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The release of the Beige Book (last week) is always a fun read (yes, I am admittedly, pretty boring) because it allows the Fed to present a regular anecdotal description of the current economy. I’ve provided feedback to the Fed for this publication for a number of years and enjoy the national perspective submitted by each of the member banks. However, one thing I worry about is their ability to forecast with the rapid changes of late in the economy. Bernanke seems to be resigned to relying on the numbers as they come in, which of course, is behind the curve. Its like relying on the upwardly revised 2Q GDP numbers made irrelevant with the credit meltdown under our belt in 3Q.

The financial markets are probably expecting a half point drop at the next FOMC meeting on September 18th, so the impact of a generic 25 basis point adjustment is probably already built in. The Fed seems to be saying they will take action but probably not as aggressive as 50 basis points (1/2 percent) A 25 basis point move probably means no real impact on investor confidence in mortgage paper quality, no impact on rising non-conforming mortgage rates, no change to the housing market. With the full force of the housing downturn not to impact the economy until 2008 when resets peak, anything short of 50 basis points will be invisible.

If we get what we (I) wish for, a 50 basis point drop might actually make everyone even more nervous. In other words, the markets may think the Fed must know something we don’t because thats a bigger drop than we have seen in a long time. Crazy, isn’t it?

Recent distress in financial markets has “deepened” the housing slump, but the overall economy has seen little impact so far, the Federal Reserve said Wednesday in its beige book report. That assessment suggests that while a rate cut in two weeks may still be likely, officials may not see the same need for aggressive easing that financial markets expect.

Whether its a 1/4 point or 1/2 point drop, its not going to make any immediate difference to the housing market. Its a baby step towards investors getting back in the game, even though it doesn’t resolve the main issue: mortgage portfolios are laced with crap (sub-prime tranches) that no one seems to have a handle on.

As far as the perception of a Fed rate cut being a Wall Street bailout, I disagree. Its a moot point. I am more worried about the overall economy. The impact of housing as a drag on the economy hasn’t hit full force yet. I suspect not until mid-2008 or 2009. Mortgage resets are reported to be peaking in 2008 and the impact of a significantly lower number of sales transactions is just now beginning to hammer markets that are already weak.

The housing market is anything but beige.

Tags: Beige Book, Ben Bernanke, Sub-Prime, Bailout Nation

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The page one WSJ article [Snippy Things Folks Say About Your Home Are Now Also Online [REJ]](http://www.realestatejournal.com/buysell/markettrends/20060907-delaney.html?rejcontent=mail) caught my eye with the “Rats” subtitle. As real estate moves more and more towards online dependency, it was a matter of time before services the allow visitors of properties to review them.

The classic dotcom content generator: users

This has long been done with vendors of books, music and movies and many others who are selling their wares. Content is enriched and a sense of community is created. People buy things. This concept has already touched real estate community in the form of a user-driven real estate broker rating site called [BrokerRate.com](http://www.brokerate.com/).

Real estate is late to the party because the real estate broker is dealing with a large asset and most homeowners would be hard pressed to accept the notion that pointing out property defects would result in a higher price. Given the emotion and large dollars tied to the asset on both sides of the transaction, I would speculate the general comments would be nearly all negative despite claims otherwise, following the “stop light” theory (You only remember the red lights and not the green lights). I can just imagine competing listing owners and brokers posting negative comments about the competition.

So in order for this to work, non-broker sites such as those mentioned in the articles would be the most practical venue. I for one am [weary of reading brokerspeak](http://matrix.millersamuel.com/?p=230). With some diligence, a buyer can filter out the negative hyperbole (just like the positive hyperbole) and get a complete sense of the property.

And honestly, the reviews are quite entertaining.

After viewing a three-bedroom row house offered for $108,000 in Baltimore, a Zip reviewer described the décor as “strange” and said the third bedroom is “about as wide as a coffin.” To reach this bedroom, the reviewer says, “you have to walk through the bathroom! And the lock for this room is on the bedroom side. Whoever moves in must be a very friendly family with little need for privacy.”

“rot” in the bathroom, said the bathtub should be replaced and commented that the “green paint isn’t nearly as charming in person as in photos.” If all that wasn’t bad enough, the reviewer added: “Neighborhood questionable. Two kids had a loud, screaming fight outside the door during showing. Loud cars drive up and down the street with thumping music.”

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In Kenneth R. Harney’s always insightful column, The Nation’s Housing, he discusses the types of housing markets in [Market Action Slips Away From Coasts [WaPo]](http://www.washingtonpost.com/wp-dyn/content/article/2006/05/26/AR2006052600808.html).

First American Real Estate Solutions [note: I have had terrible experiences with their customer service, but their research is pretty good.] has completed an extensive analysis of 100 major metro areas to understand more about housing price cycles. There are 3 major categories:

• Linear markets where booms and busts almost never occur.[Columbus, Ohio; Indianapolis; Houston; San Antonio; Memphis; Atlanta; Cincinnati; Des Moines; and Louisville.]

