Tollbrothers.com

Like many master-planned communities, the Woodlands north of downtown Houston has it all: shopping, golf courses designed by the greats, miles of scenic hiking and bike paths and homes in every price point. Now Toll Brothers is set to add its McMansions.

After scouring the region for a more than a decade, the builder known for its luxurious models is opening for pre-construction sales next month, hoping its brand name–an industry rarity–will draw buyers. The move is one of the first expansions announced since the housing crash.

For its first new market since Atlanta in 2007, Toll made a relatively-safe bet: Houston didn’t experience wild housing price appreciation during the boom, so it hasn’t seen values plummet. It even managed gains: In May, its average and median prices climbed to the highest levels since August. Still, Toll is gambling that the nation’s current obsession with smaller and cheaper homes–only intensified by elevated mortgage rates–doesn’t represent a permanent shift in buying preferences.

The Horsham, Pa.-based builder isn’t worried. “There’s still going to be a move-up market,” said Chris Myers, Houston’s division president. “We want to get Toll Brothers established and branded in this market so that we can take advantage of the turnaround.”

It is being conservative, optioning 49 lots, meaning it doesn’t have to buy them outright, in an established development. The first homes, starting at 3,200 square feet and in the high-$400,000 range - and offering the upgrades that transformed Toll homes into a known product –should see deals close next spring. The company, one of the sector’s most respected, is already hunting for more land across Houston.
“What this is, with Toll back into expanding their business, is that they’ve seen the housing market for what it is,” said Vicki Fullerton, chair of the Houston Association of Realtors. “A good market with great growth potential.”

So far, the area, long fueled by the oil industry, hasn’t been battered by the global recession. Its May unemployment rate was 6.9%, according to the Labor Department. While that’s up 2.5% year-over-year, it’s bragworthy compared to the 17.3% in bubble market Merced, Calif.

While home prices continue falling nationwide, Houston’s May single-family median price eked out a 1.6% gain compared to a year earlier. And sales of foreclosures, which depress the market, continued to shrink–making up nearly 20% of sales, down from 34% in January, said the Realtors’ group.

The 28,000-acre the Woodlands has remained popular and successful since its 1974 debut. Demand, although down from the peak, remains strong, with a dozen or more sales per week, said Mr. Myers. Chesmar Homes, which says it was the Woodlands’ third-largest builder for this year’s first six months, could see starts increase 25% this year.

While there’s plenty of competition among builders, “if the market’s there, you’ll sell homes in the Woodlands,” said Don Klein, Chesmar’s president.

A letter from the Appraisal Institute and three other appraisal groups asks the Department of Housing and Urban Development to rescind a 1997 regulation relating to the use of appraisal management companies that are being used more frequently today by lenders as a result of new appraisal regulations. Those rules took effect in May and restrict some fees appraisers can collect. They’re warning the agency that the loss of seasoned appraisers could add to the risks facing the FHA, which is overseen by HUD.

The push by appraisal groups follows similar efforts to knock the new regulations by the National Association of Realtors and the National Association of Mortgage Brokers.

The letter says that appraisal management companies, or AMCs, are violating the spirit of the new rules by hiring less-experienced appraisers from distant locations who will work for less. “Using less experienced and less qualified appraisers to perform FHA assignments is not a good business practice and is not good public policy,” the letter reads. As we wrote last week, AMCs take a big cut of the appraisal fee, leaving less for the appraiser. AMCs dispute this.

UPDATE: This post was corrected to note that the appraisal groups are asking HUD to rescind rules related to a 1997 regulation. It previously said that appraisers were seeking HUD to rescind new regulations put place in May.

Bloomberg News

Apartments with roof decks in Manhattan–perhaps now more than a dream for renters priced out of the market.

New Yorkers perhaps are growing accustomed to the new real estate reality — after years of outrageous prices and bidding wars, the market is drifting back down to earth.

