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City buying land around Sky Harbor

City buying land around Sky Harbor
By Jahna Berry The Arizona Republic 04.14.08

Arizona 's largest airport is on a multimillion-dollar real-estate shopping spree.

Through two programs, Phoenix is buying hundreds of properties in neighborhoods near Phoenix Sky Harbor International Airport.

On the west side of the airport, Phoenix is relocating families who are tired of sometimes-deafening aircraft noise. On the north end, the city is buying property so that the nation's eighth-busiest airport can grow in the future.

So far, the city has bought 389 of the 1,473 eligible properties. It plans to buy about 1,100 more during the next four years.

When all are acquired, the airport's land will include a vast patchwork of properties in neighborhoods from Seventh Street to 44th Street and from Washington Street to University Drive.

This fiscal year, the city has set aside more than $32 million for the relocation program, which is bankrolled by Federal Aviation Administration grant money and passenger facilities charges, which are fees tacked on to airline tickets. To date, $104 million has been spent.

From the perspective of city officials, the 5-year-old campaign is a success: Today, 533 families are in better, quieter homes. Plus, the airport has participated in community events in the relocation zone, they say.

"It's providing a good quality of life, and it's good for the neighborhood," said City Councilman Michael Johnson, who represents the area.

But the campaign also has created some perplexing problems, locals say. While the city and community are putting energy into the exodus, there are signs that people are still moving into the area. On a few blocks, new houses are going up. And one elementary school is bursting at the seams.

Meanwhile, the program has dramatically changed the fabric of the neighborhood. The relocations have created a surreal landscape of occupied houses, dirt lots and boarded-up buildings, residents say.

That has led to other problems, like illegal dumping, rodents and homeless squatters in vacant houses, an activist says.

People leave noise behind

The relocation program began buying properties in Nuestro Barrio, the south-central part of Phoenix , around 2003, a year after the City Council approved the program.

Ronnie Valenzuela, 37, remembers growing up on a tight-knit block of Latino families. Most had lived in the Valley for generations.

"We knew all of the neighbors," said Valenzuela, who moved before the relocations began. He now works at a body shop on the same block he grew up on. Today, there are no children playing outside. The city bought and tore down Valenzuela's old house.

The neighborhood group for Nuestro Barrio disbanded after all of its members were relocated.

It's understandable that the relocations would change the area, said Maria Bears, a Phoenix employee who manages the relocation program.

"The footprint of the neighborhoods is not 100 percent like it was a few years ago and mostly because of the demolitions on the land that we purchased," Bears said.

Hundreds of families who were fed up with airport noise jumped at the chance to pack up and move.

It's not easy. The long series of bureaucratic hoops to relocate can take more than a year. But the payoff is evident.

"A lot of people realize that it's a good deal," Bears said.

Most families move into houses that are newer and in better shape than the ones they left, she added.

Once the house is bought, it's boarded up and later razed. Historic buildings are boarded up and fenced off.

About 200 people in the relocation zones are on the waiting list, and the program has been expanded to include vacant lots and rental properties, Bears said.

Nieves Morquecho, 93, isn't sure if he will go.

"Not yet," said Morquecho, who has lived in his house since 1936. "Maybe in a few years."

Arrivals bring problems

The airport has no firm plans to develop the land that the city is buying. Even if the airport had future plans, such as building a fourth runway, airport projects can take a decade to clear federal and local hurdles.

That uncertainty has led to confusion in the neighborhood, local leaders say. While millions are being spent to get people out of the neighborhood, new people - renters, recent immigrants and other families - are moving in. Newly built homes and apartments even dot a few blocks.

City leaders say that they can't stop people from building in the area. Some of the recent homes were built by developers who are trying to take advantage of residents who are unaware of the relocation push, said Councilman Johnson.

"My concern is that someone pays so much for a house and finds out it's not worth what they thought its value was," he said.

Under city rules, any new homes in the area must have soundproofing on the roof, windows and doors. The people who bought in the area after 1998 are not eligible for relocation benefits. Property owners are also required to inform buyers that the land is in a relocation zone, he said.

New homes aren't the only sign the neighborhood is hanging on. At least one area school is looking for more space.

The Phoenix Elementary School District board closed Ann Ott School in 2005 after 150 families left the area a few years after the relocation program began. The remaining Ott students transferred to nearby Silvestre S. Herrera School , and the board expected enrollment to sink there, too, said Kenneth Baca, a district assistant superintendent.

Instead, Herrera is crowded. The 550-student school jumped to 766 after Ott closed. Last year, it had 775 students, and early figures show it has about 765 kids this year.

Herrera uses space at Wesley Community Center for its arts and physical-education classes. The school is operating at 97 percent of its capacity, Baca said.

Meanwhile, the community center, which feared it would lose its youth programs, has a full summer program with 110 children, said the center's executive director, Betty Mathis.

Airport officials say Herrera isn't full because of a population surge; it's because the school has an acclaimed arts program that attracts families from outside the neighborhood. The district says that only 25 percent of Herrera's children come from open enrollment, families who live outside of the neighborhood.

