Housing slowdown would hurt rest of economy, too

WASHINGTON — The five-year housing boom is showing increased signs of cooling, and that's likely to mean slower growth for the entire national economy. The big question now is whether home prices will come crashing to earth with even more severe consequences.

The National Association of Realtors reported Wednesday that sales of existing homes climbed to an all-time high of 7.072 million units in 2005, up 4.2 percent from 2004 and the fifth straight year sales have set a record.

However, in a sign of slowing activity, sales fell by 5.7 percent in December, marking the third straight monthly decline, something that had not occurred since early 2002.

"The bloom is definitely off the housing rose. Housing peaked last summer and has been weakening ever since," said Mark Zandi, chief economist at Moody's Economy.com.

Analysts are forecasting that sales of both existing and new homes will fall this year, perhaps by as much as 10 percent, reflecting the adverse impact of rising mortgage rates and buyer resistance to current price levels.

The Realtors reported that the median price for an existing home sold in 2005 rose to $208,700, up 12.7 percent from 2004. That was the biggest annual increase since a 14.4 percent rise in 1979.

But David Lereah, chief economist for the Realtors, said the days of double-digit price gains were probably coming to an end. He predicted price increases would slow to more normal gains of around 5 percent to 6 percent this year. Some analysts cautioned that the hottest markets in places like Florida and California could see actual price declines.

The boom in housing has boosted overall economic activity over the past five years. Zandi said he believed that about 1 percentage point of last year's estimated economic growth of 3.5 percent occurred because of the effects of the strong housing market.

Housing increased employment in construction industries and boosted consumer spending, which accounts for two-thirds of total economic activity, as rising home values allowed millions of Americans to refinance their homes or take out home equity loans to support higher spending on consumer goods.

Analysts said the economy could be in trouble this year unless other forces take up the slack from a slowdown in housing.

Analysts at Goldman Sachs estimated that the housing slowdown will begin to be a drag on economic growth by midyear and by early 2007 will be trimming growth by around 1.5 percentage points. Other sectors, such as business investment spending and an improving trade performance, are expected to take up the slack.

"We think that housing will go from being a source of strength for the economy over the past several years to a drag on the economy over the next couple of years," said Andrew Tilton, a senior economist at Goldman Sachs.

The danger is if home sales fall off by bigger amounts than analysts are currently forecasting.

That could cause investors, who have boosted sales with their purchases of rental properties and vacation homes, to start dumping homes onto the market, further depressing prices.

However, analysts do not believe that is the most likely outcome. They expect sales to decline slightly, reflecting only moderate further increases in mortgage rates as the Federal Reserve wraps up its credit tightening campaign.

Analysts believe the Fed is nearing the end of its rate hikes, with possibly two more quarter-point moves at its meetings next Tuesday and on March 28. If the Fed does call a halt to the rate increases, analysts said 30-year mortgage rates, currently at 6.1 percent, will only rise to perhaps 6.5 percent or 6.75 percent by the end of this year, levels that should still support home sales.

Sales were down in December by 11.4 percent in the West, 7.2 percent in the South and 2.6 percent in the Midwest. The level of sales was unchanged in the Northeast.

Analysts said some of the weakness last month reflected unusually cold weather in parts of the country and unusually wet weather in California and other western states.

Minneapolis Home Market Thaws

To Become More Buyer Friendly

By Maura Webber Sadovi
Special to The Wall Street Journal Online

The housing market is beginning to look a bit more buyer-friendly in the Twin Cities region, anchored by the cities of Minneapolis and St. Paul. The thaw comes after about five years of low interest rates and a shortage of inventory helped give sellers the upper hand in the Midwestern metropolitan area famous for its blustery winters, said Gregg Roeglin, the 2005 president of the Minneapolis Area Association of Realtors.
[Minneapolis]

This four-bedroom, three-bath home in the Minneapolis suburb of Brooklyn Park, Minn. is on the market for $228,000.

"The market has shifted over this past year," Mr. Roeglin said. "At this point, the market isn't slanted in favor of the buyer or the seller."

Prices are still rising but, for the first time in six years, annual sales fell in 2005 from the previous year, according to the Minneapolis association. The number of homes sold dipped 1.6% in 2005 to 57,246 as demand dropped in the fourth quarter. In addition, homes took longer to sell, sitting on the market for an average of 67.2 days at the end of 2005 compared with 59.4 days a year earlier, the association said.

