Rise in Home Building Causes Rise in Trucking

Story first appeared in Bloomberg Businessweek.
Trucking companies may need to put more vehicles on the road to support a recovery in U.S. residential construction, which might send their shares higher. And may also be cause for concern, say Hartford Trucking Accident Lawyers.

Housing starts rose 2.6 percent to a 717,000 annual rate in April, beating the 685,000 median estimate of 80 economists surveyed by Bloomberg News. Construction has improved 50 percent from a low of 478,000 reached in April 2009, during the 18-month recession that ended two months later, based on data from the Commerce Department.

All of the freight required to build a new home has a very positive impact on trucking activity. As a rule of thumb, each new residence requires between five and eight truckloads to transport supplies such as lumber, roofing materials and interior furnishings according to CPM Scheduling Analysis Experts.

Purchases of new homes probably rose in April to a 337,000 pace, up 2.7 percent from the prior month, according to the median estimate in a Bloomberg News survey of 72 economists. Sales data is to be released by the Census Bureau tomorrow.

As construction improves further, trucking companies will need to add capacity to meet the additional demand. This will without a doubt be a benefit to the industry, particularly in the so-called truckload business.

An index of the loads carried by the truckload segment, a proxy for industry volume, has risen 14 percent to 103.9 in March from the recession period low of 91 in January 2009, based on a survey of the trucking association’s members. Still, that’s almost 13 percent below the May 2008 level, the data show.

Carrier-Size Expansion
If starts were to remain above 750,000 for a 12-month period, trucking companies would need to add about 4,000 trucks to the road, according to calculations. To meet this demand, a fleet the size of those run by a top-10 carrier, such as Knight Transportation Inc. , would be required, he said.

There’s light at the end of the tunnel for homebuilders as inventories remain lean and demand is forming a bottom in most regions. Housing starts have averaged a 713,500 annualized pace this year and may improve to average 740,000 in 2013.

Federal Reserve policy makers echoed this sentiment, noting that sales and starts suggested some upward movement, though most participants anticipated that the housing sector was likely to recover only slowly over time, according to the minutes of their April meeting released May 16.

Flatbeds First

Operators of flatbeds -- trailers without sides that transport lumber and large materials -- are typically the first to experience more residence-related business as homebuilding expands. As a homeowner gets ready to move in, dry van carriers carry more freight, such as furnishings and appliances.

Landstar System Inc. is among publicly traded trucking companies with exposure to the flatbed business. The Jacksonville, Florida-based carrier had 3,424 flatbed trailers as of Dec. 31, according to its annual report. This compares with 3,437 at the end of 2010.

Truckload carriers including Werner Enterprises Inc. and Celadon Group Inc., which transport goods to retailers such as Home Depot Inc. and Lowe’s Cos., probably will benefit from a better housing market, said Fowler, who maintains “buy” recommendations on these companies.

Trucking Comparisons

The Bloomberg U.S. Truckload Trucking Index -- which includes Indianapolis, Indiana-based Celadon and Werner, based in Omaha, Nebraska -- has risen 8.4 percent this year, compared with a 3.2 percent increase for the Russell 2000 Index. For the past 12 months it underperformed the Russell.

The recovery in trucking volumes since the recession ended hasn’t been led by housing, so an incremental improvement in housing starts will be a net positive for our industry. Activity will pick up because the company hauls freight for retailers that sell housing-related goods, he said.

The trucking index’s rebound means the bleeding has stopped. If it begins trading higher than its peaks relative to the Russell 2000, which came in January 2012 and August 2011, it would indicate investors are becoming more optimistic about the industry.

Shares of trucking operators haven’t outperformed the market during the past year because freight activity has been good, but not great.

Not Turning

Still, housing really hasn’t turned from the perspective of Landstar. Arkansas Best Corp. also is awaiting a comeback in the industry, President and Chief Executive Officer said at a March 14 conference in New York hosted by JPMorgan Chase Co.

Arkansas Best is looking forward to the time whenever housing even comes back to something close to normal. It is a sizable factor, for both truckload and so- called less-than-truckload, the Fort Smith, Arkansas-based carrier’s primary business.

Should new home starts return to a 10-year average of 1.3 million on an annualized basis, it would effectively double the number of trucks required to haul housing-related freight from current levels, Fowler estimated. Even so, the industry is in equilibrium, and a stronger housing market could make it imbalanced because of a shortage of available drivers.

Employment Return
An improvement still may be a few years away, though home affordability has rarely been better, at least in the last four decades. That’s because employment is moderately coming back, and prices remain low, bringing first-time buyers into the market.

The jobless rate fell to a three-year low of 8.1 percent in April, down from a 27-year high of 10 percent in October 2009, Bureau of Labor Statistics data show. Home prices were down about 34 percent in the 2011 fourth quarter from their 2006 peak, according to the Case-Shiller index of property values.

Though the truckload segment probably will be the biggest beneficiary -- with carriers hauling everything from roofing to carpeting -- more construction could have a ripple effect throughout trucking, say Construction Claims Experts.