• Cyclic markets are the shooting stars of housing booms. Generally they are along the East and West coasts, where household incomes are higher and land for new construction is in short supply. [California south of the San Francisco Bay, Florida, Washington DC, Baltimore, New York and much of New England.]

• Hybrid markets have linear, slow-growth characteristics for periods, followed by periods of moderate cyclic-style appreciation. [Chicago, Seattle, Minneapolis-St. Paul, Detroit and Phoenix.]

By understanding the type of housing market a property owner is currently in, they may be able to make better choices when it comes to housing. For market-timer wannabes, it sure seems like you don’t want to be in the midwest because there are no cycles, however, thats where there has been much discussion about the location of the next housing boom as the coasts cool off.

However, housing is a lagging indicator, not a leading indicator, and rising mortgage rates have eliminated much of the flexibility for real estate investment. If the midwest is currently attractive to investors who want to make returns on housing, then lets be clear what type of investors we are speaking about: institutional investors with deep pockets, not individual investors, who days are numbered.

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A reconstruction of the growth of Baltimore,
Maryland, over the last 200 years. The U.S.
Geological Survey used historical records as
well as Landsat satellite data to create this
sequence.

There are lot of elements that are affected by sprawl – unchecked and unplanned gowth. I would have thought that more solutions would be made apparent as funding filled cities coffers from tax revenues. Here are a collection of relatively random thoughts about urban sprawl and how it impacts housing:

• The environment — Sprawl impacts the environment by fragmenting and destroying wildlife habitat, for example, and discharging polluted runoff water into streams and lakes. [NASA is working on ways to delivery satellite information to city planners [NASA]](http://science.nasa.gov/headlines/y2002/11oct_sprawl.htm)

• Affordable housing —Sprawl, along with gentrification, pushes affordable housing away from the city center. Placing [a moratorium on open market development appears short-sighted [SF Guardian]](http://www.sfbg.com/40/23/x_oped.html)because the tax revenues generated by open market housing helps fund it. [Further restrictions make open market housing more limited in supply [Chattanoogan]](http://www.chattanoogan.com/articles/article_82804.asp) and associated support services more expensive. Supply and demand still apply to sprawl.

NASA

• Transportation —As workers in city centers expand their search for cheaper housing, transportation needs also increase. Commuting times are expanding. [Outlying areas are developing new identities as the commuters take residence. [WP]](http://www.washingtonpost.com/wp-dyn/content/article/2006/03/26/AR2006032601175.html?nav=rss_realestate)

In an unusually large planned [suburb that will take 50 years to build [boxtank]](http://www.theboxtank.com/walmartbox/2006/04/cnn_features_a_.html) in near the Great Salt Lake…

which will stretch over 20 miles and accomodate 162,800 homes and 500,000 people in a string of walkable communities that will take over 50 years to build. The development lies on the largest privately owned tract of land (144 square miles) in the United States that is near a major metropolis. The owner of the land, Kennecott Utah Copper Corp., created Kennecott Land to oversee the development of the surplus mining land it owned along the Oquirrh mountains into a string of communities emphasizing sustainable development practices.

See the [full CNN story](http://www.cnn.com/2006/US/04/07/new.town.ap/index.html)

Managing sprawl is difficult as multiple municipalities are impacted. Leadership and an agreeable strategy for all sides are seldom clear. In fact, with all the discussion about sprawl, I find straightforward solutions rare because each situation is unique and it takes immense planning, vision and funding.

Now that the housing boom is essentially over (unprecedented growth in housing development and prices), I think urban planning advocates missed a great opportunity.

_Previous related posts_
[Thomas Jefferson: The Founding Father Of Sprawl? [Matrix]](http://matrix.millersamuel.com/?p=425) [Sprawled In The Suburbs, There Is Hope For The New-Urbanist [Matrix]](http://matrix.millersamuel.com/?p=381)
[Creative Brain Drain Weakens Long Term Urban Revitalization [Matrix]](http://matrix.millersamuel.com/?p=286)
[Development Is Goin’ Down…town [Matrix]](http://matrix.millersamuel.com/?p=235)

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The front page, above the fold, article [States Curbing Right to Seize Private Homes [NYT]](http://www.nytimes.com/2006/02/21/national/21domain.html?pagewanted=print) talks about the national backlash to the Supreme Court findings in [KELO et al. v. CITY OF NEW LONDON et al.](http://caselaw.lp.findlaw.com/scripts/getcase.pl?court=US&vol=000&invol=04-108).

In a rare display of unanimity that cuts across partisan and geographic lines, lawmakers in virtually every statehouse across the country are advancing bills and constitutional amendments to limit use of the government’s power of eminent domain to seize private property for economic development purposes.

Rarely has a Supreme Court ruling created such a universal reaction that was not made up along party lines. The idea that the loss of private property to private development seems to have struck a cord with state and local legislatures and they are passing laws that would disallow many situations that would involve emminent domain. In fact, one of the justices seemed to apologize after the 4-3 decision and said that “We emphasize that nothing in our opinion precludes any state from placing further restrictions on its exercise of the takings power.”