Home buyers in the region, which has a population of about 3.2 million, may also be under less pressure to act fast. As mortgage rates are expected to move into the mid-to-upper-6% range this year, the Minneapolis association said it expects home appreciation rates to downshift into the 3%-to-6% range. Median home prices in Minneapolis rose 8.9% in 2004 and 7.9% in 2003, according to the National Association of Realtors.

Minneapolis Market Snapshot

3rd Quarter 2005 3rd Quarter 2004
Median Home Price $233,000 $219,800
Homes Sold 18,251 17,940
Sales Volume (in Blns) $5.1 $4.7
Active Listings* 24,324 19,332
Average Apartment Rent $924.76 $919.71
Apartment Vacancy Rate 6.4% 6.7%

*Active listings data are for September only.

Sources: National Association of Realtors, Minneapolis Area Association of Realtors, Property & Portfolio Research, Inc.

Metro Housing Sales Down Slightly; Prices Up

Karla Hult

(WCCO) St. Paul Despite talk of a real-estate bubble, home sales in the Twin Cities are down only slightly from 2004.

City leaders and realtors met in St. Paul Wednesday to announce the home sales figures for 2005.

There were 57,283 closed home sales reported last year, which is down about 1.6 percent from 2004. The median home price for 2005 was $228,000, up about 6 percent from 2004.

Growth in downtown Minneapolis and downtown St. Paul outpaced growth in other areas of the Twin Cities, and local leaders said preparation was needed for more development in the metro area.

"We're going to continue to grow our city," Minneapolis Mayor R.T. Rybak said, "but we need to make sure that this whole region addresses the growing transportation infrastructure, because if we don't, we will choke off the goose that's laying the golden egg."

Realtors said minority home ownership is also on the rise and predicted in 10 years, 50 percent of homebuyers will be minorities.

Overall, realtors were optimistic in terms of the future market, as they believe more buyers will be moving into the metro area.

Discrimination, Segregation Still Prevalent in Housing

by Michelle Chen (bio)

Through overt prejudice and subtle bias, landlords and local housing policymakers take advantage of weak federal oversight to perpetuate the legacy of segregated neighborhoods, fair housing advocates say.

Jun 22, 2005 - On her way out of the courtroom, just after an eviction order against her had been overturned, Eboni SternJohn was relieved, but still troubled. The young graduate student and her husband, Julius, approached the representative of her building's property management company, seeking an explanation. Eboni later recalled that the representative rebuffed them, turned away, and muttered that he was "tired of dealing with niggers."

The shock, she remarked in an interview, was only temporary, as the remark merely confirmed the couple's growing suspicions. She recalled, since taking over their multiethnic apartment building in Minneapolis, Minnesota, the new landlord had not only ignored the repeated requests for maintenance repairs from minority tenants, but had also issued a slew of eviction notices aimed at residents of color.

The courtroom incident, Eboni told The NewStandard, removed any remaining doubt that "we were in for a fight, and it was definitely based on race."

In the coming weeks, the SternJohns discovered they were up against more than they had anticipated. Days after they complained formally to the property manager about the racial epithet, said Eboni, the couple was ordered to move out, for maintenance purposes. Later on, two men showed up one night, tried to force their way into the apartment, and shoved a second eviction notice at Eboni, then pregnant.

The couple knew they had to move, but found their housing search marred by a bad rental reference, which the SternJohns saw as retaliation. "He had threatened that he would have us living on the streets," Eboni said of her landlord.

Attesting to the resilience of segregation's legacy, housing discrimination roils quietly in American communities, pushing people out of homes and shuttering opportunities for decent shelter. Beginning with the Civil Rights Act of 1968, federal, state and local fair housing laws have emerged to bar discrimination based on race, national origin, gender, disability status and other categories. But as government protections and mandates for the advancement of equal opportunity have evolved, so has the complexity of discriminatory practices.

Discrimination can take the form of a subtle slight -- a prospective renter being turned down over the phone for speaking with the wrong accent, or a lack of ramps for wheelchair access.

