Single-Family Housing Starts Sink to a New Low

Housing starts decreased 0.6% to a seasonally adjusted 1.065 million annual rate, after rising 7.1% in January to 1.071 million, the Commerce Department said Tuesday.
Originally, Commerce reported January starts 0.8% higher, at 1.012 million. Because of the big upward revision to the January figures, February's 0.6% decline was a mixed surprise to Wall Street, with the decrease larger than expected yet the pace of construction higher than expected. The median forecast of economists surveyed by Dow Jones Newswires had February starts down by 0.2% to a 1.010 million annual rate from the originally reported January level of 1.012 million.
Year-over-year, housing starts during February were 28.4% below the level of construction in February 2007.
On Monday, the National Association of Home Builders reported its index for sales of new, single-family homes held steady at 20 in March. The gauge is based on a survey of builders who were asked about prospects for sales. Analysts think a pullback in construction is necessary to better align bloated inventory of unsold homes with demand. The latest data, through January, show new-home sales had fallen by 33.9% in the past 12 months.
"The housing outlook has remained bleak," Lehman Brothers economist Michelle Meyer said in reaction to the NAHB report Monday. "Despite builders' efforts to stimulate demand through lower prices and greater incentives, sales have continued to decline."
A key indicator in Tuesday's starts data suggested a lower level of groundbreakings in the future. Building permits fell 7.8% to a 978,000 annual rate in February. January permits slid 1.8% to 1.061 million. The pace of 978,000 was the lowest since September 1991's 974,000. Permits are a precursor to actual building.
February single-family housing starts decreased 6.7% to 707,000. Construction of housing with two or more units rose 14.4% to 358,000; within that category, groundbreakings of homes with five or more units -- or multi-family -- were 14.5% higher.
Regionally, housing starts plunged 27.7% in the Northeast. Starts were flat in the Midwest. Construction rose 3.9% in the South and 5.1% in the West.
Nationwide, an estimated 75,300 houses were actually started in February, based on figures not seasonally adjusted. An estimated 72,900 building permits were issued last month, also based on unadjusted figures.

