By Jim Puzzanghera, Don Lee and Alejandro Lazo
Los Angeles Times Staff Writers
The Obama administration is launching yet another high-profile campaign to shore up the housing market -- and with it, the economy -- by making it easier for some struggling homeowners to refinance underwater mortgage loans at today's ultra-low interest rates.
The federal government's new rules will encourage borrowers to secure new loans no matter how much value their homes have lost during the nation's housing crisis, with the hitch that they can't have missed any mortgage payments for the last six months.
The plan could help 1 million to 2 million people get significantly lower monthly payments in hopes of stabilizing the real estate market. On top of that, it would boost the economy by putting about $2,500 more in a typical homeowner's pocket each year, administration officials said.
But given the huge problems that continue to plague the real estate market, the plan is less a solution to the foreclosure crisis than a firebreak to try to prevent things from getting worse, analysts said. In particular, the program won't help the 3.5 million borrowers who are seriously delinquent on their loans or are already in default.
"It's a step forward, but what we need is a leap forward," said John Taylor, president of the National Community Reinvestment Coalition, an association of organizations that promote access to affordable housing.
The Obama administration has struggled to find a fix for the housing crisis. A program to lure banks to permanently modify mortgages has fallen so far short of its goals that Republicans have pushed to kill it. And the refinancing program, designed to help millions of homeowners, has been revised several times in hopes of making it more effective.
Separately, Federal Reserve officials have hinted in recent days that they could launch another program to buy up mortgage-backed bonds in an effort to pull home loan rates lower.
"They keep trying to find something that's going to work and so far they haven't found the silver bullet. Arguably there's no silver bullet," Bert Ely, an independent banking analyst, said of the Obama administration's attempts to help the housing market.
"More moderate approaches haven't worked, so now they're trying something that frankly is more radical," he said.
The plan could help borrowers such as James Perry, 36, an editor for a television show who owns two properties that are underwater, meaning he owes more on the mortgages than the homes are worth.
Perry bought a condominium in Santa Monica in 2005, near the height of the market, and rented it out after he couldn't sell it. Its value has dropped about 6%, he said. He owns a larger home in Tarzana for his growing family, and its value has plunged nearly 20%.
Refinancing both properties could save him about $400 a month, Perry said. "I am not a rich guy, so $400 a month will help," he said. "I have two kids. I would like to put that toward some college savings, and it would just make for a little more breathing room. We are not in any sort of trouble, but an extra $400 a month will obviously make us happier."
Perry said he tried refinancing the Santa Monica home about a year ago, paying about $500 for the appraisal, but the home's value didn't allow him to qualify for a low rate. Given that experience, he didn't bother trying to refinance the Tarzana home.
The plan announced Monday amounts to a sweeping overhaul of the 2½-year-old Home Affordable Refinance Program, easing rules and reducing fees to allow many more homeowners potentially to take advantage of historically low mortgage rates. Through August, the program had helped 894,000 homeowners refinance.
The revisions include lifting a ceiling that barred participation by borrowers who owed more than 125% of the value of their homes, and using a controversial modeling method to replace costly appraisals that are among the fees that have kept some homeowners from refinancing.
"These are important steps that will help more homeowners refinance at lower rates, save consumers money and help get folks spending again," President Obama said in touting the changes during an appearance in Las Vegas on Monday.
Nevada, California and Florida are among the states hit hardest by the subprime housing bubble crash.
About 14.6 million mortgages nationwide were underwater at the end of the first quarter, about 29% of the nearly 51 million residential mortgages nationwide, according to Moody's Analytics and Equifax. The rate was higher in California, where about 2.1 million mortgages are underwater, a third of the state's 6.3 million mortgages.
Perry's refinancing problems were typical, mortgage experts said. Even though HARP allows underwater homes to qualify, banks usually won't refinance a loan in which the borrower owed more than 105% of the value.
Tuesday, October 25, 2011
Tuesday, September 20, 2011
Housing and Affordability--a direct link beween affortablity and government regulation
Don't Regulate the Suburbs: America Needs a Housing Policy That WorksBy Wendell Cox and Ronald Utt, Ph.D.
Despite the many accolades for President Barack Obama's swift action on a major economic stimulus package, an outline of a comprehensive financial rescue package, and his most recent proposal for another bailout for homeowners who might not meet their mortgage payments, a growing number of critics and global investors have questioned the effectiveness of these measures in helping to put the economy back on a path to faster growth.
Specifically, the costly stimulus plan is little more than a grab bag of congressional policy obsessions that other Presidents suppressed in the past; the financial rescue plan is a jumble of confused generalities; and, as currently proposed, the President's troubled homeowner relief program would further undermine any remaining notions of personal financial responsibility by requiring taxpayers who paid their bills to subsidize the many homeowners who didn't.
One of the chief failings of these programs is that they focus on symptoms, not causes. Nowhere among the host of initiatives is there any attempt to address the several underlying causes that undermined the stability of the housing finance market and the ability of ordinary American families to acquire affordable housing.
Indeed, based on President Obama's initial pronouncements on the issue, his Administration seems intent on exacerbating some of these causes by diminishing freedom of choice and making housing even less affordable. In turn, these policies will substantially slow the process of recovery in homebuilding and housing finance.
The President Takes on the Suburbs
In a mid-February speech in Florida to sell his stimulus plan to Americans, President Obama used the forum as an opportunity to express his support for more public transit (trolleys and buses) and linked this preference to a need to deter Americans' number one housing preference: living in the suburbs. The President argued that:
I would like for us to invest in mass transit because potentially that's energy efficient. And I think people are a lot more open now to thinking regionally, in terms of how we plan our transportation infrastructure. The days where we're just building sprawl forever, those days are over. I think that Republicans, Democrats, everybody recognizes that that's not a smart way to design communities.[1]
The "smart way," as the President suggests, is supposedly through the policies of "smart growth" and "new urbanism," which many communities in America have adopted in recent years to limit growth and upgrade their demographics by making housing less affordable. Under the guise of deterring sprawl-i.e., preventing additional neighbors- many suburban communities have adopted exclusionary zoning, impact fees, involuntary proffers, mandatory amenities, growth boundaries, service districts, infrastructure concurrency, and large-lot zoning to discourage new construction. Inevitably, these strategies raise housing prices.
As the record reveals, states and communities that have implemented the land-use regulations common to "smart growth" strategies are the same states and communities that have seen their housing prices soar over the past decade and have experienced the most severe delinquency and foreclosure rates, as well as the sharpest declines in house values in the past year. In sum, these "smart growth" strategies are an important contributing factor in the housing finance mess and severe recession that now confront the United States and several other countries that have implemented the same abusive land-use regulations.
State and Local Land-Use Regulations
Because land-use regulations are largely local in nature and can vary significantly from one jurisdiction to another, attempts to compare one state, metropolitan area, or community to others face serious challenges in developing meaningful measures of the relative intensity of land regulations among the nation's thousands of jurisdictions.
Among the most comprehensive of such attempts is the one conducted by the Brookings Institution.[2] The Brookings typology assigns a metropolitan area's land-use regulations to one of four major categories and further divides the areas under review into 12 subcategories. By degree of intensity, they are:
Reform (Growth Management, Growth Control, Containment, Contain-Lite);
Exclusion (Basic, Plus Restriction, Extreme);
Traditional (Middle America, High Density); and
Wild Wild Texas (Dallas-San Antonio, Houston, Austin).
As is to be expected from basic economic theory, restricting the supply of a product (in this case, land) leads to shortages of it, which in turn leads to higher prices for land and, hence, higher prices for new and existing housing. Not surprisingly, house prices (and their affordability compared to local incomes) conform relatively closely to the intensity of land-use regulations described by the Brookings typology.
Impact of Land-Use Regulations
Among the areas described as part of the "Reform" category (the most restrictive) are the major metropolitan areas of California, Florida, Nevada, and Arizona,[3] all of which experienced substantial house-price escalation from the late 1990s to mid-2007 and all of which are also rated "unaffordable" by the annual Demographia survey.[4] As a consequence of the price escalation in these areas, many Americans attempting to become homeowners could do so only by taking on levels of debt in excess of what they could comfortably afford.
Whereas the typical relationship between median house prices and median income was historically about three-to-one or less, this "median multiple" (the ratio of median house price to median income) in most urban areas of California rose to between seven- and 11-to-one at the peak of the market.
In 2007, the median-priced home in the metropolitan areas of San Francisco, Los Angeles, and San Diego was more than 10 times the median income of households in those areas. In other areas with tight land-use regulations, that ratio was 5.5 for the Washington, D.C., area; 5.1 in Portland, Oregon; 5.9 in Las Vegas, Nevada; 6.0 in Seattle, Washington; and 7.1 in Miami, Florida, to name just a few of the many unaffordable places in the United States.[5]
In contrast to the high housing prices in regulated areas, less stringently regulated areas maintained their affordability during the past housing boom and bubble. In 2007, the ratio of median house price to median income was 2.3 in Indianapolis, 2.8 in Atlanta, 2.5 in Dallas, and 2.9 in Houston. In each of these areas, the median price for a house never exceeded $200,000-in contrast to $804,000 in San Francisco, $588,000 in San Diego, $430,000 in Washington, D.C., and $365,000 in Miami.
