DirtInsider

ALICE IN HOUSING LAND

2008-05-16T11:15:00.000-07:00

May 15, 2008
Alice in Housing Land
By George Will

Lewis Carroll, call your office. Or, better still, the author of "Alice's Adventures in Wonderland" should call Washington, where the government's determination to solve the housing "crisis" produced this lead paragraph in a recent New York Times story: "Federal agencies are intensifying a criminal investigation of the mortgage industry and focusing on whether some lenders turned a blind eye to inflated income figures provided by borrowers."

Perhaps some lenders who were lied to were culpably indifferent to dishonesty because they planned to sell to others mortgages that the lenders knew were risky. But the victimization narrative that is turning turbulence in the housing market into a morality tale involves borrowers victimized by "predatory" lenders. The narrative remains murky because there is scant information about the percentage of currently distressed borrowers who were untruthful about their incomes or net worth when talking to lenders.

One symptom of the "crisis" is that housing prices have fallen. How far is unclear. Estimates range from 3 percent to 13 percent. Questions arise.
Do young couples struggling to purchase their first homes concur with the sudden consensus that the decline in prices is a national misfortune? The Economist reports: "Monthly payments on a typical house with a 30-year mortgage and 20 percent downpayment were 18.5 percent of the median family's income in February, down from almost 26 percent at the peak -- and close to the historical average."

By this measure of housing affordability, the "crisis" is welcome.

The housing perhaps-not-entirely-a-crisis resembles, in one particular, the curious consensus about the global warming "crisis," concerning which, the assumption is: Although Earth's temperature has risen and fallen through many millennia, the temperature was exactly right when, in the 1960s, Al Gore became interested in the subject. Are we to assume that last year, when housing prices were, say, 10 percent higher than they are now, they were exactly right? If so, why is that so? Because the market had set those prices, therefore they were where they belonged? But if the market was the proper arbiter of value then, why is it not the proper arbiter now? Whatever happened to the belief, way back in 2007, that there was a housing "bubble"? Or to the more ancient consensus that, because of, among other things, the deductibility of mortgage interest payments from taxable income, too much American capital flows into the housing stock?

Homeownership is, up to a point, a barometer of social health: Ownership deepens an individual's sense of having a stake in the health of the neighborhood and the larger community. Today, 67.8 percent of households own their homes, up from 65.9 percent 10 years ago and 63.7 percent 15 years ago. There are, however, limits to how high the rate can rise: Not everyone wants or can afford to own. And there are prudential limits to how high government should drive ownership by, for example, pressuring lenders to satisfy borrowers who have questionable qualifications.

As housing legislation perhaps heads for a rendezvous with the president's veto pen, remember that the object of the policymaking exercise is not justice -- or compassion, which is not the same thing -- for this or that category of lenders or borrowers. Rather, the main point of the exercise is to mitigate bad consequences for two categories of innocent bystanders.

One category consists of those who live in proximity to foreclosed homes. Unoccupied houses become subject to decay and vandalism, thereby letting loose the infectious disease of blight that depresses the values of properties in concentric circles.

The other category consists of everybody. Seventy percent of economic activity is personal consumption, which recently has been fueled by the "wealth effect" -- people spending because they feel wealthier due to the appreciation of their largest asset, their house. So "stabilizing" -- i.e., putting an artificial floor under -- housing prices may be necessary to fuel consumption by a public that in the 1980s saved almost 10 cents of every dollar it earned, and in the 1990s saved a nickel, but recently has had a negative savings rate. This will, however, injure some innocent people, such as those young couples waiting to become homeowners. And it will benefit others who have earned an injury, such as speculators and others who bet that the prices of houses would never decline.

Everyone knows that there is only one commodity the price of which always rises -- major league pitchers. Concerning the market for them, Congress should do something.

georgewill@washpost.com

(c) 2008, Washington Post Writers Group

http://www.realclearpolitics.com/articles/2008/05/alice_in_housing_land.html

THE HOUSING CRISIS IS OVER!

2008-05-15T11:25:00.000-07:00

Here is a great article regarding real estate, courtesy of The Wall Street Journal. http://online.wsj.com/article_print/SB121003604494869449.html

OPINION

The Housing Crisis Is Over
By CYRIL MOULLE-BERTEAUX May 6, 2008; Page A23

The dire headlines coming fast and furious in the financial and popular press suggest that the housing crisis is intensifying. Yet it is very likely that April 2008 will mark the bottom of the U.S. housing market. Yes, the housing market is bottoming right now.