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Apartment Rent Keeps Rising

First appeared in NY Times

The housing market remains a potent drag on the economy as home prices continue to slip, foreclosed homes fill some neighborhoods and millions of construction workers scramble for jobs.

But one group is sitting pretty: landlords.

Unlike home prices, rents have been rising, up 2.4 percent in January from a year earlier, according to recent data, not adjusted for inflation, released by the Labor Department.

With few rental buildings erected over the last few years, available units are going fast. Nationwide, the apartment vacancy rate is down to 5.2 percent, its lowest level in more than a decade, according to the research firm Reis Inc.

Rent increases are greatest in places like San Francisco, Austin, Tex., and Boston, where technology companies in particular are hiring, as well as in New York City and the District of Columbia. But cities like Chicago and Seattle, where house prices are still declining quite sharply, have had rental increases, too.

“We are more of a renter nation than we have been for a while,” said Christopher J. Mayer, a professor of real estate at the Columbia University Business School.

Economists suggest favorable conditions for landlords will continue for at least a year, with employment gradually rising and construction of new apartments remaining constrained; especially with offered perks like Carports.

As job growth has begun to accelerate in recent months, young people are starting to move out of their parents’ homes or away from shared rooms and into their own rentals.

Families who might previously have bought homes are also staying in rentals longer. They may be waiting for the housing market to hit bottom or finding it difficult to qualify for a mortgage. Many others remain uncertain about their job prospects and wary of the obligations of ownership.

When Charles Griffith moved with his wife and two children to Orlando, Fla., last fall, they chose a new two-bedroom apartment for $1,140 a month. They left a four-bedroom house they had bought a decade ago in Antioch, Calif. His brother-in-law has moved in and taken over the mortgage payments.  They enjoy the perks of Metal Carports as well.

Mr. Griffith, who works as a supervisor for Southwest Airlines, and his wife, a customer service representative for the airline, are enjoying the flexibility and convenience of renting, as well as amenities like a pool. “We kind of like the situation now of not having to be under so much pressure,” said Mr. Griffith, 40, adding that the family may eventually buy in Orlando. But “with the economy and the airline industry, that factors into us thinking maybe we should hold off for a while.”

The home ownership rate has been falling from its peak of 69.4 percent in 2004, according to census data. By the fourth quarter of 2011, it was down to 66 percent. That means about two million more households are renting, said Kenneth Rosen, an economist and professor of real estate at the Haas School of Business at the University of California, Berkeley.

Not all those people are choosing apartments, of course. Some are moving into single-family homes left vacant by foreclosures. Eager to capitalize on the trend, investors are scooping up some houses at a deep discount and leasing them to tenants who have lost their own homes.

Several prominent hedge funds and private equity firms have recently announced plans to invest in distressed properties and convert them to rentals. And earlier this month, the government solicited applications from investors interested in buying pools of foreclosed properties held by Fannie Mae, Freddie Mac and the Federal Housing Administration.

Still, it is in apartments, not houses, where renters are feeling the most competition.

Although many families crushed by the recession have doubled up and plenty of underemployed 20-somethings are living with their parents, some young people are finally getting their own space. Nearly 60 percent of job gains in the last two years have gone to people who are 20 to 34, a crucial rental group, according to an analysis of Labor Department data by G. Ronald Witten, a consultant to apartment companies.

During the economic downturn, apartment developers retrenched. The number of new apartments completed fell from 284,200 in 2006 to less than half that number in 2011, according to census data.

The limited supply is pushing up prices in some markets. In San Francisco, rents jumped close to 5 percent last year, according to Reis, and increases averaged 3 percent in Austin and New York. Landlords have also been withdrawing incentives like a free month’s rent.

Liz Brent and Matt Mochizuki moved into a studio apartment a year ago in the Mission District in San Francisco for $1,395 a month. Now they want more space.

Ms. Brent, 26, makes costumes and is working as a barista at a cafe where customers leave big tips. Mr. Mochizuki, 27, has a steady job making custom metal work for a design studio. They are budgeting $1,800 a month in rent.

But at an open house for an apartment billed as a one-bedroom, they found a studio with an awkward layout and bad light. More than 40 people were in line, many ready to hand over a check.

“That’s what the market is like now,” Ms. Brent said of their fruitless search. “That’s how many people showed up for this tiny apartment with no windows.”

Some rental markets remain soft, like Atlanta and Las Vegas, the epicenter of the housing bust. Orlando, too, might seem an unlikely place for rental strength. The unemployment rate, at 9.7 percent, is higher than the national average, and home prices slipped 4.6 percent last year, according to the Standard & Poor’s Case-Shiller home price index.

Yet Ric Campo, chief executive of Camden Properties, a real estate investment trust that owns apartment buildings, said rental business was brisk at its LaVina development. Since the office for the 420-unit complex opened last summer, more than half the apartments have rented.