Not surprisingly, delinquency and foreclosure rates in the areas with tight land regulations and inflated housing prices are among the highest in the nation. They are also the areas that have experienced the greatest declines in housing prices over the past year, thereby further destabilizing regional housing markets and the national mortgage finance system.
According to house-price data collected by the National Association of Realtors for 159 metropolitan areas for the fourth quarter of 2008,[6] 26 metropolitan areas had experienced house-price declines in excess of 20 percent since the fourth quarter of 2007. Among these 26 metropolitan areas, 18 were in the land-use restricted states of California (seven); Nevada (two); Arizona (two); and Florida (seven), while six were in the hard-hit recession states of Michigan and Ohio.[7] In Michigan and Ohio, however, house prices generally remained at or below the 3.0 historical median multiple norm.
Given the high debt burdens that high housing prices have imposed on many homeowners in the four most heavily regulated states, it is not surprising to find that the highest foreclosure rates are also concentrated in the same high-cost, land-use restricted states: According to RealtyTrac, a leading real-estate reporting firm, nine of the 10 areas with the highest foreclosure rates were in California, Nevada, Arizona, and Florida,[8] while 18 of the top 20 were in urban areas that Brookings includes in its most restrictive category, including California, Nevada, Arizona, and Florida.[9]
A similar analysis conducted by Demographia, using the same realtor data but measuring the price decline from each region's market peak to the fourth quarter of 2008 and categorizing the regions by an alternative measure of the intensity of land-use restrictions, found nearly identical results. Defining the more regulated markets as "prescriptive" and the less-regulated markets as "responsive," the analysis found that each market that experienced a price decline in excess of 35 percent from peak to trough was prescriptive and was located in California, Florida, Nevada, or Arizona-the top four states for 2008 foreclosure rates.
The Demographia analysis also focused on the magnitude of the potential loss per loan to lenders that may occur as a result of a foreclosure. For example, while the Atlanta area had the 17th-highest foreclosure rate in 2008, the affordable nature of its house prices meant that the peak-to-present decline in house prices entailed a median loss of only $24,800. By way of contrast, the median peak-to-present loss exceeded $230,000 per house in San Francisco and San Diego and was more than $200,000 per house in Los Angeles and San Jose.
In addition to the substantial monetary loss that each foreclosure in these areas imposes on mortgage lenders, these same areas seem likely to receive a disproportionate share of whatever federal subsidies are provided in a nationwide program of foreclosure mitigation, loan renegotiation, or loan refinancing. As a consequence, taxpayers nationwide are being placed in the position of having to bail out borrowers in those few regions whose abusive land regulations contributed to the bubble in home prices and its subsequent collapse.
The Administration's $275 billion foreclosure mitigation plan, proposed in February 2009, is silent on this type of self-destructive state and municipal behavior. Congress should ensure that the final plan recognizes this and should require that state and local governments revise their practices, which in some cases are getting worse. In California, legislators recently passed a bill to tighten land regulations further by compelling regional planning authorities to encourage higher-density housing served by public transit.[10]
A better plan would be to link any federal housing assistance to reform of a state's or a region's land-use and planning regulations. As Edward Glaeser of Harvard University and Joseph Gyourko of the University of Pennsylvania recently noted:
If some aid to expensive states is made conditional on permitting more construction, then pricey places will face incentives to permit more units and promote affordability. Those incentives will encourage restrictive cities and towns to look beyond their borders, and to make America more affordable by permitting more construction in the high-price housing markets that are undersupplied and unaffordable even to the middle class.[11]
Regrettably, President Obama's February 2009 Homeowner Affordability and Stability Plan will do precisely the opposite, providing the largest taxpayer subsidies for areas with the most restrictive land-use regulations.
Land-Rights Abuses Not Unique to the United States
The United Kingdom. As bad as land-use regulations have become in the United States, they are even worse in the United Kingdom and have been that way since the end of World War II, when the Town and Country Planning Act was adopted by the Labor government in 1947. Operating under principles that have since been mimicked by America's "smart growth" and "new urbanism" advocates, this movement attempted to comprehensively restructure Britain's culture of living arrangements by directing people into new, dense, high-rise developments that combined employment opportunities, businesses, and housing into compact developments. In addition to the enhanced social interaction that ostensibly would occur among people forced into closer proximity, such developments were thought to preserve rural ambience by preventing construction of new housing in the countryside.
Reflecting the anti-suburb prejudices common to Britain's planners and artists in the 1930s, planner and university lecturer Thomas Sharp condemned suburban life for "its social sterility, its aesthetic emptiness, its economic wastefulness.... Suburbia is not a utility that can promote any proper measure of human happiness and fulfillment." George Orwell claimed in his 1939 novel Coming Up for Air that suburbia was a haven for "Tories, yes-men, and bumsuckers."[12]
The elitist nature of these views was more sharply expressed by economist P. Sargant Florence when he observed in his review of An Enquiry into People's Homes, a 1943 report on working-class attitudes on housing, that the report pointed to certain moral standards that "cannot safely be left to housewives who are not equipped with the necessary knowledge of what lies within the realm of possibility" and that"architects and planners must give the lead and the target must be placed higher than the inarticulate yearnings of the average working-class housewife, if the same ill-defined sense of dissatisfaction is not to be perpetuated."[13]
A half-century later, some of America's new urbanists would mimic these same prejudices. In 1996, James Howard Kunstler contended in the Atlantic Monthly that:
When we drive around and look at all this cartoon architecture and other junk that we've smeared all over the landscape, we register it as ugliness. This ugliness is the surface expression of deeper problems- problems that relate to the issue of our national character. The highway strip is not just a sequence of eyesores. The pattern it represents is also economically catastrophic, an environmental calamity, socially devastating, and spiritually degrading.[14]
As is often the case with schemes that attempt to impose the tastes and fancies of artistic elites on ordinary people, most of the British were opposed to the program. Based on a national survey conducted in Britain in 1950, a book titled Patterns of British Life concluded that:
Most people like living in houses rather than flats and they like having a house to themselves. They like their own private domain which can be locked against the outside world and, perhaps as much as anything, they are a nation of garden lovers. They want space to grow flowers and vegetables and to sit on Sunday afternoons and they want it to be private.[15]
Nonetheless, because the new socialist government had largely nationalized much of the future residential housing development, many British citizens had few choices of where they could live. As a result, the supply of new single-family detached housing was invariably below what was demanded by the public, and prices rose accordingly.
As a consequence of 60 years of intense land-use regulations, housing throughout the United Kingdom is some of the least affordable in the world, as the Demographia report reveals; its housing and housing-finance markets, like those in California, Florida, and other states with severe land-use regulations, are in collapse; and several insolvent banks and mortgage lenders have been nationalized.
Under Demographia's housing affordability taxonomy, urban areas with a median multiple of 3.0 or less are considered "affordable," places with a median multiple between 3.1 and 4.0 are considered "moderately unaffordable," those between 4.1 and 5.0 are rated "seriously unaffordable," and those with median multiples above 5.1 are rated "severely unaffordable." Of the 265 urban areas included in the 2009 Demographia study,[16] which covers the United States, Ireland, New Zealand, the United Kingdom, and Australia, not a single British urban area managed to make it into the "affordable" or "moderately unaffordable" categories, which included 161 of the 265 areas covered in the report, all of which were located in the United States and Canada.
Of the 16 United Kingdom urban areas covered in the report, six were rated "seriously unaffordable" in 2007, and 10 were rated "severely unaffordable" and had median multiples that were nearly as high as those of most of the coastal California metropolitan areas. Included among the severely unaffordable areas (and measuring them at their price peaks in 2007) were Belfast (8.8); Exeter/Devon (8.2); London (7.7); and Bristol/Bath (6.9). The most affordable British area was Dundee with a median multiple of 4.4, comparable to Daytona Beach in high-cost Florida.
However, unlike some leaders in the United States who are endorsing policies that would make the situation worse, Prime Minister Gordon Brown recognizes that the U.K. has a housing affordability problem and that onerous land regulations are the prime culprit, and he intends to do something about it.
Based on the findings and recommendations of the Taylor Review,[17] which was conducted by British Member of Parliament Matthew Taylor and criticized Britain's planning policies and land use regulations, Prime Minister Brown is "preparing to sweep aside planning controls in villages and market towns to allow the biggest rural house building in a generation" and "has concluded that protecting the environment should no longer be the overriding consideration when decisions are made about whether to allow development in areas where locals are struggling to afford homes."[18] Under the new plan, local councils would be told to:
Earmark new building sites in every village and hamlet where affordable housing is needed;
Use sweeping powers to overrule normal planning curbs in protected areas;
Provide incentives for farmers to sell land to developers; and
Create a generation of new communities on the outskirts of market towns.
