agree that, as he points out in #2, we have become a nation that wants the easy way out. Make a housing mistake - like taking on too much debt, all is forgiven (the feds will cover it). Need money - take an equity loan, and when the bank fails for massive non-payments, the feds will cover it. Go bankrupt – no worries or embarrassment – wasn't your fault; you really needed that car, boat, RV, second home, etc.

What I do object to is his lazy social critique of the physical American home and its part in this problem. Homes did grow in size, my father's first new home in 1955 was about 850 square feet for a family of four. He was thrilled. Today he lives in a townhome in Florida that's maybe 1625 square feet for two people. Milken's implication is that this is just wrong, and that there is some socially set square foot of home per person ratio that is morally and economically correct.

Larger houses need larger lots that are usually farther from the home owner's job. Construction, heating, cooling, landscaping and extended commutes consume more natural resources. Because breadwinners spend more time in cars, they have less time for their families.

On the face of it this rant is childish logic. Crass assumptions are made about the housing-job relationship, the rapacious economic impacts of construction, heating, cooling and landscaping of the structures – all take, no give. Give, like the manufacturing of the products, the labor to build the house, the production of fuel for its heating and cooling, the retail and commercial support for these "consumers" of natural resources. And to throw in the old canard that long commutes are the end of the civilized world – please, we live in a world of individual choices, move on. I wish I had Mr. Milken's driver to help me commute from my Connecticut mansion to my high-rise office in Manhattan every day, I would have been so much more American. But I'll put that rant aside for now.

What Mr. Milken does do very well is throw on the table the real problem: federal meddling in loans, distortions in the banking system, and supporting bad behavior by the American borrower. And to make a serious point about the spread of housing (suburbia): Housing development and construction is the least of the economic worries he should be concerned about – it is the lack of it that is the problem. He also notes that efforts must be undertaken to reduce the federal government's role in direct capital investment. Greater and greater control and involvement must be returned to the private sector and the use of private capital. The world is currently floating in liquidity (his stated belief) and that this capital can best be used for more that commercial real estate, it has to go into residential real estate as well. One note though, now that the economy has turned, the two federal agencies (Fred and Fannie) are making significant profits on their control of the loan market – and I mean SIGNIFICANT profits, and there is a congress just rubbing its collective hands together waiting to get to it.

But and lastly, I still don’t see the connections of his last remark to his housing arguments:
Investments in quality education and improved health will do more to accelerate economic growth than excessive housing incentives. That will give everyone a better chance to achieve the real American dream.

There is also a video connected to the story, after which you may wonder where Michael Milken now lives and who gave him this podium.

Stay Tuned . . . . . . .