The latest round of market reports released Thursday show that Manhattan’s residential sales remained depressed in the second quarter. Closings decreased by as much as 60% from a year earlier. No market segment or neighborhood has been immune, with median prices shaved in every bedroom category, according to The Corcoran Group and PropertyShark.com.

The reasons are old news: unemployment, less money for the free-spending Wall Street bonus crowd - following last fall’s financial sector meltdown, and continued tightness in the mortgage market.

“It is no secret that, since 3Q 2008, Manhattan’s housing market has experienced one of its most challenging periods in 20 years,” noted Pamela Liebman, Corcoran’s chief executive. “In terms of reflecting the recession’s initial impact, this quarter and the next will be the most telling in terms of establishing a new level of pricing for Manhattan.”

So far, it is lower: Halstead Property reports the median apartment price declined 19% from a year ago to $795,000, the lowest median price in two years. Apartments, meanwhile, are sitting on the market for an average 129 days, up almost half from a year ago. In the upper end, co-op closings topping $10 million plunged by 82%. That, along with smaller units contributing more to overall sales, rippled across the market with the average price tumbling 29%.

That might be bad news for sellers, but it is a welcomed change to buyers long unable to afford one of the nation’s priciest markets. Brokers say traffic is elevated at open houses and as well as on Web sites, aided by a federal tax credit for qualified first-time buyers before Dec. 1.

With a multi-month lag typical between the contract signing and the closing table, it could be several months before reports substantiate “evidence that is now only anecdotal,” says PropertyShark.com founder Matthew Haines.

Even so, real-estate Web site StreetEasy.com reports 2,477 listings made it to contracts inked in the second quarter, up 82.4% from the previous quarter. And, though inventory levels remain elevated from a year ago, the count has been whittled since peaking in mid-May.

As buyers leave the sidelines, inventory will continue to decrease, and price stability could return to the market within the next few quarters.

Though, as we’ve written, many think the city may have a ways to go before it hits bottom.

Of course, as Sofia Kim, StreetEasy’s vice president of research pointed out: “What remains to be seen is how much of this increased activity is because of the seasonal nature of the real estate market, and how much of this is due to a true rebound in buyer confidence.”

A rendering of the World Product Centre

A group of real-estate developers see a cure for what ails companies in the far flung healthcare industry. It’s a planned 60-story skyscraper in Manhattan called the World Product Centre.

The office building, which will have 1.5 million square feet of space and cost upwards of $1 billion, is designed around a concept that is somewhat unusual: all of the buildings tenants will be healthcare suppliers or distributors. The idea is to create a centralized marketplace where companies can interact under one roof.

Although a few other themed and trade-fair type office buildings exist elsewhere, such as the Chicago Merchandise Mart, the concept is rare and hasn’t been applied to the medical industry in such a large way.

Maureen L. McAvey, executive vice president of the Urban Land Institute, a non-profit that studies real estate, said that individual doctors often find that sharing space can be efficient, “it’s not clear that this amount of square foot makes sense from a trade-and-vendor side,” she says. “I would think that in this marketplace the underwriting on any office space is difficult.”

Yet this week, the WPC’s developer announced that the building has signed 11 “licensees” including manufacturers Cardinal Health, Zimmer. Inc. and Encompass Group, LLC. Under the agreements, the licensees will lease space in the WPC product pavilion and gain rights to use offices and conference rooms in the building for additional fees.

The pavilion will function much like a healthcare trade show, except it will be a permanent exhibition space. The tower will also feature a consumer health pavilion and space for educational seminars and demonstrations.

WPC Chief Executive John Strong would not disclose what the licensees are paying to lease the space. He said the cost could not be compared with standard New York office rents because of the building’s unusual facilities. He admitted some potential licensees had been hesitant about committing to leases in New York right now, but said there hasn’t been any pushback on price.

Developers Extell, Israel Green and the Greater New York Hospital Association say expected healthcare reform and recent government demand for more transparency in the sector’s business dealings are drivers for demand.