Or a landlord could be outright abusive, as in a recently settled case of a housing manager in North Carolina who did not allow black children to play in certain parts of the property to avoid making the area "look bad."

Discriminatory patterns can also be more diffuse, betrayed by an uneven social landscape of wealthy and destitute neighborhoods grafted over patches of black, white and brown.

Mary Scott Knoll, executive director of the Fair Housing Council of San Diego, an education and advocacy group, commented that over time, "discrimination has gone away from its traditional approaches," and in some aspects, now resonates even more widely.

Despite a greater presence of people of color at all income levels, Knoll said, middle-class suburbia remains off limits to many. "Housing discrimination," she said, "is no respecter of groups or economic factors."
Investigating the Obvious

In 2004, according to Department of Housing and Urban Development's (HUD) annual fair housing report, the agency and its state and local "partner" offices fielded 9,187 complaints of housing discrimination -- a rise of 13 percent from 2003, with a marked increase of over 30 percent in national origin discrimination claims filed by Hispanics.

The advocacy network National Fair Housing Alliance reported more than 27,000 total discrimination complaints nationwide in 2004, more than two-thirds of them processed by private fair housing groups. Discrimination against people of color and people with disabilities were the most common, accounting for 25 and 30 percent of complaints, respectively, followed by discrimination based on national origin and family size and composition.

More disturbing to activists is the number of discrimination cases that never surface. According to a statistical analysis by academic researchers commissioned by the National Fair Housing Alliance, an estimated 3.7 million cases of housing discrimination occur annually.

"Instances of discrimination tend not to announce themselves," said Craig Gurian, executive director of the civil rights group Anti-Discrimination Center of Metro New York.

Knoll attributes underreporting in part to "an un- or undereducated housing consumer group" that is unaware of certain legal protections.

Yet Gurian noted that constant, widespread discrimination in housing also has a more insidious chilling effect: "people understanding where they're not supposed to go," and instead resigning themselves to the seeming "market inevitability" of segregation.

Results of HUD-administered surveys indicate that on average, respondents showed moderate awareness of fair housing protections, but even among better-informed respondents an unwillingness to act upon the law was evident. While 14 percent of respondents reported experiencing "some form of housing discrimination at one point or another," the vast majority of them decided not to challenge the discrimination, often because they felt "the effort was not worthwhile."

For the fair housing advocacy community, the prevalence of discrimination represents the gap between the letter of the law and the ease with which individuals, businesses and governments avoid fair housing regulations.

Studies involving "testers," undercover agents sent into the housing market to pose as housing consumers, exhibit how discrimination plays out in everyday interactions. In 2000, government-sponsored studies found that among testers for urban apartment rentals, blacks and Hispanics were in many cases shown fewer properties than white counterparts, and some apartments were available for rent to everyone except minority applicants. The investigations revealed that overall, black, Hispanic, Asian and Native American testers received "consistent adverse treatment" at rates ranging from 22 to 29 percent. Researchers observed comparable patterns in home buying and financing procedures.

To housing rights activists, however, undercover investigations just reaffirm signs of discrimination in plain view, amid the ghettoized public housing projects that pervade cities.

One emblem of this de facto segregation, which critics say stems from government policies that lock communities in isolation, is city of Baltimore, Maryland, which is home to nearly nine out of ten low-income blacks in the metropolitan region, as well as to nine in ten of the area's public housing projects. A federal court ruled earlier this year that HUD has aggravated racial segregation in Baltimore by failing to promote fair subsidized housing for black residents, allowing many to be squeezed into underserved urban areas with little access to affordable homes outside the city.

"Many who discriminate already know it's unlawful," reflected Knoll. "They have just found the loopholes in the law or changed their approach to things, to make sure that their objective, which is to determine who lives where, is carried out."
Mapping Segregation

Housing inequality, according to many fair housing activists, throws into sharp relief a host of social problems that emanate from and perpetuate discrimination.

Recent studies on demographic trends suggest that economic decline and segregation work in a grim cycle. The emergence of segregated, poor communities precipitates an overburdened and resource-starved social infrastructure, deteriorating quality of life, and an accelerating exodus of whites to more affluent areas, which in turn drives the abandoned sectors into even deeper poverty.