How can this be? For starters, a bottom does not mean that prices are about to return to the heady days of 2005. That probably won't happen for another 15 years. It just means that the trend is no longer getting worse, which is the critical factor.

Most people forget that the current housing bust is nearly three years old. Home sales peaked in July 2005. New home sales are down a staggering 63% from peak levels of 1.4 million. Housing starts have fallen more than 50% and, adjusted for population growth, are back to the trough levels of 1982.

Furthermore, residential construction is close to 15-year lows at 3.8% of GDP; by the fourth quarter of this year, it will probably hit the lowest level ever. So what's going to stop the housing decline? Very simply, the same thing that caused the bust: affordability.

The boom made housing unaffordable for many American families, especially first-time home buyers. During the 1990s and early 2000s, it took 19% of average monthly income to service a conforming mortgage on the average home purchased. By 2005 and 2006, it was absorbing 25% of monthly income. For first time buyers, it went from 29% of income to 37%. That just proved to be too much.

Prices got so high that people who intended to actually live in the houses they purchased (as opposed to speculators) stopped buying. This caused the bubble to burst. Since then, house prices have fallen 10%-15%, while incomes have kept growing (albeit more slowly recently) and mortgage rates have come down 70 basis points from their highs. As a result, it now takes 19% of monthly income for the average home buyer, and 31% of monthly income for the first-time home buyer, to purchase a house. In other words, homes on average are back to being as affordable as during the best of times in the 1990s. Numerous households that had been priced out of the market can now afford to get in.

The next question is: Even if home sales pick up, how can home prices stop falling with so many houses vacant and unsold? The flip but true answer: because they always do. In the past five major housing market corrections (and there were some big ones, such as in the early 1980s when home sales also fell by 50%-60% and prices fell 12%-15% in real terms), every time home sales bottomed, the pace of house-price declines halved within one or two months.

The explanation is that by the time home sales stop declining, inventories of unsold homes have usually already started falling in absolute terms and begin to peak out in "months of supply" terms. That's the case right now: New home inventories peaked at 598,000 homes in July 2006, and stand at 482,000 homes as of the end of March. This inventory is equivalent to 11 months of supply, a 25-year high – but it is similar to 1974, 1982 and 1991 levels, which saw a subsequent slowing in home-price declines within the next six months.

Inventories are declining because construction activity has been falling for such a long time that home completions are now just about undershooting new home sales. In a few months, completions of new homes for sale could be undershooting new home sales by 50,000-100,000 annually.

Inventories will drop even faster to 400,000 – or seven months of supply – by the end of 2008. This shift in inventories will have a significant impact on prices, although house prices won't stop falling entirely until inventories reach five months of supply sometime in 2009. A five-month supply has historically signaled tightness in the housing market.

Many pundits claim that house prices need to fall another 30% to bring them back in line with where they've been historically. This is usually based on an analysis of house prices adjusted for inflation: Real house prices are 30% above their 40-year, inflation-adjusted average, so they must fall 30%. This simplistic analysis is appealing on the surface, but is flawed for a variety of reasons.

Most importantly, it neglects the fact that a great majority of Americans buy their houses with mortgages. And if one buys a house with a mortgage, the most important factor in deciding what to pay for the house is how much of one's income is required to be able to make the mortgage payments on the house. Today the rate on a 30-year, fixed-rate mortgage is 5.7%. Back in 1981, the rate hit 18.5%. Comparing today's house prices to the 1970s or 1980s, when mortgage rates were stratospheric, is misguided and misleading.

This is all good news for the broader economy. The housing bust has been subtracting a full percentage point from GDP for almost two years now, which is very large for a sector that represents less than 5% of economic activity. When the rate of house-price declines halves, there will be a wholesale shift in markets' perceptions. All of a sudden, the expected value of the collateral (i.e. houses) for much of the lending that went on for the past decade will change. Right now, when valuing the collateral, market participants including banks are extrapolating the current pace of house price declines for another two to three years; this has a significant impact on the amount of delinquencies, foreclosures and credit losses that lenders are expected to face.

More home sales and smaller price declines means fewer homeowners will be underwater on their mortgages. They will thus have less incentive to walk away and opt for foreclosure.