In a previous report, prepared for the Blair government, Bank of England Monetary Policy Committee member Kate Barker blamed the nation's high housing prices on its land-use restrictions.[19]
Australia. Although Britain's land-use problems extend back to the early 1950s, Australia's problems with counterproductive land regulations are more recent and are a consequence of the same smart growth/new urbanist fads that have swept through the United States. Unlike in the United States, where the majority of communities rejected this more fashionable approach to planning, many of Australia's political leaders and urban planners were seduced by the concept and imposed rigid rules on communities that included regulation of the type and color of mailboxes and the type and location of plants used in landscaping. In one community, new home builders were prohibited from installing central heat and air conditioning in order to achieve a smaller "carbon footprint."
Not surprisingly, urban areas in Australia became every bit as expensive as those in the United Kingdom and California. As in the U.K., there are no Australian communities to be found among the "affordable" or "moderately unaffordable" rankings, and most of them are ranked in the "severely unaffordable" category in the most recent Demographia report.[20] Of the 27 Australian urban areas included in the report, 24 are rated "severely unaffordable," while the remaining three are "seriously unaffordable." At the peak of the market in 2007, the median multiple for Sydney was 8.6, while Perth was at 7.6 and Melbourne registered 7.3.
There is an increasing recognition of the role that smart growth has played in making housing in Australian urban areas unaffordable. A number of policy initiatives have been announced in recent years to liberalize land-use restraints. The most important is in the Melbourne area, Australia's second-largest urban area (population 3,500,000), where a regional plan that was to stop development on the urban fringe has now been virtually abandoned by a new policy that will allow construction of more than 130,000 new suburban houses.[21]
Conclusion
As housing-price trends in the U.S. over the past decade reveal, the intensity of a region's land-use regulations is a key factor in the region's relative house-price inflation, affordability, and recent foreclosure experience. Areas with less land-use regulation consistently sustain housing prices that are affordable, while regions with greater regulations consistently sustain prices that are unaffordable to the majority of the citizens living in the region.
A number of other English-speaking nations, notably the United Kingdom, Australia, New Zealand, and Ireland, have land-use regulations that are more intense than those generally in force in the U.S.-and even higher housing prices as a result. In recent months, national and regional leaders in some of these overregulated countries have recognized the source of the problem and have announced a commitment to lessen the regulatory burden in order to reduce housing prices.
In the United States, however, there is still little recognition of the connection been regulatory limitations and housing prices, and prospective initiatives currently under discussion are likely to leave houses in many states with still higher price tags. Indeed, in the event that President Obama's interest in smart growth policies leads to federal involvement in land-use regulation, housing affordability in the United States could soon approach the levels now common in the United Kingdom.
Despite the many accolades for President Barack Obama's swift action on a major economic stimulus package, an outline of a comprehensive financial rescue package, and his most recent proposal for another bailout for homeowners who might not meet their mortgage payments, a growing number of critics and global investors have questioned the effectiveness of these measures in helping to put the economy back on a path to faster growth.
Specifically, the costly stimulus plan is little more than a grab bag of congressional policy obsessions that other Presidents suppressed in the past; the financial rescue plan is a jumble of confused generalities; and, as currently proposed, the President's troubled homeowner relief program would further undermine any remaining notions of personal financial responsibility by requiring taxpayers who paid their bills to subsidize the many homeowners who didn't.
One of the chief failings of these programs is that they focus on symptoms, not causes. Nowhere among the host of initiatives is there any attempt to address the several underlying causes that undermined the stability of the housing finance market and the ability of ordinary American families to acquire affordable housing.
Indeed, based on President Obama's initial pronouncements on the issue, his Administration seems intent on exacerbating some of these causes by diminishing freedom of choice and making housing even less affordable. In turn, these policies will substantially slow the process of recovery in homebuilding and housing finance.
The President Takes on the Suburbs
In a mid-February speech in Florida to sell his stimulus plan to Americans, President Obama used the forum as an opportunity to express his support for more public transit (trolleys and buses) and linked this preference to a need to deter Americans' number one housing preference: living in the suburbs. The President argued that:
I would like for us to invest in mass transit because potentially that's energy efficient. And I think people are a lot more open now to thinking regionally, in terms of how we plan our transportation infrastructure. The days where we're just building sprawl forever, those days are over. I think that Republicans, Democrats, everybody recognizes that that's not a smart way to design communities.[1]
The "smart way," as the President suggests, is supposedly through the policies of "smart growth" and "new urbanism," which many communities in America have adopted in recent years to limit growth and upgrade their demographics by making housing less affordable. Under the guise of deterring sprawl-i.e., preventing additional neighbors- many suburban communities have adopted exclusionary zoning, impact fees, involuntary proffers, mandatory amenities, growth boundaries, service districts, infrastructure concurrency, and large-lot zoning to discourage new construction. Inevitably, these strategies raise housing prices.
As the record reveals, states and communities that have implemented the land-use regulations common to "smart growth" strategies are the same states and communities that have seen their housing prices soar over the past decade and have experienced the most severe delinquency and foreclosure rates, as well as the sharpest declines in house values in the past year. In sum, these "smart growth" strategies are an important contributing factor in the housing finance mess and severe recession that now confront the United States and several other countries that have implemented the same abusive land-use regulations.
State and Local Land-Use Regulations
Because land-use regulations are largely local in nature and can vary significantly from one jurisdiction to another, attempts to compare one state, metropolitan area, or community to others face serious challenges in developing meaningful measures of the relative intensity of land regulations among the nation's thousands of jurisdictions.
Among the most comprehensive of such attempts is the one conducted by the Brookings Institution.[2] The Brookings typology assigns a metropolitan area's land-use regulations to one of four major categories and further divides the areas under review into 12 subcategories. By degree of intensity, they are:
Reform (Growth Management, Growth Control, Containment, Contain-Lite);
Exclusion (Basic, Plus Restriction, Extreme);
Traditional (Middle America, High Density); and
Wild Wild Texas (Dallas-San Antonio, Houston, Austin).
As is to be expected from basic economic theory, restricting the supply of a product (in this case, land) leads to shortages of it, which in turn leads to higher prices for land and, hence, higher prices for new and existing housing. Not surprisingly, house prices (and their affordability compared to local incomes) conform relatively closely to the intensity of land-use regulations described by the Brookings typology.
Impact of Land-Use Regulations
Among the areas described as part of the "Reform" category (the most restrictive) are the major metropolitan areas of California, Florida, Nevada, and Arizona,[3] all of which experienced substantial house-price escalation from the late 1990s to mid-2007 and all of which are also rated "unaffordable" by the annual Demographia survey.[4] As a consequence of the price escalation in these areas, many Americans attempting to become homeowners could do so only by taking on levels of debt in excess of what they could comfortably afford.
Whereas the typical relationship between median house prices and median income was historically about three-to-one or less, this "median multiple" (the ratio of median house price to median income) in most urban areas of California rose to between seven- and 11-to-one at the peak of the market.
In 2007, the median-priced home in the metropolitan areas of San Francisco, Los Angeles, and San Diego was more than 10 times the median income of households in those areas. In other areas with tight land-use regulations, that ratio was 5.5 for the Washington, D.C., area; 5.1 in Portland, Oregon; 5.9 in Las Vegas, Nevada; 6.0 in Seattle, Washington; and 7.1 in Miami, Florida, to name just a few of the many unaffordable places in the United States.[5]
In contrast to the high housing prices in regulated areas, less stringently regulated areas maintained their affordability during the past housing boom and bubble. In 2007, the ratio of median house price to median income was 2.3 in Indianapolis, 2.8 in Atlanta, 2.5 in Dallas, and 2.9 in Houston. In each of these areas, the median price for a house never exceeded $200,000-in contrast to $804,000 in San Francisco, $588,000 in San Diego, $430,000 in Washington, D.C., and $365,000 in Miami.
Not surprisingly, delinquency and foreclosure rates in the areas with tight land regulations and inflated housing prices are among the highest in the nation. They are also the areas that have experienced the greatest declines in housing prices over the past year, thereby further destabilizing regional housing markets and the national mortgage finance system.
According to house-price data collected by the National Association of Realtors for 159 metropolitan areas for the fourth quarter of 2008,[6] 26 metropolitan areas had experienced house-price declines in excess of 20 percent since the fourth quarter of 2007. Among these 26 metropolitan areas, 18 were in the land-use restricted states of California (seven); Nevada (two); Arizona (two); and Florida (seven), while six were in the hard-hit recession states of Michigan and Ohio.[7] In Michigan and Ohio, however, house prices generally remained at or below the 3.0 historical median multiple norm.