According to the US Census Bureau, over half the black population and nearly half of the Hispanic population live in the urban center of a broader metropolitan region, compared to only twenty percent of whites. Meanwhile, the black unemployment rate hovers at about twice the rate among non-Hispanic whites, while both black and Hispanic poverty rates are nearly triple the white rate.

The tendency for residential segregation in school districts raises additional concerns that the heaviest consequences of separations could fall on the next generation.

According to the Harvard University's Civil Rights Project, from 1986 to 2000, a growth in informal school segregation has pushed white students apart from their black and Latino peers, decreasing students' exposure to racial diversity.

A separate study on educational disparities in Boston's highly segregated school system, where urban schools are 85 percent minority, showed that compared to low-minority, higher-income schools, the city's high-minority, high-poverty schools had lower percentages of instructors with teacher certification and lower standardized test scores.

"If we don't have wonderful housing integration or at least equal opportunity in housing," said Knoll, "then we're never going to get equal opportunity in education, either."
Legal Barriers Heighten Housing Barriers

Fair housing activists say that people who face discriminatory barriers in seeking a secure home may face even greater hurdles trying to negotiate the fair housing enforcement system.

On the duty to uphold fair housing law, said Gurian, "There's never been a sustained commitment on any level of government."

About a third of over 9,000 complaints documented by HUD in 2004 were resolved before reaching an official hearing, but of approximately 6,000 cases not settled, less than ten percent resulted in an official charge of discrimination.

John Hooks, an attorney with the public interest law group Lawyers' Committee for Civil Rights Under Law, said that in the fair housing advocacy community, it is common knowledge that HUD "is responding to just a miniscule percentage of [complaints] and responding in a very inadequate way."

In one case Hooks helped litigate, involving the harassment of black tenants in a North Carolina town, the HUD investigation that plaintiffs requested took roughly three years. "Obviously, by that point," he said, "we had already filed a civil case on their behalf."

Hooks noted that in order to reduce the amount of time spent on each case -- one of HUD's official performance goals -- HUD agents often try to "get rid of the cases, rather than doing an adequate investigation of them." In another recent lawsuit, he recalled, involving a property owner who allegedly refused to repair a black family's severely dilapidated home, "Our clients were originally urged by the HUD investigator to settle the case for 1,000 bucks and go away." The plaintiffs proceeded with litigation and were later awarded over $60,000.

Hooks said it was "shameful that the HUD investigators don't thoroughly investigate these cases, don't investigate them in a timely manner, and try to basically bully the complainants to settle for a lot less."

But Bryan Greene, director of policy for HUD's Office of Fair Housing and Equal Opportunity, highlighted "significant progress" in HUD's enforcement efforts: stronger federal-local coordination, better fair housing compliance in local construction and planning procedures, and closing the vast majority of complaint cases within 100 days.

Greene said that HUD's monitoring of areas that receive federal housing funds revolves around the initiative of state and local officials. In their oversight efforts, he said, non-compliance issues tend to "resolve themselves as we're doing the compliance review. We'll identify a problem, and seek voluntary correction of the problem."

But according to critics, the deeper, systemic undercurrents of segregation that HUD steadfastly avoids dwarf the so-called "correctable" offenses.

For example, though federal law requires that HUD promote fair housing in communities that receive federal funding streams, such as the Community Development Block Grant program, Knoll argued that local administrations routinely under-fund grassroots organizations that promote fair housing principles. "HUD has not promulgated regulations that back up its mandate to local jurisdictions to make sure that they offer fair housing services at the local level," she said.

As director of enforcement at the Office of Fair Housing during the Clinton administration, Sara Pratt watched segregation bleed into communities across the country, and left her government post in 1999, determined to do more than just watch.

Now, as a policy advocate in private practice, Pratt contends that HUD's approach to enforcement falls short on two priorities: individual discrimination complaints, which currently consume much of the agency's sparse resources, and the frequently overlooked, "more systemic kind of discrimination that … presents a barrier, in a sort of more global way, to home ownership and opportunities for housing."

Reductions in staff and operating budgets, combined with pressures to close investigations quickly, have downsized the fair housing enforcement system, she said. HUD's 2006 budget proposal estimated the office would operate on a staff of 625 "full-time equivalents" -- compared to a staffing level of about 750 during the 1990s.

