Prices Are Rising for New Homes, and the Land They Are Built On

Already, developers report that the cost of land in the most desirable areas is double what it was two years ago. At least three golf courses in the Minneapolis-St. Paul area are being carved into millions of dollars’ worth of residential lots. The race has even sent builders back to outer suburbs like Otsego, 30 miles from downtown Minneapolis, where bulldozers are laying the groundwork for four-bedroom houses with three-car garages, in subdivisions bordered by cornfields.

“Lot buyers and sellers!!!!!!!!” Mr. Felix’s Web site reads. “It is time to get moving again....!”

Or past time. The latest land rush is in full swing, as developers realize that they have failed to feed the zoning, permitting and mapping pipeline, which can take months or years to turn raw fields into buildable lots. They are realizing another thing, too: they have been sorely missed.

“For the first time, I’ve seen cities want to work to help figure it out, rather than doing us a favor all the time to let us develop,” said Scott Carlston of Hunter Emerson, a development partnership. Hunter Emerson won a victory when the city of Eagan, a suburb of Minneapolis, allowed Parkview Golf Club to be converted into a high-end single-family subdivision.

The hunt for dirt is not limited to the Twin Cities. After builders across the country spent decades feeding acre after acre of raw land into the maw of demand for single-family homes, the housing crash left them with a land surplus so large that lots were selling for pennies on the dollar. At the peak of supply, in 2009, there were enough lots to last almost eight years, according to MetroStudy, a firm that tracks housing data. Now there is less than four year’s worth, and only about a quarter of that is in the more desirable A- or B-rated locations.

“We have gone from a situation where five years ago everyone was saying, ‘There’s too many lots,’ to today, builders are literally crying on our shoulder saying, ‘There’s not enough lots. We can’t find any,’” said Bradley F. Hunter, the chief economist at MetroStudy.

The shortage of lots is slowing the housing recovery, the National Association of Home Builders said last week. In August, 59 percent of builders surveyed said lot supply was low or very low, the association said. Housing is a critical driver for the economy, not just because of the jobs and supplies needed to build homes but also the appliances and furnishings that new occupants buy.

At the peak of the housing boom, builders were finishing more than 1.6 million single-family houses a year. That number plunged to less than half a million during the recession. This year, the industry is on track to complete more than 570,000 homes, still substantially below the level considered necessary to replace aging homes and provide for new households. A return to more normal rates of construction would substantially lift the economy’s anemic growth rate of about 2 percent over the last year.

Mr. Carlston said some cities in the Twin Cities area had adjusted their rules to allow fewer parking spaces or smaller lots. Otsego has lowered some of its development fees and allowed a developer to change an approved plan so that a partly built town house project could be finished with more salable detached homes. Rick Packer, a land development manager for Centra Homes, said some suburbs were relaxing requirements that homes be made of brick or stucco.

Even the Sierra Club, which once placed Minneapolis among the top 10 sprawl-threatened cities, has backed off a bit. An annual bike ride by the local chapter, once known as the “Tour de Sprawl,” has been given a less pejorative name and refocused to include not just threatened green space but what the group considers model development and transportation projects.

Mayor Mike Maguire of Eagan, a co-chairman of the Regional Council of Mayors Housing Initiative, said one reason his city had approved a land use change for the golf course was that so little new housing was built in the last few years. “When there’s no new development, you have stock that’s increasingly out of date and that tends to bring your home values down,” he said. “That was one of the things we were hearing back from Realtors, was they had people who wanted to move to Eagan but couldn’t find the home they wanted.”

Last year, Hunter Emerson agreed to pay $8.6 million for the golf course, wagering that the city would approve the land use change. The partnership sold the property to a national home builder for $13.1 million, Mr. Carlston said. The houses will cost from $400,000 to $700,000, he said.

The excess left from the boom — land in various stages of development ranging from untouched to what builders call PVC farms, named for the hard plastic plumbing pipes that, with electrical lines, were virtually all that was on the lots — is quickly being absorbed. Developers have gone from buying foreclosed acreage from banks to buying from farmers, family trusts, manufacturers and even homeowners with outdated homes on single lots.