Given the high debt burdens that high housing prices have imposed on many homeowners in the four most heavily regulated states, it is not surprising to find that the highest foreclosure rates are also concentrated in the same high-cost, land-use restricted states: According to RealtyTrac, a leading real-estate reporting firm, nine of the 10 areas with the highest foreclosure rates were in California, Nevada, Arizona, and Florida,[8] while 18 of the top 20 were in urban areas that Brookings includes in its most restrictive category, including California, Nevada, Arizona, and Florida.[9]
A similar analysis conducted by Demographia, using the same realtor data but measuring the price decline from each region's market peak to the fourth quarter of 2008 and categorizing the regions by an alternative measure of the intensity of land-use restrictions, found nearly identical results. Defining the more regulated markets as "prescriptive" and the less-regulated markets as "responsive," the analysis found that each market that experienced a price decline in excess of 35 percent from peak to trough was prescriptive and was located in California, Florida, Nevada, or Arizona-the top four states for 2008 foreclosure rates.
The Demographia analysis also focused on the magnitude of the potential loss per loan to lenders that may occur as a result of a foreclosure. For example, while the Atlanta area had the 17th-highest foreclosure rate in 2008, the affordable nature of its house prices meant that the peak-to-present decline in house prices entailed a median loss of only $24,800. By way of contrast, the median peak-to-present loss exceeded $230,000 per house in San Francisco and San Diego and was more than $200,000 per house in Los Angeles and San Jose.
In addition to the substantial monetary loss that each foreclosure in these areas imposes on mortgage lenders, these same areas seem likely to receive a disproportionate share of whatever federal subsidies are provided in a nationwide program of foreclosure mitigation, loan renegotiation, or loan refinancing. As a consequence, taxpayers nationwide are being placed in the position of having to bail out borrowers in those few regions whose abusive land regulations contributed to the bubble in home prices and its subsequent collapse.
The Administration's $275 billion foreclosure mitigation plan, proposed in February 2009, is silent on this type of self-destructive state and municipal behavior. Congress should ensure that the final plan recognizes this and should require that state and local governments revise their practices, which in some cases are getting worse. In California, legislators recently passed a bill to tighten land regulations further by compelling regional planning authorities to encourage higher-density housing served by public transit.[10]
A better plan would be to link any federal housing assistance to reform of a state's or a region's land-use and planning regulations. As Edward Glaeser of Harvard University and Joseph Gyourko of the University of Pennsylvania recently noted:
If some aid to expensive states is made conditional on permitting more construction, then pricey places will face incentives to permit more units and promote affordability. Those incentives will encourage restrictive cities and towns to look beyond their borders, and to make America more affordable by permitting more construction in the high-price housing markets that are undersupplied and unaffordable even to the middle class.[11]
Regrettably, President Obama's February 2009 Homeowner Affordability and Stability Plan will do precisely the opposite, providing the largest taxpayer subsidies for areas with the most restrictive land-use regulations.
Land-Rights Abuses Not Unique to the United States
The United Kingdom. As bad as land-use regulations have become in the United States, they are even worse in the United Kingdom and have been that way since the end of World War II, when the Town and Country Planning Act was adopted by the Labor government in 1947. Operating under principles that have since been mimicked by America's "smart growth" and "new urbanism" advocates, this movement attempted to comprehensively restructure Britain's culture of living arrangements by directing people into new, dense, high-rise developments that combined employment opportunities, businesses, and housing into compact developments. In addition to the enhanced social interaction that ostensibly would occur among people forced into closer proximity, such developments were thought to preserve rural ambience by preventing construction of new housing in the countryside.
Reflecting the anti-suburb prejudices common to Britain's planners and artists in the 1930s, planner and university lecturer Thomas Sharp condemned suburban life for "its social sterility, its aesthetic emptiness, its economic wastefulness.... Suburbia is not a utility that can promote any proper measure of human happiness and fulfillment." George Orwell claimed in his 1939 novel Coming Up for Air that suburbia was a haven for "Tories, yes-men, and bumsuckers."[12]
The elitist nature of these views was more sharply expressed by economist P. Sargant Florence when he observed in his review of An Enquiry into People's Homes, a 1943 report on working-class attitudes on housing, that the report pointed to certain moral standards that "cannot safely be left to housewives who are not equipped with the necessary knowledge of what lies within the realm of possibility" and that"architects and planners must give the lead and the target must be placed higher than the inarticulate yearnings of the average working-class housewife, if the same ill-defined sense of dissatisfaction is not to be perpetuated."[13]
A half-century later, some of America's new urbanists would mimic these same prejudices. In 1996, James Howard Kunstler contended in the Atlantic Monthly that:
When we drive around and look at all this cartoon architecture and other junk that we've smeared all over the landscape, we register it as ugliness. This ugliness is the surface expression of deeper problems- problems that relate to the issue of our national character. The highway strip is not just a sequence of eyesores. The pattern it represents is also economically catastrophic, an environmental calamity, socially devastating, and spiritually degrading.[14]
As is often the case with schemes that attempt to impose the tastes and fancies of artistic elites on ordinary people, most of the British were opposed to the program. Based on a national survey conducted in Britain in 1950, a book titled Patterns of British Life concluded that:
Most people like living in houses rather than flats and they like having a house to themselves. They like their own private domain which can be locked against the outside world and, perhaps as much as anything, they are a nation of garden lovers. They want space to grow flowers and vegetables and to sit on Sunday afternoons and they want it to be private.[15]
Nonetheless, because the new socialist government had largely nationalized much of the future residential housing development, many British citizens had few choices of where they could live. As a result, the supply of new single-family detached housing was invariably below what was demanded by the public, and prices rose accordingly.
As a consequence of 60 years of intense land-use regulations, housing throughout the United Kingdom is some of the least affordable in the world, as the Demographia report reveals; its housing and housing-finance markets, like those in California, Florida, and other states with severe land-use regulations, are in collapse; and several insolvent banks and mortgage lenders have been nationalized.
Under Demographia's housing affordability taxonomy, urban areas with a median multiple of 3.0 or less are considered "affordable," places with a median multiple between 3.1 and 4.0 are considered "moderately unaffordable," those between 4.1 and 5.0 are rated "seriously unaffordable," and those with median multiples above 5.1 are rated "severely unaffordable." Of the 265 urban areas included in the 2009 Demographia study,[16] which covers the United States, Ireland, New Zealand, the United Kingdom, and Australia, not a single British urban area managed to make it into the "affordable" or "moderately unaffordable" categories, which included 161 of the 265 areas covered in the report, all of which were located in the United States and Canada.
Of the 16 United Kingdom urban areas covered in the report, six were rated "seriously unaffordable" in 2007, and 10 were rated "severely unaffordable" and had median multiples that were nearly as high as those of most of the coastal California metropolitan areas. Included among the severely unaffordable areas (and measuring them at their price peaks in 2007) were Belfast (8.8); Exeter/Devon (8.2); London (7.7); and Bristol/Bath (6.9). The most affordable British area was Dundee with a median multiple of 4.4, comparable to Daytona Beach in high-cost Florida.
However, unlike some leaders in the United States who are endorsing policies that would make the situation worse, Prime Minister Gordon Brown recognizes that the U.K. has a housing affordability problem and that onerous land regulations are the prime culprit, and he intends to do something about it.
Based on the findings and recommendations of the Taylor Review,[17] which was conducted by British Member of Parliament Matthew Taylor and criticized Britain's planning policies and land use regulations, Prime Minister Brown is "preparing to sweep aside planning controls in villages and market towns to allow the biggest rural house building in a generation" and "has concluded that protecting the environment should no longer be the overriding consideration when decisions are made about whether to allow development in areas where locals are struggling to afford homes."[18] Under the new plan, local councils would be told to:
Earmark new building sites in every village and hamlet where affordable housing is needed;
Use sweeping powers to overrule normal planning curbs in protected areas;
Provide incentives for farmers to sell land to developers; and
Create a generation of new communities on the outskirts of market towns.
In a previous report, prepared for the Blair government, Bank of England Monetary Policy Committee member Kate Barker blamed the nation's high housing prices on its land-use restrictions.[19]
Australia. Although Britain's land-use problems extend back to the early 1950s, Australia's problems with counterproductive land regulations are more recent and are a consequence of the same smart growth/new urbanist fads that have swept through the United States. Unlike in the United States, where the majority of communities rejected this more fashionable approach to planning, many of Australia's political leaders and urban planners were seduced by the concept and imposed rigid rules on communities that included regulation of the type and color of mailboxes and the type and location of plants used in landscaping. In one community, new home builders were prohibited from installing central heat and air conditioning in order to achieve a smaller "carbon footprint."
Not surprisingly, urban areas in Australia became every bit as expensive as those in the United Kingdom and California. As in the U.K., there are no Australian communities to be found among the "affordable" or "moderately unaffordable" rankings, and most of them are ranked in the "severely unaffordable" category in the most recent Demographia report.[20] Of the 27 Australian urban areas included in the report, 24 are rated "severely unaffordable," while the remaining three are "seriously unaffordable." At the peak of the market in 2007, the median multiple for Sydney was 8.6, while Perth was at 7.6 and Melbourne registered 7.3.