By Brian Blackstone and Jeff Bater From The Wall Street Journal Online

Back Listing Hits Sellers

In the nation's worst-hit real-estate markets, home sellers are suffering a new blow: They are being blacklisted by lenders.
As property values decline and credit markets contract, home lenders nationwide are growing ever more unwilling to finance home purchases in sharply declining housing markets, driving prices down further. In some cases, lenders have ruled out entire geographic regions and property types altogether, most notably high-rise condominiums in South Florida and Las Vegas.
Lenders including BankUnited, a unit of BankUnited Financial Corp., and Vertice, a wholesale lending unit of Wachovia Corp., have elected not to lend to some areas or properties because of declining prices. Countrywide Financial Corp., the nation's largest mortgage lender, considered a similar move last week before reversing course, and other lenders have tightened underwriting guidelines for slumping markets so as to make financing nearly unattainable.
There are "lists circulating" from banks, says Peter Zalewski, a broker with Condo Vultures Realty LLC, and those lists are pushing down prices when news of the black-marked properties spreads.
Moreover, the blacklisting isn't always obvious. "We don't call it blacklisting," said an official at a large bank. "We just don't write the loan."
The banks are acting to protect themselves in a steep downturn. But the drying up of loans threatens to create a self-perpetuating cycle.
"If mortgage credit dries up, then prices are going to fall more," says Morris Davis, a professor of real estate and urban land economics at the University of Wisconsin-Madison's School of Business and a former economist at the Federal Reserve Board.
Countrywide sent shudders through the ranks of mortgage brokers when it sent brokers an email recently under the heading "Urgent Product Elimination." The message announced the company would stop approving its Fast and Easy and Alt-A mortgages for all high-rise condominiums nationwide, effective almost immediately.
Countrywide's Fast and Easy loans don't require verification of income, brokers said. Alt-A loans are generally provided to buyers with good credit who lack full documentation.
Countrywide reversed its policy a day later without explanation, but the episode demonstrated lenders' reluctance to underwrite mortgages in the country's most uncertain real-estate markets. Countrywide didn't respond to multiple requests for comment.
Florida's largest bank, BankUnited Financial Corp.'s BankUnited FSB, drew up a "nonpermissible condominium project list" that identified addresses of 191 condominium developments in Florida and Las Vegas for which the bank won't provide financing. The list was reported by the South Florida Business Journal.
For more than half the properties listed in the memo, the bank cited "declining market value" as the reason it wouldn't provide financing. Melissa Gracey, a spokeswoman for BankUnited, confirmed that the list is still in force and said the bank's "very conservative" lending guidelines rule out mortgages for such properties.
In some cases, lenders have blacklisted not specific properties, but entire geographical areas.
In December, Wachovia's Vertice unit stopped writing mortgages for all condominiums in South Florida, says Kasey Emmel, a company spokeswoman.
Wachovia's main lending operation "continues to offer condo products in all markets, including Florida markets," says spokesman Don Vecchiarello.
Blacklisting isn't redlining -- the illegal practice of restricting lending on a socioeconomic basis -- so it doesn't run afoul of fair-lending laws, says Alexander Bono, a partner at Schnader Harrison Segal & Lewis, a law firm in Philadelphia. Banks are allowed "to identify a county when it's based upon something other than socioeconomic conditions" and then change its stipulations for lending there, Mr. Bono says.
Even when banks haven't officially ruled out entire markets, the stipulations they use before lending in such areas are becoming very stringent, and can leave mortgage credit all but off-limits.
"Companies won't lend" money for purchases in developments that aren't at least 60% filled, says Paul Miller, an analyst at Friedman Billings Ramsey & Co., a unit of FBR Capital Markets Corp. When vacancy rates in a development are higher than 40%, Mr. Miller says, "your condo fees go through the roof," since a development's minimum maintenance costs remain static, regardless of the number of residents. And if condo fees remain high -- as underwriting logic follows -- then homeowners may have a harder time making mortgage payments.
"We're very cognizant of the risks involved" with "condominium developments in particular," says Terry Francisco, a spokesman for Bank of America Corp.
Other larger lenders have also tightened standards for mortgages they write in declining regions.
In December, Fannie Mae, the nation's government-sponsored mortgage-lending behemoth, issued an announcement titled "Maximum Financing in Declining Markets."
"When a property is located in an area identified as declining," the announcement says, the lender originating the loan must reduce the maximum amount it could otherwise lend to that buyer by 5%.
In healthy markets, New York's J.P. Morgan Chase & Co. will currently lend borrowers a mortgage equal to as much as 90% of a property's value. For borrowers in states that have declining markets, however, the bank reduces that maximum, says Tom Kelly, a spokesman for the bank. J.P. Morgan then reduces that level even further for borrowers in the worst declining markets, Mr. Kelly says, though he declined to provide specifics.
CitiMortgage, a wholesale lending operation of another large Wall Street bank, Citigroup Inc., maintains a list of "declining market areas" that red-flags dozens of counties in more than 10 states. Citi reduces the amount it will lend for properties in those counties "by at least 5%," the document says.
"We routinely review our credit parameters, including maximum loan-to-value ratios, in declining markets," says Mark Rogers, a CitiMortgage spokesman.
One silver lining: For "all-cash buyers," Mr. Zalewski says, the lists are "heaven sent."
Buyers who have cash "can use that to negotiate," he says: "If you don't sell to us, who are you going to sell to?"

By Dawn Wotapka and Marshall Eckblad From The Wall Street Journal Online

TV Shows Offer Ideas on Fixing Homes

Avid watchers of HGTV, TLC and other cable networks with real estate programming assume they are learning important lessons that will help them buy, sell or improve a property. If you ask many local real estate agents, they would agree.
Shows such as "Curb Appeal," "Designed to Sell," "Flip That House," "Design on a Dime," "House Hunters" and "My House Is Worth What?" have garnered millions of loyal viewers nationwide. Do they paint an accurate picture?
While some programs may be a bit unrealistic in terms of appraised values or the ability of average adults to remodel their own kitchens, Washington-area real estate insiders say the overall message is worthwhile: Homeowners need to clean, maintain and neutralize their homes to improve their value.
"Real estate television shows are great because they let people know that you can't put your home on the market 'as-is' any more," says Maggie Britvec, a Realtor with Prudential Carruthers Realtors in Alexandria. "It's almost a given now that people know you need to do stuff to improve your home."
Mrs. Britvec says that while the shows are sometimes unrealistic about what home improvements cost and the time it takes to make sure quality work is done, the overall messages of neutralizing and updating homes are particularly valuable in the Washington area, which has many older homes.
"Some of these television programs are valuable because they give another perspective in addition to the perspective of the Realtor," says Brenda Lawson, a Realtor with RE/MAX One in Bowie.
"For instance, the show where sellers hear the comments made by visitors during an open house is great," she says. "The sellers make changes based on the comments, and then they bring the visitors back to get their reaction. That show reinforces the lesson that agents try to share with sellers when we delicately try to tell people how important it is to clean up their house."
Mrs. Lawson says people who watch a program like that are less likely to be offended by comments made by their real estate agent.

By Michele Lerner

Washington Times March 21,2008