In contrast to the signs of stability are the rising number of empty lots and vacant buildings that can cause other issues, Mathis said.

It can take up to a year for a home to be demolished after the city buys it, so the homeless often take shelter in them, she said. Empty lots are trash-strewn, and rodent problems are on the rise for the neighbors left behind.

The city started a program called Connect and set up a hotline for neighbors in the relocation zone to help with problems such as illegal dumping on city property, Bears said.

"We're changing the neighborhood, and we want to make sure that we are as responsive as possible," Bears said.

Future remains uncertain

It's anyone's guess as to what the future holds.

The city plans to own most of the residential properties in the relocation areas within four years, but that depends on the budget, city officials say.

The city gets roughly one call a week from those interested in the city-acquired land. The city tells them that they have no plans to sell.

Meanwhile, observers watch the neighborhood evolve.

"The neighborhood could stabilize," said school-board member Ruth Ann Marston. "It's close to downtown. It's desirable in terms of job opportunities nearby, opportunities at the airport itself and because of the airport-related businesses.

"So we are just waiting to see what happens."

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Fed cuts rates again and hints at pause

Fed cuts rates again and hints at pause
By Chris Isidore CNMoney.com 04.30.08


NEW YORK -- The Federal Reserve cut its key interest rate by a quarter percentage point Wednesday, but the central bank's statement signaled it may be the last rate cut for at least a while.

The cut took the federal funds rate, the key overnight rate at which banks loan money to one another, to 2%. It had been at 5.25% as recently as September, when the Fed started slashing rates in an effort to spur the economy and keep the nation out of recession.

The fed funds rate, as it is more commonly known, is a benchmark for home equity lines of credit, credit cards and other consumer loans as well as the prime rate used for short-term business loans.

The Fed's statement repeated earlier ones about how rate cuts up to this point should help to spur the economy and lessen the risk of a downturn. But the central bank removed the following language form the current statement: "downside risks to growth remain."

The absence of that phrase, along with the new comment in the statement that "uncertainty about the inflation outlook remains high" led some experts to believe the central bank is signaling it is ready to pause on rates for some time.

Pause seen...but for how long?

"They haven't closed the door to further cuts, but they've shut it part way," said Mark Zandi, chief economist for Moody's Economy.com. "They're saying they believe they've done enough."

Stocks initially surged following the Fed announcement but wound up giving up all their gains and finished the day lower, a possible sign that investors are still worried about the weak economic environment. The government reported earlier Wednesday that the economy grew by just 0.6% in the first quarter.

Fed policymakers are not set to meet again until June 24 and 25, the longest gap in its calendar of meetings this year.

Zandi said he believes a pause is the proper policy for the Fed to take at this point.

"I think they've done a lot," he said. "They sense the financial system is on firmer footing. The economy is still weak, but the pace of decline doesn't seem like it's accelerating."

But Keith Hembre, chief economist for First American Funds, believes further weakening of the U.S. economy could cause the central bank to start cutting once again later this year or early in 2009.

"The Fed has certainly done a lot so far," he said. "But I think six months down the road we'll find that the economy is not rebounding as we've anticipated and the Fed will have to move rates lower."

That is what happened during the last period of Fed rate cuts, when it lowered rates throughout 2001, taking the fed funds rate down to 1.75%.

Then it kept rates on hold through most of 2002, before cutting again in November of that year and once more in June 2003. Rates were at 1% following that cut.

Fed may need to raise rates to fight inflation

Rich Yamarone, director of economic research at Argus Research, doesn't think rates will get to that level again. In fact, he believes the Fed's next move will be to raise rates to combat building inflationary pressures. He points out that the real fed funds rate, which is the fed funds rate minus the inflation rate, is now negative 1.27%.

"Policymakers know all too well that when real rates are negative for an extended period of time, inflation pressures rise swiftly and dramatically," said Yamarone, who added that the Fed might start raising rates as soon as December.

There have been growing complaints that the Fed's aggressive rate cuts this year have been a key to why food and oil prices have skyrocketed lately. The fact that the Fed has cut rates while central banks in Europe and Asia have mostly kept rates steady has led to a weakening of the dollar. That, in turn, has driven up commodity prices.

"The Fed will be reluctant to cut any further, because inflation remains elevated, and they do not want inflationary expectations to increase," said Arun Raha, senior economist for Swiss Re.

Once again, two of the presidents of Fed district banks who sit on the rate-setting Federal Open Market Committee -- Richard Fisher of Dallas and Charles Plosser of Philadelphia -- voted against the rate cut, as they did at the March 18 meeting when the Fed cut rates by a half-point.

The statement said those two members preferred no change in rates. But the two of them joined other members in voting for a quarter-point cut in the discount rate, the rate at which the Fed lends money to commercial banks.

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The Housing Crisis is Over -- Wall Street Journal 5/2008

The Housing Crisis is Over -- Wall Street Journal

Wall Street Journal, By Cyril Moulle-Berteaux
May 6, 2008

The dire headlines coming fast and furious in the financial and popular press suggest that the housing crisis is intensifying. Yet it is very likely that April 2008 will mark the bottom of the U.S. housing market. Yes, the housing market is bottoming right now.