There is an increasing recognition of the role that smart growth has played in making housing in Australian urban areas unaffordable. A number of policy initiatives have been announced in recent years to liberalize land-use restraints. The most important is in the Melbourne area, Australia's second-largest urban area (population 3,500,000), where a regional plan that was to stop development on the urban fringe has now been virtually abandoned by a new policy that will allow construction of more than 130,000 new suburban houses.[21]
Conclusion
As housing-price trends in the U.S. over the past decade reveal, the intensity of a region's land-use regulations is a key factor in the region's relative house-price inflation, affordability, and recent foreclosure experience. Areas with less land-use regulation consistently sustain housing prices that are affordable, while regions with greater regulations consistently sustain prices that are unaffordable to the majority of the citizens living in the region.
A number of other English-speaking nations, notably the United Kingdom, Australia, New Zealand, and Ireland, have land-use regulations that are more intense than those generally in force in the U.S.-and even higher housing prices as a result. In recent months, national and regional leaders in some of these overregulated countries have recognized the source of the problem and have announced a commitment to lessen the regulatory burden in order to reduce housing prices.
In the United States, however, there is still little recognition of the connection been regulatory limitations and housing prices, and prospective initiatives currently under discussion are likely to leave houses in many states with still higher price tags. Indeed, in the event that President Obama's interest in smart growth policies leads to federal involvement in land-use regulation, housing affordability in the United States could soon approach the levels now common in the United Kingdom.
Tuesday, September 13, 2011
Job Creation Plan Largely Ignores Housing Woes
Job-creation plan largely ignores housing woes
More than four years after the sector's initial collapse, housing has become the economy's silent killer. But Obama, in unveiling his proposed $447-billion package, said little more on the issue than that he would help 'responsible homeowners' refinance their mortgages.
The housing problem shows very few signs of curing itself. Nor has the broader economy grown despite the real estate slump, as some economists and policymakers had hoped. Above, homeowners looking for mortgage help attend an event in West Palm Beach, Fla. (Gary Coronado, Associated Press / September 12, 2011)
By Don Lee, Los Angeles Times
September 11, 2011, 6:00 p.m.
Reporting from Washington— President Obama's new jobs-creation plan all but ignores what many economists see as the single biggest problem in the stalling economy: the continuing depression in the housing market.
Home sales, prices and construction have been bad and have been getting worse for so long that Washington and many Americans have grown numb to the problem.
But dig below the surface and housing turns out to be a root cause of many of the other problems that are getting more attention — including the high level of unemployment that Obama focused on in his speech Thursday to Congress.
"That's probably the biggest missing ingredient here," economist Mark Zandi said after reviewing Obama's proposed $447-billion package of tax cuts and infrastructure spending.
More than four years after the sector's initial collapse, housing has become the economy's silent killer.
With about one-fourth of all houses in the United States in foreclosure or still underwater — their mortgagesexceeding their market price — millions of Americans face such severe financial problems that they cannot begin to resume their normal roles as consumers, move to new jobs or finance their small businesses.
Many have little prospect of regaining their lost financial security. The housing bust wiped out more than half the $13.5 trillion that homeowners had in equity in early 2006, according to Federal Reserve data.
In addition, the near-halt to construction of new housing has left several million once well-paid workers — many of them with advanced skills and years of experience — either unemployed or just getting by with lower-wage part-time work.
Like the troubled homeowners, most of these workers face long odds against recovering their old middle-class lives unless the industry revives.
As for financial institutions, billions of dollars in bad mortgages have become an albatross that undermines lenders' basic soundness and discourages new lending for almost any purpose. Weighed down by steep losses in its home-lending unit, Bank of America is preparing to cut 40,000 or more jobs nationwide.
The direct and indirect ties between housing and businesses of almost all kinds are a big reason for the overall lack of economic growth and high unemployment. For makers of building materials, producers of furniture and kitchen appliances and even for grass seed suppliers, the ongoing devastation of the housing market means they also have little reason to invest in expanding operations or hiring new workers.
Coming out of the deep recession of the early 1980s, new-home construction roared back to life — propelling the economy forward and creating 9% of the new jobs in the first year of recovery. This time around, construction accounted for 93% of the net decline in employment.
"Housing — it's not the American dream, it's the nightmare," says Karl E. Case, co-founder of the Case-Shiller home-price index. The latest reading of the index, which calculates price changes for the U.S., fell 4.5% in June year-over-year and is down 32% from five years earlier.
Some economists and political leaders argue that Americans over-invested in housing and should learn to live with lower levels of homeownership.
But regardless of the merits of this point of view, the nation has committed itself to housing as a major driver of the economy over many decades. Reversing that commitment also would take decades and could inflict damage on individuals and the nation that could last a generation or more.
It wasn't supposed to be like this.
Severe as the housing collapse was, basic economics said that forces were supposed to kick in that would start clearing away the wreckage and begin the process of recovery. The plunge in home prices, combined with historically low mortgage rates, was supposed to pump up sales.
Yet the housing problem shows very few signs of curing itself. Nor has the broader economy grown despite the real estate slump, as some economists and policymakers had hoped.
The health of the housing market is a key element in determining the confidence and spending of consumers, more so than stock prices, because homes are more broadly held by the public. Celia Chen, a housing expert at Moody's Analytics, estimates the economy has lost $360 billion in consumer spending since the recession — the equivalent of a year's worth of new-car sales in the U.S.
Copyright © 2011, Los Angeles Times
More than four years after the sector's initial collapse, housing has become the economy's silent killer. But Obama, in unveiling his proposed $447-billion package, said little more on the issue than that he would help 'responsible homeowners' refinance their mortgages.
The housing problem shows very few signs of curing itself. Nor has the broader economy grown despite the real estate slump, as some economists and policymakers had hoped. Above, homeowners looking for mortgage help attend an event in West Palm Beach, Fla. (Gary Coronado, Associated Press / September 12, 2011)
By Don Lee, Los Angeles Times
September 11, 2011, 6:00 p.m.
Reporting from Washington— President Obama's new jobs-creation plan all but ignores what many economists see as the single biggest problem in the stalling economy: the continuing depression in the housing market.
Home sales, prices and construction have been bad and have been getting worse for so long that Washington and many Americans have grown numb to the problem.
But dig below the surface and housing turns out to be a root cause of many of the other problems that are getting more attention — including the high level of unemployment that Obama focused on in his speech Thursday to Congress.
"That's probably the biggest missing ingredient here," economist Mark Zandi said after reviewing Obama's proposed $447-billion package of tax cuts and infrastructure spending.
More than four years after the sector's initial collapse, housing has become the economy's silent killer.
With about one-fourth of all houses in the United States in foreclosure or still underwater — their mortgagesexceeding their market price — millions of Americans face such severe financial problems that they cannot begin to resume their normal roles as consumers, move to new jobs or finance their small businesses.
Many have little prospect of regaining their lost financial security. The housing bust wiped out more than half the $13.5 trillion that homeowners had in equity in early 2006, according to Federal Reserve data.
In addition, the near-halt to construction of new housing has left several million once well-paid workers — many of them with advanced skills and years of experience — either unemployed or just getting by with lower-wage part-time work.
Like the troubled homeowners, most of these workers face long odds against recovering their old middle-class lives unless the industry revives.
As for financial institutions, billions of dollars in bad mortgages have become an albatross that undermines lenders' basic soundness and discourages new lending for almost any purpose. Weighed down by steep losses in its home-lending unit, Bank of America is preparing to cut 40,000 or more jobs nationwide.
The direct and indirect ties between housing and businesses of almost all kinds are a big reason for the overall lack of economic growth and high unemployment. For makers of building materials, producers of furniture and kitchen appliances and even for grass seed suppliers, the ongoing devastation of the housing market means they also have little reason to invest in expanding operations or hiring new workers.
Coming out of the deep recession of the early 1980s, new-home construction roared back to life — propelling the economy forward and creating 9% of the new jobs in the first year of recovery. This time around, construction accounted for 93% of the net decline in employment.
"Housing — it's not the American dream, it's the nightmare," says Karl E. Case, co-founder of the Case-Shiller home-price index. The latest reading of the index, which calculates price changes for the U.S., fell 4.5% in June year-over-year and is down 32% from five years earlier.
Some economists and political leaders argue that Americans over-invested in housing and should learn to live with lower levels of homeownership.
But regardless of the merits of this point of view, the nation has committed itself to housing as a major driver of the economy over many decades. Reversing that commitment also would take decades and could inflict damage on individuals and the nation that could last a generation or more.
It wasn't supposed to be like this.
Severe as the housing collapse was, basic economics said that forces were supposed to kick in that would start clearing away the wreckage and begin the process of recovery. The plunge in home prices, combined with historically low mortgage rates, was supposed to pump up sales.
Yet the housing problem shows very few signs of curing itself. Nor has the broader economy grown despite the real estate slump, as some economists and policymakers had hoped.
The health of the housing market is a key element in determining the confidence and spending of consumers, more so than stock prices, because homes are more broadly held by the public. Celia Chen, a housing expert at Moody's Analytics, estimates the economy has lost $360 billion in consumer spending since the recession — the equivalent of a year's worth of new-car sales in the U.S.
