This blog is the voice of the Bay Area's home building community. It is a forum for discussion of housing-related news and issues pertinent to the region's 7.2 million residents. All comments are welcome.

Housing Politics
05.12.08

California, according to the latest report from RealtyTrac, has the nation’s second highest foreclosure rate, trailing only Nevada.

That’s why this card-carrying Republican finds it disturbing that only one Republican member of California’s congressional delegation – Diamond Bar Rep. Gary Miller – saw fit last week to vote for a House bill that would help tens of thousands of struggling homeowners here in the Golden State avoid foreclosure.

Many House Republicans who otherwise supported the housing relief measure, according to the Los Angeles Times, voted against it to protest procedural tactics by the Democrat majority to limit debate and speed passage of the measure by sending it directly to the floor of each house.

Well boo-fracking-hoo, I say. The 1 out of 204 California home owners facing foreclosure probably couldn’t care less about parliamentary procedure on Capitol Hill. They just want to hold onto their homes.

“We cannot stick with the status quo,” said Florida Rep. Ginny Brown-Waite, speaking for herself, for Rep. Miller, and the other 37 Republicans who voted for the House bill. “That’s sticking our policymaking heads in the sand.”

And there was yet another reason for California Republicans to support the House bill: It would permanently raise to $729,750 the conforming limit for mortgages eligible for purchase by Fannie Mae and Freddie Mac.

As Rep. Jerry McNerney, the Pleasanton Democrat, correctly pointed out, “One of the biggest challenges facing the housing market in high-cost states like California is that housing programs have not kept pace with the times. Unrealistically low limits for Fannie Mae, Freddie Mac and FHA mean that people living in high-cost states have not fully benefited from these programs.”

Rep. Miller deserves credit for breaking ranks with his fellow California Repblicans and joining Rep. McNerney in supporting the House legislation. The interests of the Golden State’s struggling home owners ought to trump party partisanship.

Housing Crisis Over
05.09.08

I just finished reading a rather provocative essay in the Wall Street Journal headlined “The Housing Crisis Is Over.” It was authored by Cyril Moulle-Berteaux, managing partner of Traxis Partners LP, a New York-based hedge fund.

My initial thought, reading just the headline, was “Sure, tell that to my home builder friends.” Reading further, I came away with the impression that Mr. Moulle-Berteaux just might be onto something when suggested “it is very likely that April 2008 will mark the bottom of the U.S. housing market.”

That does mean, the author continued, that the next housing boom is about to commence. “It just means that the trend is no longer getting worse,” which, to his mind, “is the critical factor.”

He explained that the current housing bust is nearly three years old. New home sales are down 63 percent from July 2005. Home starts are down 50 percent, which, he noted, adjusted for population growth, are back to the trough levels of 1982.

So what’s going to turn around the housing market? “Affordability,” wrote the hedge fund exec.

He explained: The housing boom made home ownership unaffordable for many families, particularly first-time home buyers. From the 1990s to the early 2000s, it took 19 percent of average monthly income to service a conforming mortgage on the average home purchased.  By 2005 and 2006, it took 25 percent of monthly income. For first time buyers, it took 37 percent.

“That proved to be too much,” he said.

But times have changed. Home prices have fallen 10 percent to 15 percent, he noted, while incomes have continued to grow (however modestly) and mortgage rates have come down 70 basis points from their highs.

As a result, wrote Moulle-Berteaux, it now takes 19 percent of monthly income for the average home buyer to purchase a home; 31 percent of monthly income for the first-time home buyer.

“In other words,” he pointed out, “homes on average are back to being as affordable as during the best of times in the 1990s. Numerous households that had been priced out of the market can now afford to get in.”

Dog Day
05.08.08

Every dog, it’s said, has its day. So this past Tuesday was Kristen Trisko’s day.

She’s the Danville resident who’s leading the opposition to the plan by Davidon Homes to build 22 luxury homes on the old Weber Ranch site. It so happens that Trisko lives, and boards her horses, next to the site.

The Danville activist, who formed a group she calls Citizens for Civic Accountability, insists that she’s not trying to stop Davidon from building its homes. “We just want the town to the right thing,” she told the Contra Costa Times.

The “right thing,” in her mind, is a full-blown, costly, time-consuming environmental report that explores every conceivable impact the modest-sized project might have.

However, Contra Costa County Superior Court judge David Flinn ruled this past March that the town of Danville’s “initial study” was pretty much sufficient to conclude that Davidon’s 22-home project would cause no irreparable harm to the environment.

