I have spent this week in San Francisco at the Salesforce.com Dreamforce Conference. Salesforce.com is revolutionizing the software industry in the same way that personal computers revolutionized mainframe computers. Computing in the cloud - their phrase for running applications through a web browser without desktop software - is incredibly powerful. It is also more affordable and scalable than the software/server approaches we are used to. And that is why I am here. Harnessing the immense capabilities of cloud computing to bring low-cost, high-powered applications to small towns is something I am passionate about. Stay tuned.
Enjoy this week's news.
- The more housing-related news that comes out, the more our system looks like one big Ponzi scheme. Let's just start with homebuilders, who not only are having their end product subsidized with expanded homebuyer credits, but now actually got a retroactive tax break worth upwards of $33 billion. Given that the supply of homes vastly outstrips the demand, it is not clear what this subsidy is for. Others are equally confused.
“I AM surprised that home builders are getting hundreds of millions of dollars given that many have very strong balance sheets,” said Ivy Zelman, chief executive at Zelman & Associates, a research firm. “We question the public policy decision to gift home builders with capital that many will not use to create jobs, since they admit that job growth will be dependent not on capital, but on improving demand.”
- So we pile subsidy on builders, then we expand Federal Housing Authority insurance backing for the well-off. Remember, FHA insurance was originally designed to help poor people get home mortgages where they could not pay the down payment. Like many subsidies, this one now has a life of its own.
In its efforts to prop up a shattered housing market, the government is greatly extending its traditional support of real estate, including guaranteeing the mortgages of middle-class and even upper-class buyers against default.
- So first we induce a huge supply of homes. Then we try and induce a huge demand. Are we surprised when the implosion of this Ponzi scheme is so disastrous that it starts to impact even those with great credit?
The latest evidence was a report Thursday that a rising proportion of fixed-rate home loans made to people with good credit are sinking into foreclosure. That's a shift from last year, when riskier subprime loans drove the housing crisis.
- And in an ironic twist, it is The Government (via the FDIC and their seizure of failing banks) that is coming to own much of the failed real estate. Unloading the thousands of homes is sure to cost taxpayers a lot of money, yield little and drive down housing prices even more.
In the past two years, the FDIC has taken over 150 failed banks. In the process, it has seized more than 5,000 houses, subdivisions, buildings, parcels and other foreclosed assets. The current backlog of property stuck on the agency's books, with an appraised value of $1.8 billion, ranges from an $18,700 clapboard home with stained carpets in Birmingham, Ala., to a $1.7 million mountainside lodge with a heated driveway in Steamboat Springs, Colo.
- Fortunately, builders are starting to react to this huge imbalance. While our towns have not yet broadly adopted a new model for growth, some builders are findings ways to do more with (slightly) less.
More often than not, builders say, post-crash buyers of new homes want smaller and simpler. The average new single-family house peaked at 2,507 square feet in 2007 and has since slipped to 2,392 square feet, according to Census Bureau data.
- But where would we be without the realtors? Is there another group anywhere that is more out of touch than they are?
Prices will climb about 4 percent after a projected decline of 13 percent this year, according to Lawrence Yun, chief economist for the [National Association of Realtors] trade association.
"Going into 2010, I anticipate that prices will also begin stabilizing or begin to modestly improve," Yun told the audience at the association's annual conference and expo in San Diego.
That should help ease buyers' anxiety. "I don't think the fear factor will be at play in 2010," Yun said.
- While the Partnership for Sustainable Communities comes at this problem from a slightly different perspective than we do, their proposed remedy is Strong Town all the way.
The time has come to declare that the “General Motors model” of urban planning is officially bankrupt. We must reinvest in existing urban centers, because reusing the infrastructure and restoring underutilized real estate is far more environmentally efficient than new construction, no matter how green that construction is. It’s also time to change local land use laws to promote more compact development around transit and the availability of affordable housing close to jobs and services.
- Finally, leading up to Dreamforce 2009 there was a video contest - I'm not sure the theme and I'm not sure who won, but this was one of the submissions that I thought was worth sharing here.