Yesterday I attended a lunch sponsored by the Sensible Land Use Coalition, a
gathering of developers, consultants and municipal officials. The featured speaker was former Minnesota
Commissioner of Transportation (and likely 2008 Congressional candidate in Minnesota’s
Sixth District) El Tinklenberg. I
discovered talking with colleagues before and after the lunch that while
transportation was on the program, the housing market dominated the collective brain. A few reasons why that’s the case:
Construction Down – Suburban and Urban Alike
The trends don’t appear positive on the national or regional
level. In the Twin Cities, year-to-date
building permits have dropped 51% since the high in 2004; the number of
permitted units has dropped 47% in the same period. The value of the building-permitted construction
undertaken so far in 2007 has fallen 44% (over $1 billion in today’s dollars)
from the level experienced in 2004.
Local Governments Feel the Permit Pinch
The St. Paul Pioneer Press this week published
a story (reg. req’d) examining the reliance of some cities on permit fees
for revenue to finance development and in some cases, administration. As the market cools, local governments are
experiencing rapid drops in fee revenues, while buyers of recent construction
are placing additional demands on city services and infrastructure. Combined with cuts to local government aid and county program aid enacted at the state level, diminished permit fees will fuel the fire of what is already looks a lot like a property tax revolt in Minnesota.
Prices Down Among Many Metropolitan Areas Across
Rating agency Standard and Poor’s reported
this week the results of a national study which indicate
that home prices in major markets are falling at the briskest pace since
1991. As opposed to market chatter over
the previous year that significant declines were limited to previously
high-growth areas on the coasts and in the Southwest, the S&P analysis
profiles a much broader dynamic. From
twelve months ago, price declines include: San Diego (-7.8%), Las Vegas (-6.1%), New York (-3.8%), Minneapolis (-3.4%), and Chicago (-0.9%). Cities with positive
appreciation include Dallas, Portland and Seattle.
Post today reported (reg. req’d) on a tempestuous hearing of the Senate
Banking Committee yesterday; the committee heard testimony from executives of
major rating agencies including Standard and Poor’s, Moody’s and Fitch
Ratings. At issue:
Once originated, loans are bundled together into “tranches” and
The Securities and Exchange Commission said an investigation of credit-rating
companies was focused on whether bond issuers put pressure on the raters to win
higher rankings for subprime-mortgage bonds.
securitized, meaning the principal and interest revenue from loan repayments
are purchased by individual and institutional buyers as mortgage-backed
bonds. The investigation focuses on
whether the companies bundling the loans and securitizing them influenced the
rating agencies for a higher credit rating, thereby increasing the value of the
bonds to be sold.
Spiros Pina, a Whole Loan Analyst at GMAC ResCap, described the process
Hungry for More?
Looking back a few years from now, some things will begin to
come into focus: the perfect storm of easy money, excessively sloppy
underwriting, and the agencies dozing at the switch. And let’s not forget that agencies make money
rating credit risk and have an interest in seeing deals go to market…
Dig a bit further into the economic prospects for the
housing market at EconBrowser,
a blog written by two professors of economics at the University of California and University of Wisconsin. Read more about the foreclosure wave here.