The only outstanding issue, Judge Flinn ruled, was the home builder’s plan to remove a 100 trees or so. “The question,” he said, back in March, is whether “there is a significant environmental impact…for taking out eight or nine trees per acre?”

Without spending six months and several hundred dollars to analyze the question, I’m going to go out on a limb – pun intended – and say there will be an impact, but not a significant one.

That is, except to Kristen Trisko and her fellow Danville NIMBYs.

Same Old Story
05.07.08

The Fisher Center for Real Estate and Urban Economics at UC Berkeley held its 13th annual Real Estate Conference yesterday. I didn’t even have to read about it in today’s Contra Costa Times – although I did – to  know what all the speakers had to say.

The housing market is mired in a slump. The mortgage crisis is not over. Home prices will continue to slide for at least the near future. The housing downturn won’t bottom out until later this year or maybe next year.

What I don’t understand is why so many people would pay $375 to spend a day to hear the same old doleful analyses and forecasts they’ve been hearing for the past year or so. I can only attribute it to the old saw that “misery loves company.”

About the only session on the conference agenda that appeared to me to offer anything different from what you might see and hear at any other housing-related confab was  titled “The Residential Market – Disaster and Opportunity.”

 According to blurb highlighting the session, “History shows that in any economic downturn and housing cycle there are opportunities.” And, indeed, several of the Conference speakers foresaw some upside in the current housing morass.

“You will see real estate cleansed,” said Scott Ouellette, “chief underwriting officer with LandCap Partners. “The real opportunity is to be part of this buying, cleansing process.”

“As prices come down,” said James Saccacio, “you will see more people coming back into the market.”

The underlying fundamentals of the Bay Area housing remarket remain unchanged. Only so much land is available to build new homes to accommodate the growing demand of the region’s ever-increasing population.

The housing slump, the mortgage crisis will eventually pass. And Bay Area housing will again be viewed as an attractive investment.

Unequal Treatment
05.06.08

Gasoline prices have risen 15 cents a gallon in the past two weeks, according to the Lundberg Survey. And nowhere is the run up more painfully felt than here in the Bay Area, where pump prices are roughly 40 cents more per gallon than in the rest of the country, according to the Energy Information Administration.

Meanwhile, food prices continue to soar this year after climbing 4 percent in 2007, the largest increase in nearly two decades.  The average American family is spending more than $900 a month to the grocery store, up $80 from two years according to KCBS. Here in the Bay Area, KCBS adds, the family food bill is “even higher.”

What I find most noteworthy about the escalation of prices for gasoline and groceries – commodities that most of us find absolutely necessary – is that no one is suggesting that oil companies and supermarket chains sell their product at below market prices to moderate- or low- or even very-low income folks.

All I’ve heard are suggestions that the federal and state government ought to temporarily lower their excise taxes on gasoline. All I’ve read is that Congress is considering raising Food Stamp benefits by 50 percent.

The point is, no one expects Chevron and Safeway to assume the financial burden of taking care of people who can’t afford gas or food. That responsibility is laid at the government’s doorstop.

Yet the same standard does not apply to home builders.

Because Bay Area home prices are among the nation’s highest, nearly half the cities in the nine-county region “inclusionary zoning” ordinances on their books.

 These government-enforced diktats require that, say, 15 percent of the units in a new home community be sold to very-low, low- and even moderate-income buyers at prices that can sometimes be as low as 50 percent below market rate.

Our Constitution promises equal treatment under the law. If oil companies and supermarkets are not required to sell so much gasoline, so much food, at below-market-rate prices to the moderate-to-lower income, then neither should home builders be subject to inclusionary zoning requirements.

Recession-proof
05.05.08

A rather fascinating report aired a couple days ago on the Eyewitness News on KPIX CBS 5. “When it comes to Bay Area real estate,” said anchor Dana King, “the rules seem never to apply. It appears that one segment, the high-end housing market, is still booming despite the recent downturn in housing.”

According to Eyewitness News, “Realtors in the Bay Area’s most affluent communities are reporting a record year for private home sales at the top of market.” Among the examples, a home on Green Street in San Francisco for the asking price of $11 million and a mansion on Washington Street that sold for $20 million.

The boom in high-end home sales in the midst of an otherwise down housing market could be attributed to the fact that the Bay Area’s most affluent residents enjoy recession-proof incomes. But I think there’s more to it than that.