“What we’ve seen is the inner ring of the suburbs, all those areas have come back,” said Rod Just of Key Land Homes, a Twin Cities builder. “The outer ring, they’ve taken just a little bit longer because of gas prices, but they’re going to come back.”

For builders, there is even a sense of déjà vu. “The new lots that are coming out,” Mr. Just said, “are almost the prices that they were in 2005 when everything crashed.”

A City Works to Save Homes By Invoking Eminent Domain

Scarcely touched by the nation’s housing recovery and tired of waiting for federal help, Richmond is about to become the first city in the nation to try eminent domain as a way to stop foreclosures.

The results will be closely watched by both Wall Street banks, which have vigorously opposed the use of eminent domain to buy mortgages and reduce homeowner debt, and a host of cities across the country that are considering emulating Richmond.

The banks have warned that such a move will bring down a hail of lawsuits and all but halt mortgage lending in any city with the temerity to try it.

But local officials, frustrated at the lack of large-scale relief from the Obama administration, relatively free of the influence that Wall Street wields in Washington, and faced with fraying neighborhoods and a depleted middle class, are beginning to shrug off those threats.

“We’re not willing to back down on this,” said Gayle McLaughlin, the former schoolteacher who is serving her second term as Richmond’s mayor. “They can put forward as much pressure as they would like but I’m very committed to this program and I’m very committed to the well-being of our neighborhoods.”

Despite rising home prices in many parts of the country, including California, roughly half of all homeowners with mortgages in Richmond are underwater, meaning they owe more — in some cases three or four times as much more — than their home is currently worth. On Monday, the city sent a round of letters to the owners and servicers of the loans, offering to buy 626 underwater loans. In some cases, the homeowner is already behind on the payments. Others are considered to be at risk of default, mainly because home values have fallen so much that the homeowner has little incentive to keep paying.

Many cities, particularly those where minority residents were steered into predatory loans, face a situation similar to that in Richmond, which is largely black and Hispanic. About two dozen other local and state governments, including Newark, Seattle and a handful of cities in California, are looking at the eminent domain strategy, according to a count by Robert Hockett, a Cornell University law professor and one of the plan’s chief proponents. Irvington, N.J., passed a resolution supporting its use in July. North Las Vegas will consider an eminent domain proposal in August.

But the cities face an uphill battle. Some have already backed off, and those who proceed will be challenged in court. After San Bernardino County dropped the idea earlier this year, a network of housing groups and unions began working to win community support and develop nonprofit alternatives to Mortgage Resolution Partners, the firm that is managing the Richmond program.

“Our local electeds can’t do this alone, they need the backup support from their constituents,” said Amy Schur, a campaign director for the national Home Defenders League. “That’s what’s been the game changer in this effort.”

Richmond is offering to buy both current and delinquent loans. To defend against the charge that irresponsible homeowners who used their homes as A.T.M.’s are being helped at the expense of investors, the first pool of 626 loans does not include any homes with large second mortgages, said Steven M. Gluckstern, the chairman of Mortgage Resolution Partners.

The city is offering to buy the loans at what it considers the fair market value. In a hypothetical example, a home mortgaged for $400,000 is now worth $200,000. The city plans to buy the loan for $160,000, or about 80 percent of the value of the home, a discount that factors in the risk of default.

Then, the city would write down the debt to $190,000 and allow the homeowner to refinance at the new amount, probably through a government program. The $30,000 difference goes to the city, the investors who put up the money to buy the loan, closing costs and M.R.P. The homeowner would go from owing twice what the home is worth to having $10,000 in equity.

Alan Blinder contributed reporting.