Copyright © 2011, Los Angeles Times
Thursday, September 8, 2011
The Perils of Philanthropy Thomas Sowell (a fabulous article)
The perils of philanthropy
Ideological clashes over particular laws, policies and programs often go far deeper. Those with opposing views of what is desirable for the future also tend to differ equally sharply as to what the reality of the present is. In other words, they envision two very different worlds.
A small but revealing example was a recent New York Times criticism of former Apple CEO Steve Jobs for not contributing to charity as much as the New York Times writer thought he should. The media in general are full of praise for business people and their companies for giving away substantial amounts of their wealth. Indeed, that is one of the few things for which many in the media praise businesses and the wealthy.
Americans in general – whether rich, poor or in between – have one of the most remarkable records for donating not only money but time to all sorts of charitable endeavors. Privately financed hospitals, colleges and innumerable other institutions abound in the United States, while they are rare to non-existent in many other countries, where such things are usually left to government or to religious organizations.
However, with charity as with everything else, it cannot simply be assumed that more is always better. A "safety net" can easily become a hammock. "Social justice" can easily become class warfare that polarizes a nation, while leading those at the bottom into the blind alley of resentments, no matter how many broad avenues of achievement may be available to them.
Judging businesses or their owners by how much wealth they give away – rather than by how much wealth they create – is putting the cart before the horse. Wealth is ultimately the only thing that can reduce poverty. The most dramatic reductions in poverty, in countries around the world, have come from increasing the amount of wealth, rather than from a redistribution of existing wealth.
What kind of world do we want – one in which everyone works to increase wealth to whatever extent they can, or a world in which everyone will be supported by either government handouts or private philanthropy, whether they work or don't work?
It is not an abstract question. We can already see the consequences on both sides of the Atlantic. Those who have grown used to having others provide their food, shelter and other basics as "rights" are by no means grateful.
On the contrary, they are more angry, lawless and violent than in years past, whether they are lower-class whites rioting in Britain or black "flash mobs" in America. Their histories are very different, but what they have in common is being supplied with a steady drumbeat of resentments against those who are better off.
(Column continues below)
Politicians, intellectuals and whole armies of caretaker bureaucrats are among those who benefit, in one way or another, from picturing parasites as victims and their lagging behind the rest of society as reasons for anger rather than achievement.
Leading people into the blind alley of dependency and grievances may be counterproductive for them, but it can produce votes, money, power, fame and a sense of exaltation to others who portray themselves as friends of the downtrodden.
Both private philanthropy and the taxpayers' money support this whole edifice of a make-believe world, where largesse replaces achievement and "rights" replace work. Trying to rope Steve Jobs into this world ignores how many other famous businessmen, whose achievements in business have benefited society, have created philanthropies whose harm has offset those benefits.
Henry Ford benefited millions of other people by creating mass production methods that cut the cost of automobiles to a fraction of what they had been before – bringing cars for the first time within the budgets of people who were not rich. But the Ford Foundation has become a plaything of social experimenters who pay no price for creating programs that have been counterproductive or even socially disastrous.
Nor was this the only foundation created by business philanthropy with a similar history and similar social results.
Let business pioneers do what they do best. And let the rest of us exercise more judgment as to how much charity is beneficial and how much more simply perpetuates dependency, grievances and the polarization of society.
Ideological clashes over particular laws, policies and programs often go far deeper. Those with opposing views of what is desirable for the future also tend to differ equally sharply as to what the reality of the present is. In other words, they envision two very different worlds.
A small but revealing example was a recent New York Times criticism of former Apple CEO Steve Jobs for not contributing to charity as much as the New York Times writer thought he should. The media in general are full of praise for business people and their companies for giving away substantial amounts of their wealth. Indeed, that is one of the few things for which many in the media praise businesses and the wealthy.
Americans in general – whether rich, poor or in between – have one of the most remarkable records for donating not only money but time to all sorts of charitable endeavors. Privately financed hospitals, colleges and innumerable other institutions abound in the United States, while they are rare to non-existent in many other countries, where such things are usually left to government or to religious organizations.
However, with charity as with everything else, it cannot simply be assumed that more is always better. A "safety net" can easily become a hammock. "Social justice" can easily become class warfare that polarizes a nation, while leading those at the bottom into the blind alley of resentments, no matter how many broad avenues of achievement may be available to them.
Judging businesses or their owners by how much wealth they give away – rather than by how much wealth they create – is putting the cart before the horse. Wealth is ultimately the only thing that can reduce poverty. The most dramatic reductions in poverty, in countries around the world, have come from increasing the amount of wealth, rather than from a redistribution of existing wealth.
What kind of world do we want – one in which everyone works to increase wealth to whatever extent they can, or a world in which everyone will be supported by either government handouts or private philanthropy, whether they work or don't work?
It is not an abstract question. We can already see the consequences on both sides of the Atlantic. Those who have grown used to having others provide their food, shelter and other basics as "rights" are by no means grateful.
On the contrary, they are more angry, lawless and violent than in years past, whether they are lower-class whites rioting in Britain or black "flash mobs" in America. Their histories are very different, but what they have in common is being supplied with a steady drumbeat of resentments against those who are better off.
(Column continues below)
Politicians, intellectuals and whole armies of caretaker bureaucrats are among those who benefit, in one way or another, from picturing parasites as victims and their lagging behind the rest of society as reasons for anger rather than achievement.
Leading people into the blind alley of dependency and grievances may be counterproductive for them, but it can produce votes, money, power, fame and a sense of exaltation to others who portray themselves as friends of the downtrodden.
Both private philanthropy and the taxpayers' money support this whole edifice of a make-believe world, where largesse replaces achievement and "rights" replace work. Trying to rope Steve Jobs into this world ignores how many other famous businessmen, whose achievements in business have benefited society, have created philanthropies whose harm has offset those benefits.
Henry Ford benefited millions of other people by creating mass production methods that cut the cost of automobiles to a fraction of what they had been before – bringing cars for the first time within the budgets of people who were not rich. But the Ford Foundation has become a plaything of social experimenters who pay no price for creating programs that have been counterproductive or even socially disastrous.
Nor was this the only foundation created by business philanthropy with a similar history and similar social results.
Let business pioneers do what they do best. And let the rest of us exercise more judgment as to how much charity is beneficial and how much more simply perpetuates dependency, grievances and the polarization of society.
Tuesday, August 30, 2011
Mortgage Rates
-------------------------------------------------------------------
by Matthew Graham
Mortgage Rates: Reprieve Gone. Opportunities Remain
After a brief but sizeable rebound on Friday, Mortgage Rates experienced an equally sizeable rebound back higher, though we hope it will be equally brief.
Markets suffered from a pronounced lack of activity today with numerous participants out of commission due to Irene as well as some overseas markets on Holiday. All in all stocks rallied significantly and interest rates rose.
CURRENT MARKET*: The BestExecution 30-year fixed mortgage rate has moved BACK UP to 4.25% and in some cases 4.375%. Several lenders are willing to offer lower rates, but those quotes carry with them additional closing costs. On FHA/VA 30 year fixed BestExecution moved BACK UP to 4.25%. Deals can be structured with lower rates, but again, you'll pay more for those, so make sure you assess the time it takes to break-even on the extra expense. 15 year fixed conventional loans are best priced at 3.625%. Five year ARMs are still best priced at 3.250%. ARMs seem to have bottomed out.
A note on the greater-than-normal variation in rate offerings between lenders. There is an increased amount of variety in what individual lenders are now quoting as their BestExecution rates. This is a factor of price volatility in the secondary mortgage market. Unfortunately when volatility picks up in the secondary mortgage market, the cost of doing business gets more expensive for lenders (hedging costs go up). Those added costs are usually passed down to consumers via extra margin in rate sheets. Additionally, the recent rates rally makes lenders busy enough that some control their inbound volume by raising rates regardless of the secondary mortgage market in order to discourage new applications/locks.
GUIDANCE: Two things... First of all, locking in here still makes lots of sense for lots of scenarios considering our overall nearness to all-time lows. The guidance from any of our recent posts holds true there. That said, due to the insane lack of market participation today, you may see a brief improvement in rate sheets that could net the aggressive floater an extra eighth of a percent in rate, and while there's no guarantee we'll see this, it's the first time in a long time that a short term float strategy seems to make any sort of sense. Friday remains high risk owing the the Employment Situation Report, so if you're not locked up by Thursday, you're at the whim of Friday's jobs data.
by Matthew Graham
Mortgage Rates: Reprieve Gone. Opportunities Remain
After a brief but sizeable rebound on Friday, Mortgage Rates experienced an equally sizeable rebound back higher, though we hope it will be equally brief.
Markets suffered from a pronounced lack of activity today with numerous participants out of commission due to Irene as well as some overseas markets on Holiday. All in all stocks rallied significantly and interest rates rose.