Excavation on the World Product Centre site is scheduled for November, with construction finishing in 2013. WPC will license about one-third of the pavilion space and use the proceeds as collateral on a construction loan. “Marketing and development is–and will continue to be–financed by private equity,” says Michael Resnick, WPC’s executive vice president. “We are confident that we will have the financing in place to obtain a construction loan.”

Extell is also working on another dedicated, single-industry project, a $750 million tower in the Diamond District that will bring together gem dealers.

In the past those contracts would give a pretty good indication of what existing home sales would look like when the NAR reports its May numbers a few weeks later. These days the report’s reliability as an indicator is shakier. More pending sales appear to be falling through, as financing becomes harder to reach or as buyers and sellers renege on pricing.

In April, for example, contracts signed on homes rose 6.7% from the previous month, but existing home sales in May—when a lot of those contracts should have closed and been reported—increased by just 2.4%. Indeed, for nearly a year, the pending home-sales index appears to be over-predicting closed sales relative to historical levels, notes independent housing economist Thomas Lawler.

Here are three reasons why:

1. Mortgage Rates: April and May figures should face pressure because mortgage rates spiked sharply at the end of May, rising from around 5% to as high as 5.79%, according to HSH.com.  While rates have resettled into the mid 5% range since then, that’s still up from springtime lows that went as low as 4.75%. Some buyers won’t be able to get financing at higher rates; others will probably reconsider buying.
2. Short Sales: Another big factor for the de-linking of pending and existing home sales are short sales, where a home is sold for less than amount owed to the bank on the property. Realtors often mark short sales as “pending” once a buyer and seller have agreed on a price—even though the bank still must sign off on the transaction. When that doesn’t happen, the pending sale falls through.
3. Appraisals: Also, in cases where appraisals come in lower than the sales price, the buyer may decide to back out of the transaction.

New appraisal rules that Realtors say are too conservative bore the brunt of the blame from Lawrence Yun, the NAR’s chief economist, for the higher fall-out of pending sales. “Speedy clarification of the appraisal rules could smooth a housing market recovery and support the overall economy,” he said in a news release.

The pace of home price declines tracked by the S&P Case-Shiller home-price index slowed for the third straight month in April. But the bloodletting may not be over.

Here’s why: If price declines accelerate for the mid-to-upper end of the housing market, then that could generate enough large declines in values—even among a small segment of the overall housing market—to push the index lower still.

Prices at the mid-to-high end are falling as job loss and the worsening economy have iced demand for higher-priced “move-up” homes. Also, tougher financing conditions have made it harder to get mortgages for “jumbo” loans on more expensive homes, and delinquencies are rising among jumbo borrowers, which could lead to an even greater oversupply of homes.

Independent housing analyst Ivy Zelman notes that such a “double dip” in the index in the second half of 2009 could materialize because the Case-Shiller index is value-weighted, which means that repeat sales of higher priced homes figure have an outsized impact.

The Case-Shiller index for the top 20 cities registered an 18.1% decline year-over-year in April. The markets that have fallen the furthest include Phoenix (35%), Las Vegas (32%) and San Francisco (28%). Denver and Dallas have held up the best, posting just a 5% year-over-year decline.

So far, prices have fallen from their 2006 peak by 33% at the middle of the market, compared to 44% at the low end and 27% at the high end, according to Ms. Zelman.

Mid-to-high end home price declines could generate some mixed signals over the coming months. If prices fall low enough to attract new buyers, that could generate more sales of higher-priced homes that lead to increases in median prices. But those median price gains won’t necessarily mean that housing is out of the woods.

From China Journal:

The development, known as “Lotus Riverside,” has a total of 629 units, 489 of which have already been sold. Now buyers are clamoring to get their money back, and authorities are making efforts to reassure them. The assets of the project’s developer, Shanghai Meidu Property Development Co., have been frozen and the city officials said the developer’s ability to repay homebuyers was secure, according to a statement on the municipal government’s Web site (in Chinese). A hotline has been set up for Lotus Riverside buyers, and by Sunday afternoon, more than half of them had met with a group of lawyers and officials organized to help them negotiate with the developer, according to the statement.