HUD reported to Congress that by the end of 2005, investigators will have conducted 80 compliance reviews for disability accommodations for the entire country, down from 113 in 2004, and 64 reviews for compliance with anti-discrimination laws, down from 93 last year. At the same time, the number of housing authorities receiving technical assistance or compliance monitoring has fallen from 66 in 2004 to an estimated 30 this year.

This year's House appropriations bill would cut fair housing enforcement funding for state and local government agencies as well as for private groups. The allocation for private enforcement would drop from $20 million to $16 million, or about a third of what Pratt estimates that the program needs in order to effectively serve communities.

Resource gaps on the grassroots level, said Pratt, not only hinder local enforcement work but indirectly prop up the superstructure of discrimination. "The complainant needs their individual remedy… because they've got to go on with their life," she explained. "But there's still discrimination sitting there, and it's going to be [unaddressed] if they don't do something broader than that individual investigation."
Discrimination Victims Bear Burden of Proof

What critics view as a sluggish housing law bureaucracy has rendered the judicial system the default mode for redressing discrimination.

But the courts have at times proven similarly unreliable for community groups and civil rights lawyers.

Legal roadblocks have challenged advocacy groups in Huntington, New York seeking to remedy historical discrimination patterns. In 2002, community members called for a court injunction against housing development plans in mostly white areas, alleging that the local government, by constructing new housing that was either unaffordable to minority families or restricted to the elderly, was effectively preventing racial integration. The district court and the court of appeals ruled that the community's claims of discrimination were not strong enough to "show irreparable injury" or to merit the halting of development that was already underway.

"It's very hard, in this day and age, to prove discrimination," said civil rights attorney Justin Cummins, who represented the SternJohns in their federal lawsuit. "The courts are not always very sympathetic toward civil rights plaintiffs."

The SternJohns' legal battle began when their landlord allegedly forced them from their home in 1999, and ended last October. Initially, the couple had difficulty finding a lawyer willing to take on their case and instead filed two complaints, one with the state human rights department, eventually upheld, and another with HUD, which never led to a formal charge. Their case finally made it to court in 2002, resulting in a judgment against the landlord that imposed a $1.05 million penalty, removed his managerial authority, and also required that the company adhere to strict anti-discrimination policies, undergo diversity training and "affirmatively market" housing to the local black community.

Following the SternJohns' private litigation, the Department of Justice initiated its own lawsuit, still pending, which litigates on behalf of other former tenants. In Cummins's view, the fact that the Justice Department followed when it should have been taking the lead shows that under the current administration, "Vigorous enforcement of civil rights laws, particularly concerning race discrimination, does not seem to be the highest priority."

Some housing rights activists, frustrated with both the regulatory system and the courts, frame the issue of equal opportunity in housing as part of a more fundamental struggle.

According to Pegge McGuire, executive director of the Fair Housing Council of Oregon, "the only way that there's going to be better enforcement and better emphasis placed on the fair housing laws … is if there is a much larger scale grassroots movement to demand the civil rights that flow from that whole issue."
Locked in Fear

Fair housing activists caution that as the enforcement system grows weaker, doors slam shut with increasing boldness, and eventually, people stop even trying to open them.

Grassroots service providers say that access to the legal redress is a rare luxury for people whose lives are fraught with instability. McGuire pointed out, for instance, that her group has encountered undocumented immigrants who avoid taking legal action against discrimination because doing so could expose their status -- a fear readily exploited, she said, by landlords who think "they're the local franchise of Homeland Security."

Among immigrants and low-income people in general, McGuire said, "Sometimes, the other issues that they're dealing with are so overwhelming in their life -- I mean, they're just trying to get food on the table or have a roof over their heads -- that the fact that they experience discrimination in pursuing that becomes a lower priority."

Eboni SternJohn understands that her and her husband's struggle for recourse is a sadly singular one. Although they sought support from other minority tenants early on in their legal challenge, she recalled, "we had problems with getting them even to file a complaint. Some of them just wanted to forget about it."

When those who have suffered housing discrimination are compelled "to just swallow it and move on," she said, the public is more likely to believe "that this kind of thing really doesn't happen. Because nobody hears about it, because nobody reports it … because nobody wants to be told, 'We don't believe you.'"

© 2005 The NewStandard.