Category: Real Estate

Good Government Policy from The Last Place You Would Expect

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Specifically, the Washington, D.C. City Council, which has voted to double the property tax on vacant properties, to $10/$100 evaluation (that’s right 10%, it had been 5%, as compared to $1.85/$100 for commercial properties, and $0.85/$100 for residential properties).

Additionally, the Council has made it more difficult to get an exemption, cutting back on the numbers of exemptions granted, though there is still a 3 month exemption for a property for lease, a 1 year exemption for residential property for sale, and a 2 year exemption for commercial property for sale.

In many inner cities, vacant properties blight the landscape, and this is a very good way of dealing with it.

Economics Update

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Weekly initial unemployment claims were less than expected, though the 4 week moving average of people receiving unemployment benefits was up.

If there is a “wealth effect”, then this might be the side effect of the not wealth effect, as household net worth dropped by $1.7 trillion in 2Q of 2008.

A lot of this drop is due to the real estate market, where there were over a million homes in foreclosure in Q1 of 2008, 2.5% (one in 40 for the mathematically challenged) of all loans being serviced by the Mortgage Bankers Association, which explains why Federal Reserve Vice Chairman Donald Kohn expects to see more write-downs and losses for banks.

Another day, another record for retail gasoline, $3.989/gal, and oil rose to $125.05/bbl, largely on the European Central Bank holding its interest rate at 4%, and it’s president publicly worrying about inflation, which implies rate hikes and a weaker dollar, which tends to push oil prices up.

Finally, monoline insurers MBIA and Ambac are delaying attempts to try and raise capital because of the prospect of a rate cut by Moody’s.

Economics Update

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ADP’s private report suggests 40,000 new jobs, though it should be noted that , “U.S. companies’ planned layoffs rose 15 percent in May from April to the highest monthly total since December 2005” it has been noted that, “ADP has been inaccurate of late, overpredicting payrolls,” so I would wait for the government figures.

On the other hand, productivity rose more than predicted in Q1 of 2008, though all indications is that this was not more stuff to do, but simply less stuff doing it, “Aggressive cuts in worker hours will help shield corporate profits and keep wage-related cost pressures under control, helping to reassure the Fed.”

Personally, I’m inclined to take the pessimistic assessment of this, because the Institute for Supply Management’s (ISM) non-manufacturing index fell to 51.7, indicating a softness in the service sector.

Additionally, we have the forecasting a world wide growth rate of only 1.8% this year, and weekly mortgage applications fell to a 6-year low.

Inflation worries are now weighing down the dollar, though oil prices are down a bit more to $122.48/bbl, but retail gas prices rose to a new high again, $3.983/gal.

Lastly, we have a visit from our old friends, the monoline insurers, with Ambac and MBIA getting hammered because Moody’s is finally considering a downgrade on their debt.

Economics Update

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The current estimates for may have payrolls dropping by somewhere around 60,000. This number is rather more indicative than the unemployment rate, since those who have given up are not counted for the latter.

To my mind, the percentage of the population working is probably the best number, at least when compared to the BLS which increasingly appears to employ Tinkerbell as their chief statistician.

It’s been a busy time for real estate. We have The Economist noting that house prices are falling even faster than during the great depression, which is worse than it sounds, because we had deflation during the depression, which means that houses are falling even faster in real terms, see the pretty picture:

We are alsoseeing prices fall for houses above $5 million, the NY Daily News is declaring New York to be a renters’ market, and foreclosures in Boston 45% of all housing transactions are foreclosures.

What’s more, the popping of the real estate bubble is now now hitting property taxes, as counties raise rates to account for falling property values and foreclosures.

It’s no wonder that mortgage defaults are surging.

In energy, oil is still below the record, but oil increased to $128.25/bbl, though, for the first time in 25 days, gas did not hit a new record.

Gas didn’t fall either though, it stayed at Sunday’s level.

The dollar has strengthened somewhat, because the markets are expecting a Fed rate hike, which I doubt, given that the election is 6 months away.

In the real economy, the ISM manufacturing index increased to 49.6, the consensus was that it would fall to 48.0, but this is not good news, just less bad news, since any number under 50 is still a contraction.

In banking, S&P have noticed that some of the major investment banks are using funny accounting on their assets, and so they have cut the ratings or outlooks on Lehman Brothers, Merrill Lynch, Morgan Stanley, Bank of America, Citi, and JPMorgan Chase.

It’s no wonder bank losses are expanding, and you have the Financial Times wondering how much bank failures are likely to increase as more debt goes bad.

On the good news side of the equation, it appears that Wachovia has had a case of temporary sanity, and they fired CEO Kennedy Thompson after hemorrhaging profits and stock price over the last year.

Hopefully, there will be no golden parachute for him.

Deliberately Bad Real Estate Reporting

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You have an article titled California Home-Price Cuts End Sales Losing Streak, noting that home sales were up 2.5% in April.

That’s the lead. While one can be heartened by the fact that it is the first increase in 30 months, in any normal market, April is always bigger than March. The problem is that real estate reporting is hostage, so what should have been the lead, the fact that median home prices fell 32% year over year, is in the 2nd ‘graph, and there is no mention of the year over year home sales numbers, which are down 19%.

Economics Update

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Oil is up again today, to $131.03/bbl, even though demand is falling, and retail gas prices hit a record for 21st straight day, $3.944/gallon.

I think the only question is whether it will break $4/gal before June.

Paradoxically enough, the dollar strengthened, despite the higher oil prices.

