New construction in June matched May’s decline.
By Ron Scherer | Staff writer of The Christian Science Monitor

NEW YORK – For the second month in a row, developers have slowed down the pace of building all those new Cape Cods, colonials, and Spanish haciendas that Americans have been snapping up at a record pace.

While it may be too soon to write an obituary for housing, any twitch is watched carefully because the sector is one of the most vibrant in the economy. The housing boom has provided jobs for everyone from plumbers to roofers. And millions of Americans have watched their homes become swollen piggy banks, rising in value month after month. Indeed, almost everyone from the chairman of the Federal Reserve to the auto-body shop owner who has some “investment properties” is watching the housing market with a wary eye.

Tuesday, the Commerce Department reported that developers started 2 million new homes in June, the same pace as May, which was revised to show a decline of 1.1 percent. Economists had been anticipating a June bounce because mortgage rates fell.

“This is basically a temporary cooling in housing activity,” says Anthony Chan, an economist at JPMorgan Asset Management in Columbus, Ohio. “I think it’s premature to say we’ve turned the corner on housing.”

The numbers, however, are a change from the past, when developers were building homes as fast as carpenters could load their nail guns. Construction of single-family homes fell by 2.5 percent. In some parts of the country, the slower pace was quite noticeable: In the Midwest, construction fell by 12.1 percent; in the West, by 10.4 percent; and in the Northeast, by 0.5 percent. Only in the South, including Miami, where the condo craze is continuing, did construction rise – up 11.4 percent.

“This worries me that half the new building is in the South,” says David Wyss, chief economist at Standard & Poor’s in New York. “In the rest of the country, the pace appears to be tapering, although it’s worth noting that activity is up 5 percent from a year ago.”

The report on June’s slower pace comes right before Fed chief Alan Greenspan is scheduled to present his semiannual assessment of the economy to Congress Wednesday. In the past, Mr. Greenspan has said that he doesn’t see a national housing bubble but that there might be some areas of froth. He’s also found it unusual that long-term interest rates have remained low when the Fed is raising short-term rates.

The Fed is expected to raise rates another quarter of a percent for the 10th time in August. Expectation of this move has finally caused long-term rates to start to rise. Thirty-year mortgage rates have edged up the past two weeks.

If the pace of housing is slowing, says Mr. Chan, “the latest report should provide some comfort to policymakers – not because Greenspan wants housing to collapse, but because it may be showing that housing reacts to monetary policy.”

Because the Fed is expected to continue to raise rates through the year, economists are less sanguine about housing in 2006. “That’s when we will probably see some retrenchment,” says Joe Abate, an economist at Lehman Brothers in New York.

In a recent report, Mr. Abate says he believes that on a national basis, housing prices are overvalued about 15 percent. Some markets he refers to as “dangerously frothy.” In those areas, housing is becoming difficult for people to afford, so they are resorting to unusual mortgages that lower the monthly payment but make the overall cost of a house more expensive.

Still, the Lehman housing expert notes that the last time home prices fell on a national basis was in the 1930s, during the Great Depression.

Many economists, including Chan, argue that the fundamentals for housing remain favorable. Interest rates remain relatively low, with long-term mortgage rates at 5.66 percent. These economists estimate that mortgage rates will have to rise to 6.5 percent to dry up loan demand.

At the same time, the labor market is improving. In the latest jobs report, the unemployment rate fell to 5 percent. One possible factor in the improvement: Industrial production rose 0.9 percent in June.

The strong economy might be one reason why the number of applications for new permits to build is still going up.

“Permits tend to be a leading indicator,” says Mr. Wyss. “But sometimes projects get permitted and then not started.”

Thursday, July 7, 2005

Harley E. Rouda Jr.

Moving to a new city is, at times, a shot in the dark. Although you’ve probably learned some information about your new neighborhood before the actual move, the details may still be sketchy.

Sure, your prospective area is only a 10-minute drive from your office. However, is it close to a good school system? Is a veterinarian located nearby for your pets’ yearly checkups? Is a 24-hour pharmacy nearby for late-night prescription refills?

A survey by the National Association of Realtors supports the idea that although home buyers consider cost and affordability when purchasing a home, location is a major selling point. Even though you may feel you’re getting a deal on the home of your dreams, consider its location: if it is next to a rundown neighborhood or lies a half-hour or so from any nearby schools, what you’re saving in price could cost you when it comes time to resell.

Consider these additional points when scoping out your new home’s location:

Ñ Evaluate your family’s day-to-day lifestyle. Do you enjoy a morning jog before heading to work? Ensure your new neighborhood’s streets are safe and well-lit. Is your spouse a movie buff? Check out the proximity of theaters and video stores. Does your daughter take dance lessons twice a week? Determine if a studio is located nearby. Otherwise, you’ll rack up the miles on your car and lose valuable time driving to and from your favorite activities.

Ñ Remember the value of educational facilities nearby. Even if you are a newly married couple, single person or empty nester — all without school-age children — homes near schools tend to retain their value over time. And when it comes time to sell your home, families will readily invest in a home that is close to schools and college campuses.

Ñ Take a look at established neighborhoods. True, older neighborhoods often feature homes with higher price tags. On the other hand, a house in a new neighborhood that today faces a sprawling field may one day look upon a parking lot, depending on the zoning of nearby land. Do your research — when viewing homes, be sure to ask your Realtor about any vacant property near the home.

Ñ Make a priority list. What’s most important to you and your family? Since it’s nearly impossible for you to be close to every amenity, decide which ones are at the top of the list. Once you narrow down the priorities, it will be easier for you to find a neighborhood that fits your needs.

Remember, many tools are available online to help narrow your location search. Some programs allow users to identify those amenities at the top of their priority lists and immediately view which are closest to their selected home via a detailed map. When you’re pressed for time, services such as these take the guesswork out of relocating.

It is, after all, these conveniences that make your house and the surrounding community a home — and the harried moving process often only allows you a few weeks (or at times, days) to check out your new neighborhood.

Nevertheless, any background research you can do prior to signing on the dotted line brings you that much closer to visualizing a seamless transition.