Indeed, Las Vegas has its share of affluent residents yet, as the Los Angeles Times reported a few weeks ago, luxury homes have lost their luster in Sin City. About 1,000 homes are listed for sale in Vegas for $1 million or more, “a glut of glitzy homes,” as the Times put it.

Meanwhile, here in the Bay Area, the most in-demand homes at the moment – the sweet spot – for local realtors are those selling for $2 million to $5 million. Many aren’t even listed because there are more than enough interested buyers ready to pay cash for a high end home in a desirable neighborhood.

That’s because the Bay Area remains one of the most desirable regions in which to live, not only in the state, not only in the country, but in the entire world. So those that have the wherewithal to buy multi-million homes in this current market downturn continue to do so in record-breaking fashion.

And those who aren’t quite so well-heeled wait hopefully for the mortgage crisis to pass so they too can purchase their next piece of Bay Area real estate.

Sharing the Wealth
05.02.08

I imagine they’re celebrating this morning at Chevron corporate headquarters (which is about five minutes away from our East Bay office in San Ramon). The nation’s second-largest oil company posted a first quarter profit of $5.17 billion.

I don’t begrudge our Fortune 500 neighbors their multi-billion dollar windfall. I do resent, however, the $4.12 a gallon that Chevron is charging at its San Ramon gas stations. I just can’t understand why Chevron gas costs more right here in proximity to its corporate headquarters than it does clear across the country in Washington, DC.

You’d think that Chevron would offer its San Ramon neighbors a “friends and family” discount.

But that’s the way the oil industry works. When Chevron and the other oil giants prosper, they keep their prosperity to themselves – even though their windfalls come at the expense of consumers, forced to pay higher pump prices.

 And by no means is the oil industry the only one to operate this way. It’s pretty much standard practice for every major industry, whether we’re talking about the auto industry or banking industry or telecommunications industry or whatever.  When the industry prospers, consumers usually don’t share the wealth.

Only one major industry is an exception to this rule – home building.

Indeed, during the recent half-decade housing boom, home builders enjoyed handsome profits (though nowhere near the windfalls the oil giants are currently raking in). Meanwhile, consumers who bought new homes from builders saw their personal wealth increase as the homes they purchased rose in value.

Between 2001 and 2005, the average Bay Area home owner saw their home value increase by more than $200,000. And even though home values have fallen during the housing bust, the average Bay Area home owner is still $175,000 or more to the good.

That’s why the public should not resent home builders when they prosper. Because no other industry creates wealth and shares it like home building.

What's Really Newsworthy
05.01.08

Whatever happened to the new in “news?” That’s the question that came to mind when I saw the front-page headline in yesterday’s San Francisco Chronicle informing readers that the “Prices of homes are falling faster.”

The price of a “typical Bay Area home plunged 17.2 percent year-over-year in February,” the Chron reported. That follows a 13.2 percent year-over-year decline in January, and a 10.8 percent decline the month before that.

Nothing’s really changed. That doesn’t mean that the Chron shouldn’t have reported the latest monthly data, which it culled from the Standard & Poor/Case –Shiller 10-City Composite Index. It just means that the story didn’t rise to the level of newsworthiness to rate the front page treatment it received.

Now there were some elements of the Chron story that were new to me. Unfortunately, the newspaper downplayed them – probably because they didn’t fit the overall negative tone of the article.

For instance, the city of San Francisco actually saw an increase in its median home price in March.

 And while home prices have “plunged,” to use the Chron’s characterization, in the Bay Area’s outer reaches – places like Antioch and Pittsburg – in the core of the region – places like Silicon Valley and Marin – home prices are down 6 percent at most, according to Ken Rosen, Chairman of the Fisher Center for Real Estate and Urban Economics at UC Berkeley.

Moreover, the downward trend in home prices is not across the board. The biggest drop has been with lower-priced homes, those below $513,218, which tend to be located in the exurbs. Their value has declined roughly 33 percent over the past two years.

Medium-priced homes, between $513,218 and $756,420, have fallen 22 percent over the same span and higher-priced homes, $756,420 and above, have fallen a mere 6.8 percent.

But there remains a silver lining to the price data (which the Chron saw fit to relegate to the penultimate paragraph of its story):  Even with the recent declines in home values for higher-, medium and even lower-priced homes here in the Bay Area, home values for the region are still up nearly 75 percent since 2000.

Now that’s news worth plastering on Chron’s front page.