Finally, we’re seeing a drop in mortgage applications, because rates are rising.

Rates will go up eventually, and when they do, the housing market will get even more ugly.

I Guess You Can’t Help Anyone Without Stomping on Civil Rights These Days

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Case in point, the housing bailout bill that just passed the Senate creates national fingerprint registry:

Buried in the text of the revised legislation, approved by the Senate Banking Committee by a 19-2 vote this week, is a plan to create a new national fingerprint registry. It covers just about everyone involved in the mortgage business, including lenders, “loan originators,” and some real estate agents.

Lovely.

Are Fannie and Freddie Going to Go Belly Up, and Will We Bail Them Out

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Remembering that the GSEs are, after the US Government, the 2nd and 3rd largest borrowers in the world, one wonders if they are in trouble, if so, how badly, and what happens if things go pear shaped.

Read it, and take your time to absorb the information. It is a primer, but is by no means simple.

The basic rundown is that:

  • The GSEs are not insolvent yet
  • The taxpayers would have to bail them out if they were
  • Unless things get much worse, they will hold onto their AAA ratings.
  • Their level 3 (no is sure what they are worth) asset exposure is actually pretty light.
  • Their accounting may be a little bit more than one would like.

The question he doesn’t answer, and that neither he nor I can answer, is how much worse things will get, and whether the GSEs will need a bailout as a result.

Me, I’m a bear.

Aggressive Challenges to Property Tax Assessments Rising

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This is not surprising.

People are struggling, and their assessed property value often is well over market rate, so it is no surprise that a rapidly growing industry is evolving to help people challenge property tax assesments, particularly among people attempting to sell their homes.

The fact that one has successfully lowered the taxes makes the home more salable.

Of course, it’s going to devastate the tax revenues of municipalities just as an economic downturn increases demand for their services.

Economics Update

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Federal Reserve Vice Chairman Donald Kohn is now giving some pretty strong signals that there will be no further rate cuts, which indicates that the Fed might be a bit concerned about inflation now.

The currency markets are most definitely concerned about inflation (which is another word for currency devaluation), and so the dollar has dropped. It’s near a month low.

Oil just smashed the $130 barrier, settling at $133.17/bbl, and retail gasoline hit another record.

Real estate continues to face downward pressures, with Mortgage applications falling 7.8%last week. So even though we are in buying season, people are not looking to buy.

Finally, we have what appears to be the collapse of a monoliner insurer with CIFG Guaranty having its rating cut to junk status. They were downgraded from AAA in March, and Moodys just downgraded them further from A1 to Ba2, 7 levels at one swoop.

The business for monoliners is dependent on having an AAA rating. Put a fork in them, they are done.

The New Hooverville is a Parking Lot

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And many of the people in America are a job loss away from it:

Harvey now works part time for $8 an hour, and she draws Social Security to help make ends meet. But she still cannot afford an apartment, and so every night she pulls into a gated parking lot to sleep in her car, along with other women who find themselves in a similar predicament.

There are 12 parking lots across Santa Barbara that have been set up to accommodate the growing middle-class homelessness. These lots are believed to be part of the first program of its kind in the United States, according to organizers.

The lots open at 7 p.m. and close at 7 a.m. and are run by New Beginnings Counseling Center, a homeless outreach organization.

Welcome to George W. Bush’s America.

Republicans Want to Steal from the Poor

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It looks like that will be one of the conditions set down by the Senate Republithugs to allow the bill housing bailout to the floor.

Senator Dodd’s bill also creates a housing trust fund with resources from Fannie Mae and Freddie Mac to build or preserve rental housing for extremely low and very low income people. Senator Shelby wants those funds to be used to pay for the new FHA program instead.

I’m not sure what upsets me more, the ‘Phants balancing the budget on the back of people who are closest to being homeless, or the fact that I’m not surprised by their venality and evil.

Bush’s Evil Minions&trade at HUD Ignored Allegations of Corruption

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Captain Renault: I’m shocked, shocked to find that gambling is going on in here!
[a croupier hands Renault a pile of money]
Croupier: Your winnings, sir.
Captain Renault: [sotto voce] Oh, thank you very much.

It appears that when career staffers at the U.S. Department of Housing and Urban Development noticed that contracts were going to unqualified, but politically connected, contractors, in what appeared to be a highly irregular process senior management ignored their warnings.

Who could imagine that HUD Secretary Alphonso Jackson and His Evil Minions™ would let out contracts on the basis of politics….Oh wait….he said this on tape in a speech….Never mind.

Wanktacular Financial Press Coverage

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They are just discovering that commercial real estate may be dropping too.

Commercial real estate typically lags residential in a downturn, and it’s been heading down by all standard measures for 6 months, and now, they are finally getting around to saying that there might be a risk of downturn?

Seriously, the ads realtors run do f&^% up coverage, because the papers and cable networks are so dependent on it.

Krugman on Reducing Travel Energy

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He makes a very good point, that getting people to buy cars that get better gas mileage is the easy part of this.

The hard part is getting people to drive less too, since we have engaged in policies that have subsidized choices that require driving over the past 50 + years.

In many places, with far spread suburbs, public transport is far less efficient than it is in denser areas, and there are a lot of people living in suburbs, particularly in far suburbs, who are going to experience a very bad time as a wrenching change to lifestyle is made.

As for me, I’m about 5¼ Miles from the terminus of the Baltimore Subway, so I’ll do OK, I can bicycle to it.