“It’s open season on eminent domain,” said Larry Morandi, a land-use specialist at the National Conference of State Legislatures. “Bills are being pushed by Democrats and Republicans, liberals and conservatives, and they’re passing by huge margins.” Americans see property ownership, and the rights associated with them, as a right of citizenship. This ruling seemed to bypass American sentiment.

Like everything to do with real estate, Americans tend to go from one extreme to the other. More neutral observers expressed concern that state officials, in their zeal to protect homeowners and small businesses, would handcuff local governments that are trying to revitalize dying cities and fill in blighted areas with projects that produce tax revenues and jobs. Many emminent domain situations need to be judged on a case-by-case basis.

[USA Today provided a list of strategies that legislatures are taking:](http://www.usatoday.com/news/nation/2006-02-19-eminentdomain_x.htm?POE=NEWISVA)

• Explicit bans. Some bills would ban the use of eminent domain for economic development. Others would do so indirectly by stating when it can be used and leaving commercial development off the list.

• Narrower rules. Many states are considering making it harder for cities to declare a neighborhood “blighted” just for economic development.

• Economic penalties. New York and Indiana are among states considering making eminent domain more expensive. The government would have to pay 25% or 50% above market value when it confiscates a property for commercial development.

_Here’s a sample of the action that is taking place to limit takings:_
[Eminent-domain bills given a hearing [Baltimore Sun]](http://www.baltimoresun.com/news/local/politics/bal-condemn0221,0,2264041.story?coll=bal-local-headlines)
[Limiting eminent domain [Journal-Advocate – CO]](http://www.journal-advocate.com/Stories/0,1413,120~7826~3246118,00.html)
[Rethinking eminent domain: Lawmakers want to curtail the power of local governments [Bradenton Herald – FL]](http://www.bradenton.com/mld/bradenton/13921339.htm)

_Prior Posts In Matrix_
[The Kelo Backlash: Now Many Are Rethinking Eminent Domain [Matrix]](http://matrix.millersamuel.com/?p=289)
[Wrecking Ball: Taking Eminent Domain Private [Matrix]](http://matrix.millersamuel.com/?p=142)

Tags: London, New York Observer

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Source: USAid.gov

Wall Street bonuses were $21.5B this year which made many real estate brokers happy over the past two months. There were many critics of the housing market who said that the bonus money would not go into real estate since Wall Street is comprised of savy financial types who know where to invest their money.

I think the problem with this sort of thinking is the lack of understanding as to how much money the bonus income really was. Its a lot.

This post was inspired by my fav Wall Street blog [Under The Counter](http://www.underthecounter.net/archives/2006/01/wall_street_bon_2.html) which refers to the story [Wall Street bonuses dwarf some countries’ economies [Baltimore Sun].](http://www.baltimoresun.com/news/opinion/oped/bal-op.price24jan24,1,133610.story?coll=bal-oped-headlines)

“But, seriously, something’s wrong with this picture. According to the CIA’s ranking of gross domestic products (purchasing power parity) around the world, $21.5 billion is more money than the GDP of each of two-thirds of the world’s countries. The 2005 bonus amount distributed among 172,000 people was exactly the same as the 2004 GDP of Afghanistan, population 30 million.”

“U. S. GDP for 2005 was $12.37 trillion. In such an economy, the $21.5 billion Wall Street handed out in bonuses seems like a drop in the bucket. But it means that in 2005, Wall Street handed out more in bonuses than the U.S. government distributed worldwide in development aid, except in the countries we’ve invaded.”

This was a fun fact…

According to the New York comptroller’s office, the year-end Wall Street bonuses for 1986 averaged only $13,950 that year.

It was $125,000 in 2005.

Tags: Wall Street Bonus

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[The National Association of Home Builders just released a study](http://www.nahb.org/news_details.aspx?sectionID=148&newsID=1572) on the impact of Katrina in the housing market. More than 200,000 homes in New Orleans alone were wiped out.

[The building industry is already experiencing the effects of Katrina due to the loss of a number of lumber mills in the south](http://www.mercurynews.com/mld/mercurynews/news/breaking_news/12548985.htm?template=contentModules/printstory.jsp) Building material costs were already rising due to the strong housing markets across the country. [Real demand for materials hasn’t peaked yet since clean up has not yet occurred.](http://www.baltimoresun.com/business/bal-bz.home03sep03,1,2346854,print.story?coll=bal-business-headlines&ctrack=1&cset=true) Building supplies aren’t expected to see the same magnitude of price increases because the supplies are not shipped through the Gulf.

[The prices of local building supplies in the Alabama are already increasing. ](http://www.al.com/business/huntsvilletimes/index.ssf?/base/business/112556629947380.xml&coll=1) Building labor is expected to rise as well.

“Ken Tennefoss, publisher of Crow Publications, which produces a number of lumber-product-related reports, said the industry is better prepared to provide materials than it has been in the past because of the bigger customer base created by stores such as Home Depot and Lowe’s.”

Tags: NAHB, Hurricane Katrina

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