Meanwhile, the cause of the accident is under investigation and nine unidentified people from the developer, contractor and management company have been detained.

A representative of Shanghai Meidu could not be reached for comment.

The disaster could reveal some uncomfortable facts about lax construction practices in China, where buildings are put up in a hurry by largely unskilled migrant workers, and developers may be tempted to take shortcuts.

According to Shanghai Daily, initial investigations attribute the accident to the excavations for the construction of a garage under the collapsed building. Large quantities of earth were removed and dumped in a landfill next to a nearby creek; the weight of the earth caused the river bank to collapse, which, in turn, allowed water to seep into the ground, creating a muddy foundation for the building that toppled.

Keep reading at China Journal.

Private Collection

Sheila Bair’s home in Amherst, Mass. Click here to see more photos.

Here’s a look at this week’s high-end real estate:

Sheila Bair, the chairman of the Federal Deposit Insurance Corp., takes her 14-room home in Amherst, Mass., off the market after cutting its sale price by $100,000. She had originally listed it for $795,000 in April. Ms. Bair and her husband, Scott P. Cooper, bought the 1860s house in 2002 for $355,000. The home has five bedrooms, new roofing and a counter-current basement pool. Click here to see photos of the property. (WSJ)

After four years, NBA star Shaquille O’Neal finally sells his Miami Beach mansion for $16 million, about 29% less than his asking price of $22.5 million. Mr. O’Neal paid $18.8 million for the nearly 20,000-square-foot house on 2.5 acres in 2004. He first listed the seven-bedroom Mediterranean-style home in 2005. Located on Star Island off Miami Beach’s southern tip, the home has an indoor basketball court. (WSJ)

Actor Charlie Sheen lists his 1927 Mediterranean in the Los Feliz area of Los Angeles for $3.697 million. The gated villa measures 4,179 square feet and has four bedrooms and four-and-a-half bathrooms. (Los Angeles Times)

Jim Kirk, the founder and former CEO of NationsRent, a construction-equipment rental company, lists his 6,375-acre California cattle ranch for $33 million. Located about 23 miles east of Carmel-by-the-Sea, the ranch includes a 5,700-square-foot, four-bedroom stucco main house, a three-bedroom guest house and a caretaker’s residence. Mr. Kirk bought the property in the 1980s. Buyers can also purchase large parcels of 1,000 acres or more starting at $5 million. Click here to see photos of the property. (WSJ)

The former residence of the late Generoso Pope, founder and publisher of the National Enquirer, sells in Palm Beach, Fla., for $22.5 million. The sellers were motivational experts Peter S. Lowe and his wife Tamara A. Lowe. The home has eight bedrooms, two elevators, a 2,000-bottle wine cellar, a 12-car garage, a tennis court with a pavilion and a guest house. It sits on three acres and has 300 feet of ocean and waterway frontage. (Palm Beach Daily News)

Actress Melissa Joan Hart cuts the price of her Los Angeles home by $550,000 to $2.7 million. The home includes a solar-powered salt water pool, a spa, a covered patio and maid’s quarters. Ms. Hart originally listed the home last October for $3.25 million. (Zillow)

The Ennis House, a Frank Lloyd Wright creation used in movies like “Blade Runner” and TV Shows like “Buffy the Vampire Slayer,” hits the market in the Los Feliz section of Los Angeles with an asking price of $15 million. The seller is the nonprofit Ennis House Foundation, which has been restoring the home since 2005. The home was built in 1924 for Charles and Mabel Ennis, who owned a  men’s clothing store. (Los Angeles Times)

The Moody’s/REAL National All Property Type Aggregate Index is out today and finds that the value of offices, apartments, hotels, warehouses and malls have dropped to September 2004 levels.

“There’s all this talk of green shoots, people saying the second order of employment data is positive,” said Neal Elkin, president of Real Estate Analytics, LLC, one of the study’s two sponsors. “We’re in a situation now where our second order of returns [for real estate] is sharply negative. That’s a little intimidating.”