How can this be? For starters, a bottom does not mean that prices are about to return to the heady days of 2005. That probably won't happen for another 15 years. It just means that the trend is no longer getting worse, which is the critical factor.

Most people forget that the current housing bust is nearly three years old. Home sales peaked in July 2005.

New home sales are down a staggering 63% from peak levels of 1.4 million. Housing starts have fallen more than 50%, and, adjusted for population growth, are back to the trough levels of 1982.
Furthermore, residential construction is close to 15-year lows at 3.8% of GDP; by the fourth quarter of this year, it will probably hit the lowest level ever. So what's going to stop the housing decline? Very simply, the same thing that caused the bust: affordability.

The boom made housing unaffordable for many American families, especially first-time home buyers. During the 1990s and early 2000s, it took 19% of average monthly income to service a conforming mortgage on the average home purchased. By 2005 and 2006, it was absorbing 25% of monthly income. For first time buyers, it went from 29% of income to 37%. That just proved to be too much.

Prices got so high that people who intended to actually live in the houses they purchased (as opposed to speculators) stopped buying. This caused the bubble to burst.

Since then, house prices have fallen 10%-15%, while incomes have kept growing (albeit more slowly recently) and mortgage rates have come down 70 basis points from their highs. As a result, it now takes 19% of monthly income for the average home buyer, and 31% of monthly income for the first-time home buyer, to purchase a house. In other words, homes on average are back to being as affordable as during the best of times in the 1990s. Numerous households that had been priced out of the market can now afford to get in.

The next question is: Even if home sales pick up, how can home prices stop falling with so many houses vacant and unsold? The flip but true answer: because they always do.

In the past five major housing market corrections (and there were some big ones, such as in the early 1980s when home sales also fell by 50%-60% and prices fell 12%-15% in real terms), every time home sales bottomed, the pace of house-price declines halved within one or two months.
The explanation is that by the time home sales stop declining, inventories of unsold homes have usually already started falling in absolute terms and begin to peak out in "months of supply" terms. That's the case right now: New home inventories peaked at 598,000 homes in July 2006, and stand at 482,000 homes as of the end of March. This inventory is equivalent to 11 months of supply, a 25-year high -- but it is similar to 1974, 1982 and 1991 levels, which saw a subsequent slowing in home-price declines within the next six months.

Inventories are declining because construction activity has been falling for such a long time that home completions are now just about undershooting new home sales. In a few months, completions of new homes for sale could be undershooting new home sales by 50,000-100,000 annually.

Inventories will drop even faster to 400,000 -- or seven months of supply -- by the end of 2008.

This shift in inventories will have a significant impact on prices, although house prices won't stop falling entirely until inventories reach five months of supply sometime in 2009. A five-month supply has historically signaled tightness in the housing market.

Many pundits claim that house prices need to fall another 30% to bring them back in line with where they've been historically. This is usually based on an analysis of house prices adjusted for inflation: Real house prices are 30% above their 40-year, inflation-adjusted average, so they must fall 30%. This simplistic analysis is appealing on the surface, but is flawed for a variety of reasons.

Most importantly, it neglects the fact that a great majority of Americans buy their houses with mortgages.

And if one buys a house with a mortgage, the most important factor in deciding what to pay for the house is how much of one's income is required to be able to make the mortgage payments on the house. Today the rate on a 30-year, fixed-rate mortgage is 5.7%. Back in 1981, the rate hit 18.5%. Comparing today's house prices to the 1970s or 1980s, when mortgage rates were stratospheric, is misguided and misleading.

This is all good news for the broader economy. The housing bust has been subtracting a full percentage point from GDP for almost two years now, which is very large for a sector that represents less than 5% of economic activity.

When the rate of house-price declines halves, there will be a wholesale shift in markets' perceptions. All of a sudden, the expected value of the collateral (i.e. houses) for much of the lending that went on for the past decade will change. Right now, when valuing the collateral, market participants including banks are extrapolating the current pace of house price declines for another two to three years; this has a significant impact on the amount of delinquencies, foreclosures and credit losses that lenders are expected to face.

More home sales and smaller price declines means fewer homeowners will be underwater on their mortgages. They will thus have less incentive to walk away and opt for foreclosure.

A milder house-price decline scenario could lead to increases in the market value of a lot of the securitized mortgages that have been responsible for $300 billion of write-downs in the past year.

Even if write-backs do not occur, stabilizing collateral values will have a huge impact on the markets' perception of risk related to housing, the financial system, and the economy.
We are of course experiencing a serious housing bust, with serious economic consequences that are still unfolding. The odds are that the reverberations will lead to sub-trend growth for a couple of years.

Nonetheless, housing led us into this credit crisis and this recession. It is likely to lead us out. And that process is underway, right now.

Mr. Moulle-Berteaux is managing partner of Traxis Partners LP, a hedge fund firm based in New York.

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