CURRENT MARKET*: The BestExecution 30-year fixed mortgage rate has moved BACK UP to 4.25% and in some cases 4.375%. Several lenders are willing to offer lower rates, but those quotes carry with them additional closing costs. On FHA/VA 30 year fixed BestExecution moved BACK UP to 4.25%. Deals can be structured with lower rates, but again, you'll pay more for those, so make sure you assess the time it takes to break-even on the extra expense. 15 year fixed conventional loans are best priced at 3.625%. Five year ARMs are still best priced at 3.250%. ARMs seem to have bottomed out.
A note on the greater-than-normal variation in rate offerings between lenders. There is an increased amount of variety in what individual lenders are now quoting as their BestExecution rates. This is a factor of price volatility in the secondary mortgage market. Unfortunately when volatility picks up in the secondary mortgage market, the cost of doing business gets more expensive for lenders (hedging costs go up). Those added costs are usually passed down to consumers via extra margin in rate sheets. Additionally, the recent rates rally makes lenders busy enough that some control their inbound volume by raising rates regardless of the secondary mortgage market in order to discourage new applications/locks.
GUIDANCE: Two things... First of all, locking in here still makes lots of sense for lots of scenarios considering our overall nearness to all-time lows. The guidance from any of our recent posts holds true there. That said, due to the insane lack of market participation today, you may see a brief improvement in rate sheets that could net the aggressive floater an extra eighth of a percent in rate, and while there's no guarantee we'll see this, it's the first time in a long time that a short term float strategy seems to make any sort of sense. Friday remains high risk owing the the Employment Situation Report, so if you're not locked up by Thursday, you're at the whim of Friday's jobs data.
Monday, August 15, 2011
Morgage Fraud Growing
FBI sees mortgage fraud growing as economy stumbles
By Lily Kuo | Reuters – Fri, Aug 12, 2011....tweet9Share3EmailPrint......WASHINGTON (Reuters) - Mortgage and investment schemes targeting troubled U.S. homeowners jumped in 2010 and may increase further if the economy does not improve, the FBI said on Friday.
The FBI said in an annual report that pending investigations increased 12 percent in the fiscal year ended September 30, 2010, to 3,129 cases. That in turn was a 90 percent jump from the previous fiscal year.
An FBI official said the trend will continue as more borrowers struggle to pay their mortgages.
"If we have continuing high unemployment and increased numbers of foreclosures, what we see is a greater percentage of the population of existing homeowners being vulnerable to these schemes," said David Cardona, FBI deputy assistant director.
The collapse of the housing boom and the resulting financial crisis has led to a wave of foreclosures. In 2010, 2.5 million foreclosures were initiated, with a similar number expected this year.
The FBI said mortgage origination schemes have declined due to the depressed market for home purchases.
Fraud targeting troubled borrowers, however, has increased and includes loan modification scams and foreclosure rescue schemes in which perpetrators convince borrowers they can save their homes through deed transfers and upfront fees.
Cardona said stock market fluctuations have also resulted in more Americans falling for fake investments.
"It's not a dynamic that we think will self-correct. If anything it could get worse," he said
The report listed "hot spots" for mortgage fraud. California, Florida and New York were among the hottest of those, in line with some of the worst unemployment and mortgage default rates in the country.
Since the FBI was tasked with rooting out criminal activity that exacerbated the housing crisis in 2008, it has been criticized as ineffective against powerful executives of companies tied to the housing and financial industry.
"Although we tried mightily we just didn't hit the mark," Cardona said, referring to the aborted investigation of Washington Mutual Bank in early August.
Cardona said the government struggles to prove criminal intent in corporate crime.
One of the biggest cases so far was a $3 billion fraud case involving the privately held mortgage firm Taylor, Bean & Whitaker Mortgage Corp. The chairman of the firm, Lee Farkas, was sentenced to 30 years in prison after being convicted on 14 counts of conspiracy, wire, securities and bank fraud.
Cardona said the FBI is hoping the government can win more high-profile cases through civil probes. He said the FBI is cooperating "closer now than ever" with the Securities and Exchange Commission and Commodity Futures Trading Commission.
"We're going to see a quicker return on investment through civil means than showing criminal intent by some of these high-level officials," he said.
By Lily Kuo | Reuters – Fri, Aug 12, 2011....tweet9Share3EmailPrint......WASHINGTON (Reuters) - Mortgage and investment schemes targeting troubled U.S. homeowners jumped in 2010 and may increase further if the economy does not improve, the FBI said on Friday.
The FBI said in an annual report that pending investigations increased 12 percent in the fiscal year ended September 30, 2010, to 3,129 cases. That in turn was a 90 percent jump from the previous fiscal year.
An FBI official said the trend will continue as more borrowers struggle to pay their mortgages.
"If we have continuing high unemployment and increased numbers of foreclosures, what we see is a greater percentage of the population of existing homeowners being vulnerable to these schemes," said David Cardona, FBI deputy assistant director.
The collapse of the housing boom and the resulting financial crisis has led to a wave of foreclosures. In 2010, 2.5 million foreclosures were initiated, with a similar number expected this year.
The FBI said mortgage origination schemes have declined due to the depressed market for home purchases.
Fraud targeting troubled borrowers, however, has increased and includes loan modification scams and foreclosure rescue schemes in which perpetrators convince borrowers they can save their homes through deed transfers and upfront fees.
Cardona said stock market fluctuations have also resulted in more Americans falling for fake investments.
"It's not a dynamic that we think will self-correct. If anything it could get worse," he said
The report listed "hot spots" for mortgage fraud. California, Florida and New York were among the hottest of those, in line with some of the worst unemployment and mortgage default rates in the country.
Since the FBI was tasked with rooting out criminal activity that exacerbated the housing crisis in 2008, it has been criticized as ineffective against powerful executives of companies tied to the housing and financial industry.
"Although we tried mightily we just didn't hit the mark," Cardona said, referring to the aborted investigation of Washington Mutual Bank in early August.
Cardona said the government struggles to prove criminal intent in corporate crime.
One of the biggest cases so far was a $3 billion fraud case involving the privately held mortgage firm Taylor, Bean & Whitaker Mortgage Corp. The chairman of the firm, Lee Farkas, was sentenced to 30 years in prison after being convicted on 14 counts of conspiracy, wire, securities and bank fraud.
Cardona said the FBI is hoping the government can win more high-profile cases through civil probes. He said the FBI is cooperating "closer now than ever" with the Securities and Exchange Commission and Commodity Futures Trading Commission.
"We're going to see a quicker return on investment through civil means than showing criminal intent by some of these high-level officials," he said.
Wednesday, August 3, 2011
US Stocks Fall
U.S Stocks Fall Scott Eells/Bloomberg
Traders work on the floor of the New York Stock Exchange (NYSE) in New York.
Traders work on the floor of the New York Stock Exchange (NYSE) in New York. Photographer: Scott Eells/Bloomberg
.U.S. stocks advanced, preventing the longest Dow Jones Industrial Average slump since 1978, amid speculation the Federal Reserve may consider another economic stimulus program to prevent a recession.
MasterCard Inc. (MA), the second-biggest payments network, gained 13 percent after profit rose 33 percent as customers’ spending increased. Coca-Cola Co. (KO) and General Electric Co. (GE) added at least 1.5 percent, leading the Dow’s gain. Technology stocks in the Standard & Poor’s 500 Index climbed 1.2 percent, the most among 10 groups. Sprint Nextel Corp. (S) jumped 3.8 percent as Macquarie Group Ltd. raised its recommendation for the shares.
The Dow rose 29.82 points, or 0.3 percent, to 11,896.44 at 4 p.m. in New York after posting a 166-point loss earlier, which was the ninth straight drop. The S&P 500 advanced 0.5 percent to 1,260.34, snapping a seven-day decline.
“Every time we see economic weakness, there will be discussion about more stimulus,” Richard Sichel, who oversees $1.6 billion as chief investment officer at Philadelphia Trust Co., said in telephone interview. “That could be the case given the fairly weak economic figures we’ve had. In addition, the market has given back a lot recently and people started to look at some bargains.”
Stocks rebounded after the Wall Street Journal reported that three former top officials at the Fed said the central bank should consider a new round of securities purchases to bolster economic growth. The Fed finished its second round of so-called quantitative easing, nicknamed “QE2” by investors, at the end of June. The program helped propel a rally of as much as 28 percent in the S&P 500 since Fed Chairman Ben S. Bernanke foreshadowed the plan on Aug. 27.
Valuation Sinks
The S&P 500 erased its 2011 gain yesterday and its valuation sank to 13.8 times reported earnings, the cheapest level since July 2010. Growing concern that the U.S. economy is faltering has erased $1.07 trillion from American equities in less than two weeks, according to data compiled by Bloomberg.
The S&P 500 plunged 2.6 percent yesterday, its biggest one- day loss in a year and giving the index the longest losing streak since October 2008, in the depths of the financial crisis caused by Lehman Brothers Holdings Inc.’s bankruptcy. Investors sought the safety of Treasuries, gold and the Swiss currency even as President Barack Obama signed a plan to raise the federal debt limit before a possible default.