The index hit 135.31 in April, down 8.6% from March and 25.3% from 2008. (100 on the index equals December 2000 prices.)

The report’s authors say the numbers suggest that more owners are beginning to accept the decline in value and put distressed assets on the market. Sales activity remains anemic, however, because of the dearth of financing available for sellers, according to market participants.

Declines were steepest in the South, where industrial, office, retail and apartment properties all saw greater than 20% declines. Mr. Elkins said the bad performance appears to be a domino effect from the region’s heavy exposure to residential subprime mortgages

The Moody’s/REAL index measures the value of real estate by surveying the change in sales prices of actual properties. It uses a similar methodology for commercial real estate as the often cited Standard & Poors Case-Schiller Home Price Indexes do for residential property. Case-Shiller’s March 2009 home price numbers were at 2002 levels.

Left unexplained is how Mr. Yun and others can decide which “valuations” are faulty. Of course, it would be far too cynical to suspect that that the Realtors classify as faulty any appraisal that stands in the way of a commission check. Still, the issue is tricky–and all the moaning in the world is unlikely to make much difference.

An appraisal is merely an educated guess about the price a home might fetch.  It’s true that an experienced and intelligent appraiser knows tricks of the trade that allow him or her to make a better guess than I could. And regulations such as the national Uniform Standards of Professional Appraisal Practice, or USPAP, provide detailed instructions of how to go about this vital chore. But the appraisal is still at best a good guess, and it’s harder to make such guesses when the national housing market is in a freefall the likes of which no living appraiser has ever seen. (See “Appraisals Roil Real Estate Deals“)

Most of those who are fuming about appraisals blame Andrew Cuomo. The New York Attorney General last year held a gun to the heads of government-backed mortgage investors Fannie Mae and Freddie Mac–threatening to sue them for failing to make sure that appraisals weren’t being inflated to pump up home sales.

Fannie and Freddie had enough other problems on their hands. So they almost immediately caved in and agreed to what became–after much back-room negotiation–the Home Valuation Code of Conduct, which took effect May 1.  The code covers any mortgage that can be guaranteed by Fannie or Freddie, which means the majority of all home loans. It bars loan officers, mortgage brokers or real-estate agents from any role in selecting appraisers. The idea is that people who are hungry for commissions shouldn’t be in a position to lean on the appraiser.

While that idea is sensible, it has has encouraged more lenders to outsource the selection to appraisal-management companies, or AMCs. There is nothing inherently wrong with an AMC. These firms, in theory at least, can provide a valuable service in finding appraisers and screening for quality. But AMCs are controversial because they take a big cut of the appraisal fee, leaving less for the appraiser. Appraisers moan that they aren’t being given enough time or money to do a good job, and that the AMCs don’t care enough about quality. In some cases, critics say, AMCs choose appraisers with little or no knowledge of the area where they are making an educated guess about the value of a home. The AMCs, of course, dispute all this and say they do a fine job.

Mr. Cuomo’s code isn’t perfect. For one thing, it was imposed on the nation without any sort of legislative debate or vote. And the code makes it more likely that consumers will have to pay for more than one appraisal because lenders generally won’t accept an appraisal ordered by a rival, for fear that the rival didn’t scrupulously follow the code. Worse, the code allows lenders to own stakes in AMCs. So the lenders–who require borrowers to pay for an appraisal, which is designed to protect the lenders–can also profit from that appraisal. Whenever and wherever the home buyer can be nicked for another fee before the keys are handed over, that’s exactly what happens.

A few people in Congress have echoed the moans of the Realtors and the mortgage brokers on these appraisal issues. Yet it seems unlikely that Congress, busy with many more pressing issues, will soon get around to another rewrite of appraisal regulation. Mr. Cuomo is having it his way.

Meanwhile, the smarter lenders will go beyond the code and strive to ensure that they are getting appraisers who know the local market and don’t play any games with the numbers.