Homes See Biggest Price Gain in Years, Propelling Stocks

All 20 cities tracked by the Standard & Poor’s Case-Shiller home price index posted year-over-year gains, as they have done for three consecutive months now. The 20-city composite index rose 10.9 percent over the last year. That is the biggest annual increase since April 2006. Several cities – Charlotte, N.C.; Los Angeles; Portland, Ore.; Seattle; and Tampa, Fla. – had their largest month-over-month gains in more than seven years.

Continued strength in the housing market is welcome news for the rest of the economy, particularly given federal government spending cuts that went into effect in March and the end of the payroll tax holiday in January. With home values rising, the construction industry has been more motivated to ramp up building and hire back workers. Consumers are also feeling wealthier and so are more willing to spend money.

“We’ve been sort of pleasantly surprised by the resilience of consumption at the beginning of the year,” said Daniel Silver, an economist at JPMorgan Chase. “Spending has been doing quite well, at least for this expansion, over the first half of the year, due in part to these wealth effects.”

The positive impact of rising home values and the appreciating stock market is expected to offset “at least a third of the fiscal tightening,” said Ian Shepherdson, chief economist at Pantheon Macroeconomic Advisors.

Consumer sentiment has already been improving. On Tuesday, the Conference Board reported that its Consumer Confidence Index rose in May to its highest level since February 2008. Consumers’ assessments about both current conditions and their expectations for the future improved substantially, after having plunged in January after gridlock in Washington over fiscal issues.

“Five years after the start of the financial crisis in earnest, and four years and a week’s time from the beginning of the economic recovery, we’re finally starting to get more of a pickup, more of a reduction in caution in terms of consumers’ behaviors,” said John Ryding, chief economist at RDQ Economics. “It’s been a very drawn-out process, but you have to remember what we’ve been digging our way out of, and after all it’s a far less drawn-out process than what’s been taking place in Europe.”

The strong housing and consumer confidence numbers bolstered the markets, with both the Standard & Poor’s 500-stock index and the Dow Jones industrial average up nearly 1 percent in early afternoon trading.

The double-digit housing price increase is being driven by a confluence of factors.

One, the economy over all has been recovering, so people are finally willing to start buying again. At the same time, the inventory of homes available on the market remains unusually low, thanks to little new building in the last few years and the large number of underwater homeowners who are unwilling or unable to sell..

The limited supply, coupled with growing demand, has pushed prices higher. Of course, higher prices could encourage some homeowners to come off of the sidelines and finally place their homes on the market.

“You’ve had this dynamic that has been favorable for price increases now, but it’s also favorable for supply to come back on market, so that will mean some moderation in the pace of price increases,” said Mr. Silver, who said that he expected home prices to continue growing but not necessarily at the double-digit rate seen in May.

Additionally, there are fewer distressed sales – that is, foreclosures and short sales. As a result, the composition of home sales includes fewer sales at depressed prices to bring down the overall numbers.

Finally, home prices in many areas experienced severe, unsustainable plunges during the recession. Now, prices are returning to healthier levels, and coming off a very low base, so the price appreciation looks sizable.

“Some of the areas with the largest declines in house prices during the crisis have shown the strongest increases in prices more recently,” said Mr. Silver.

In Phoenix, for example, home values have risen 22.5 percent from a year earlier, and Las Vegas likewise posted a 20.6 percent gain.

Economists generally expect home prices to continue rising, particularly as the economy improves and more young people move out of their parents’ homes. And many dismiss concerns of a potential bubble, because housing prices remain well below their highs. Even after 10 straight months of year-over-year gain, the 20-city composite price index is 28 percent below its previous peak in July 2006.

“Talk of a house price bubble seems premature,” said Ed Stansfield, an economist at Capital Economics. “In relation to incomes, rents or their own past, U.S. home prices still look low.”

Victoria Shannon contributed reporting.

Public Utilities: Must Electric Utilities Enter Homes Before Restoring Power?

In a case the defendant electric utility is claiming could have broad implications on power companies' ability to restore Pennsylvanians' power, the state Supreme Court is set to decide whether a Western Pennsylvania utility had a duty to enter a customer's premises and inspect its electrical facilities before restoring power.