Attention has shifted to weakening economic data, including yesterday’s 0.2 percent decrease in consumer spending, the slowest growth in personal incomes since November and an index of American manufacturing sinking to a two-year low.
Economic Data
Stocks fell earlier today after a report showed service industries expanded in July at the slowest pace since February 2010 as orders and employment cooled, a sign the biggest part of the U.S. economy had little momentum entering the second half. The Institute for Supply Management’s index of non-manufacturing businesses dropped to 52.7 from 53.3 in June. Readings above 50 signal expansion, and economists projected 53.5 for July, according to the median forecast in a Bloomberg News survey.
Companies in the U.S. added 114,000 workers to payrolls in July, according to figures from ADP Employer Services. The median forecast of economists surveyed by Bloomberg News called for an advance of 100,000. The data comes two days before a government report projected to show an increase of 85,000 jobs.
“This is what slow growth is going to feel like,” Charles Stamey, a managing director at Manning & Napier Advisors Inc. in St. Petersburg, Florida, said in a telephone interview. His firm oversees $42 billion “We’re seeing lots of persistent headwinds that we are going to have to adjust to. The stock market should look cheaper because we’re not having the growth that we’ve historically had.”
‘Strong Buy’
U.S. stocks have become a “strong buy” following declines in the past seven days, according to Barton Biggs, managing partner and co-founder of Traxis Partners LP in New York. Biggs spoke on Bloomberg Television’s “InsideTrack” with Erik Schatzker and Deirdre Bolton.
“I do feel right now this is not the time to put out any shorts and I am very tempted to think this is a time to be buying stocks pretty aggressively,” said Biggs, whose firm manages $1.4 billion.
Per-share earnings increased 17 percent and sales rose 12 percent among the S&P 500 companies that have released quarterly results since July 11, according to data compiled by Bloomberg. About 77 percent of the 363 companies have topped the average analyst profit forecast, the data show.
MasterCard rallied 13 percent to $338.47. Net income rose to $608 million, or $4.76 a share, from $458 million, or $3.49, in the same period a year earlier. The average estimate of 29 analysts surveyed by Bloomberg was for $4.23 a share.
Sprint, CBS
Sprint gained 3.8 percent to $4.15. The third-largest U.S. mobile-phone carrier was raised to “neutral” from “underperform” at Macquarie. The 12-month share-price estimate is $4.60.
CBS Corp. (CBS) climbed 1.6 percent to $26.70. The owner of the most-watched U.S. television network said second-quarter profit soared, beating analysts’ estimates as sales of reruns and fees from cable TV systems increased.
The seven-day plunge in the S&P 500 caused the most pronounced herd mentality among investors in four months. The Chicago Board Options Exchange S&P 500 Implied Correlation Index jumped to 64.80 yesterday, the highest level since the March sell-off prompted by Japan’s record earthquake and tsunami. It uses equity-derivative prices to measure traders’ expectations for how much S&P 500 stocks will move in tandem during the next 30 days.
“The world is much more focused on macro events,” Nelson Saiers, chief investment officer of Alphabet Management LLC, said in a telephone interview yesterday. The New York-based volatility hedge fund manages $635 million and is up 8.9 percent this year. “People are more nervous, and you can see that in implied correlation.”
Traders work on the floor of the New York Stock Exchange (NYSE) in New York.
Traders work on the floor of the New York Stock Exchange (NYSE) in New York. Photographer: Scott Eells/Bloomberg
.U.S. stocks advanced, preventing the longest Dow Jones Industrial Average slump since 1978, amid speculation the Federal Reserve may consider another economic stimulus program to prevent a recession.
MasterCard Inc. (MA), the second-biggest payments network, gained 13 percent after profit rose 33 percent as customers’ spending increased. Coca-Cola Co. (KO) and General Electric Co. (GE) added at least 1.5 percent, leading the Dow’s gain. Technology stocks in the Standard & Poor’s 500 Index climbed 1.2 percent, the most among 10 groups. Sprint Nextel Corp. (S) jumped 3.8 percent as Macquarie Group Ltd. raised its recommendation for the shares.
The Dow rose 29.82 points, or 0.3 percent, to 11,896.44 at 4 p.m. in New York after posting a 166-point loss earlier, which was the ninth straight drop. The S&P 500 advanced 0.5 percent to 1,260.34, snapping a seven-day decline.
“Every time we see economic weakness, there will be discussion about more stimulus,” Richard Sichel, who oversees $1.6 billion as chief investment officer at Philadelphia Trust Co., said in telephone interview. “That could be the case given the fairly weak economic figures we’ve had. In addition, the market has given back a lot recently and people started to look at some bargains.”
Stocks rebounded after the Wall Street Journal reported that three former top officials at the Fed said the central bank should consider a new round of securities purchases to bolster economic growth. The Fed finished its second round of so-called quantitative easing, nicknamed “QE2” by investors, at the end of June. The program helped propel a rally of as much as 28 percent in the S&P 500 since Fed Chairman Ben S. Bernanke foreshadowed the plan on Aug. 27.
Valuation Sinks
The S&P 500 erased its 2011 gain yesterday and its valuation sank to 13.8 times reported earnings, the cheapest level since July 2010. Growing concern that the U.S. economy is faltering has erased $1.07 trillion from American equities in less than two weeks, according to data compiled by Bloomberg.
The S&P 500 plunged 2.6 percent yesterday, its biggest one- day loss in a year and giving the index the longest losing streak since October 2008, in the depths of the financial crisis caused by Lehman Brothers Holdings Inc.’s bankruptcy. Investors sought the safety of Treasuries, gold and the Swiss currency even as President Barack Obama signed a plan to raise the federal debt limit before a possible default.
Attention has shifted to weakening economic data, including yesterday’s 0.2 percent decrease in consumer spending, the slowest growth in personal incomes since November and an index of American manufacturing sinking to a two-year low.
Economic Data
Stocks fell earlier today after a report showed service industries expanded in July at the slowest pace since February 2010 as orders and employment cooled, a sign the biggest part of the U.S. economy had little momentum entering the second half. The Institute for Supply Management’s index of non-manufacturing businesses dropped to 52.7 from 53.3 in June. Readings above 50 signal expansion, and economists projected 53.5 for July, according to the median forecast in a Bloomberg News survey.
Companies in the U.S. added 114,000 workers to payrolls in July, according to figures from ADP Employer Services. The median forecast of economists surveyed by Bloomberg News called for an advance of 100,000. The data comes two days before a government report projected to show an increase of 85,000 jobs.
“This is what slow growth is going to feel like,” Charles Stamey, a managing director at Manning & Napier Advisors Inc. in St. Petersburg, Florida, said in a telephone interview. His firm oversees $42 billion “We’re seeing lots of persistent headwinds that we are going to have to adjust to. The stock market should look cheaper because we’re not having the growth that we’ve historically had.”
‘Strong Buy’
U.S. stocks have become a “strong buy” following declines in the past seven days, according to Barton Biggs, managing partner and co-founder of Traxis Partners LP in New York. Biggs spoke on Bloomberg Television’s “InsideTrack” with Erik Schatzker and Deirdre Bolton.
“I do feel right now this is not the time to put out any shorts and I am very tempted to think this is a time to be buying stocks pretty aggressively,” said Biggs, whose firm manages $1.4 billion.
Per-share earnings increased 17 percent and sales rose 12 percent among the S&P 500 companies that have released quarterly results since July 11, according to data compiled by Bloomberg. About 77 percent of the 363 companies have topped the average analyst profit forecast, the data show.
MasterCard rallied 13 percent to $338.47. Net income rose to $608 million, or $4.76 a share, from $458 million, or $3.49, in the same period a year earlier. The average estimate of 29 analysts surveyed by Bloomberg was for $4.23 a share.
Sprint, CBS
Sprint gained 3.8 percent to $4.15. The third-largest U.S. mobile-phone carrier was raised to “neutral” from “underperform” at Macquarie. The 12-month share-price estimate is $4.60.
CBS Corp. (CBS) climbed 1.6 percent to $26.70. The owner of the most-watched U.S. television network said second-quarter profit soared, beating analysts’ estimates as sales of reruns and fees from cable TV systems increased.
The seven-day plunge in the S&P 500 caused the most pronounced herd mentality among investors in four months. The Chicago Board Options Exchange S&P 500 Implied Correlation Index jumped to 64.80 yesterday, the highest level since the March sell-off prompted by Japan’s record earthquake and tsunami. It uses equity-derivative prices to measure traders’ expectations for how much S&P 500 stocks will move in tandem during the next 30 days.
“The world is much more focused on macro events,” Nelson Saiers, chief investment officer of Alphabet Management LLC, said in a telephone interview yesterday. The New York-based volatility hedge fund manages $635 million and is up 8.9 percent this year. “People are more nervous, and you can see that in implied correlation.”
Subscribe to:
Posts (Atom)