A milder house-price decline scenario could lead to increases in the market value of a lot of the securitized mortgages that have been responsible for $300 billion of write-downs in the past year.

Mr. Moulle-Berteaux is managing partner of Traxis Partners LP, a hedge fund firm based in New York.

AHAC

2008-05-15T10:39:00.000-07:00

NEW FARM LISTING!

2008-05-06T14:27:00.000-07:00

We are so excited today because we just listed a beautiful old home on a farm near Penrose Point state park! We wanted to share it with everyone today!

Home on the Range! $409,950

603 Ulsh Rd KP S, Lakebay, WA 98349

10 acre Farm ready for animals. Fantastic rock finished utility/art/animal out building w/storage for feed and/or equipment. Detached 3 car garage perfect for servicing vehicles & equipment heats fast w/ wood stove. Large barn foundation ready to custom build w/ water hook-up. Home has been remodeled! Includes: New hand-scraped hardwood flooring, carpet, light fixtures & more. Basement perfect for keeping food & wine chilled. Private & Peaceful. Lots of Sunlight. Soak it up!

If any of you know someone that is looking for an awesome place like this, or any other type of real estate, send them our way! We can help :)

katie@dirtinsider.com
253.851.0765

Dirt Squad Softball

2008-05-05T12:14:00.000-07:00

We, the Dirt Squad, had our first softball game last night at Pendergast in Bremerton.

It was everyone's first time playing together as a team and that considered, we did quite well. We had a few great hits and some nice plays in the field! Some dives, some slides, and Stephanie even got slide tackled to the ground - but she's okay!

We went the first two innings with no score. The other team had a few great hits, but we held them! The next inning came and we made a couple errors and they ended up scoring...a few. :) The following inning they scored two more and at that point we had hit our 1 hour 15 minute time limit so we were able to take our last at bat. No runs scored :(.

BT had some great leaping catches in the outfield, Steph made diving stops at 3rd, and Katie was the only one on the team to go 2 for 2! What an awesome team!

We ended up losing unfortunately.

Our next game is Sunday and the other team better get ready, because the DIRT SQUAD is coming!

www.dirtinsider.com update

2008-05-02T15:50:00.000-07:00

Well, it's about a month past when we thought we would have www.dirtinsider.com up and running. Some of you probably have lost hope, some of you are waiting patiently, and some of you have been staying awake every night worrying about it (I know I have!) - BUT HAVE NO FEAR…

WWW.DIRTINSIDER.COM is on its way - we are almost there!

We have made a lot of progress this week and have only one more minor issue to work out, and we expect it to be working in 1 or 2 weeks. We are so excited about this - We hope all you are too!

For those of you that are totally out of the loop and don't know what dirtinsider.com is, I'll repost my introduction to it:

For those of you who haven't heard, we've been playing entrepreneurs! Me and my posse have developed a new company called Dirtinsider.com. It is going to be pretty awesome - you all are going to check it out. There will probably be a few bugs to work out in the next few weeks, so just be patient!

Its a FREE website kind of like craigslist where people go to buy and sell vacant land - both commercial and residential. We also have a section on there where we help people find land and build their own house for pretty cheap and gain instant equity (if you don't know what that means, call me!).

Anyway, we have been working really hard on this, so I would love to hear from you guys. Any comments or criticism would be wonderful.

We are also creating a MySpace and Facebook for Dirtinsider.com, so if it asks you to be its friend, please do so!

Again, if any of you have any questions, comments, funny jokes, or anything to tell us, sent me a comment, an email (info@dirtinsider.com), or call me!
Hope to hear from everyone!

New Upcoming Website

2008-03-22T12:49:00.000-07:00

Dirtinsider.com is an innovative way to buy, sell, and find great deals on vacant land for free. It is very easy to use. It features most realtor and FSBO listed properties. It is similar to Craig’s list but is exclusively for vacant residential and commercial land. A featured listing on the site is a 1.07 acre lot located in the urban growth area of Gig Harbor, that must be subdivided into 4 lots. It is listed for $325,000 making this a steal of a deal! Making each lot $80,000+- a piece. CRAZY! It definitely is a BUYERS MARKET!

2008-03-22T12:32:00.000-07:00

Check out the new website! http://www.dirtinsider.com/