That’s “a faster rate than we’ve ever seen in Orlando,” Mr. Campo said. The company has raised the base rent on a two-bedroom apartment to $1,080, from $995 a month.  Apartment buildings even have Solar Carports to alleviate some energy costs.

Many now wonder about a more profound shift among future buyers. Matt Byford, a 24-year-old litigation consultant in Chicago, acknowledges that low interest rates and low prices favor buying. But he says he is renting and in no hurry to buy, because he doesn’t expect much to change soon.

Brad Forrester, chief executive of the ConAm Group, which manages about 50,000 apartments in the western United States, says, “I think it’s going to be interesting to see whether there’s been a fundamental sociological shift in that 20- to 35-year-old cohort, where they literally say ‘this American dream just doesn’t work for me.’ ”

Mortgage Windfall Misses Many

The Wall Street Journal

The Federal Reserve has pushed mortgage rates to near half-century lows, but millions of U.S. homeowners haven't benefited from that because they can't—or won't—refinance.

Falling home prices have left many owners with little or no equity, making it harder to qualify for refinancing. Moreover, stricter lending standards and higher fees by banks and mortgage giants Fannie Mae and Freddie Mac and declining incomes have made it tougher and less attractive for borrowers to seek new loans.

Around 37% of all borrowers with 30-year conforming fixed-rate mortgages—who collectively hold about $1.2 trillion of home loans—have mortgage rates of 6% or higher, according to investment bank Credit Suisse. Many could reduce their rates by a full percentage point if they refinanced at current rates, about 5%. More than half could lower their rates nearly three-quarters of a percentage point, according to Credit Suisse.

New refinance applications in January stood near their lowest levels in the past year. Weekly data compiled by the Mortgage Bankers Association also show that refinance activity has been muted, considering that rates are so low. "Traditionally, these borrowers would be aggressively refinancing," said Mahesh Swaminathan, senior mortgage strategist at Credit Suisse.

One indicator of the economic impact of refinancing: Loans that refinanced in 2009 will result in $3.4 billion in savings for consumers this year, according to a report by First American CoreLogic, a research firm based in Santa Ana, Calif. That will return an additional $17.2 billion in savings to borrowers over the next five years. That's money consumers can potentially use to help spur economic recovery.

About a quarter of all mortgage holders are "underwater"—they owe more on the house than it's worth—which normally makes it impossible to get refinancing: Banks want collateral to back the value of home loans they make. The Obama administration recently extended a program intended to help underwater homeowners refinance, but few people have tapped it so far. The program has faced logistical hurdles, delays and confusion from brokers and lenders.

Some people are so far underwater, refinancing ends up being out of the question. John Albright, a retired Navy officer in Manassas, Va., hasn't been able to refinance because the value of his home has plunged. He figures its market value is now around $275,000, but he and his wife still owe more than $500,000 on their mortgage.

Their refinance application was turned down last year because they lacked equity in the home. He says his lender told him he could refinance only if he could come up with about $200,000 to pay down his mortgage. So they are stuck with an interest rate of about 6.5% at a time when his wife's income has declined. "We're going from paycheck to paycheck, but what can you do?" Mr. Albright says.

Some mortgage bankers say higher fees by lenders have undermined the effort to encourage refinancing. Fees that Fannie and Freddie began imposing in 2008, as loan delinquencies began to rise, have made it unattractive for some borrowers to refinance. For example, a borrower with 20% down and a 695 credit score seeking to refinance must pay fees equal to 1% of the loan amount. Those fees rise for borrowers with weaker credit scores, higher loan-to-value ratios, or other risk factors.

Overcorrecting for the abuses of financial institutions "has defeated the Fed's purchase program," said Alan Boyce, a mortgage-securities-market veteran. Those loan fees, he said, are partly "responsible for why there's been no refi boom."

The higher fees and tight credit standards show the tensions facing Fannie and Freddie. As the government-controlled companies try to raise revenue to offset their losses, those efforts can conflict with their basic public-policy mission: to help stabilize the housing market.

Fannie and Freddie have to strike a balance between risk and access to credit. Figuring out "where that line is involves some trade-offs," said Edward DeMarco, acting head of the Federal Housing Finance Agency, which oversees Fannie and Freddie. The last time mortgage rates were at current levels, in 2003, refinancing activity hit $2.9 trillion, according to trade publication Inside Mortgage Finance. Last year, refinance volume reached $1.2 trillion, the highest amount since 2003 but not nearly as much as expected, considering how low interest rates have fallen. Traditionally, borrowers have an incentive to refinance when they can reduce their mortgage rate by one percentage point or more.

Borrowers who are refinancing tend to be those who need it least. Fannie and Freddie refinanced 4.2 million borrowers last year. On average, borrowers who refinanced through Freddie Mac saved $2,600 annually. But the savings on the whole have gone to "very, very good credit borrowers and it really isn't going very far down the credit spectrum," said Michael Fratantoni, the head of research and economics for the MBA.

The experience of Connecticut resident Cathy Grandahl shows some of the trade-offs borrowers must grapple with in today's low-interest-rate, high-fee environment. She wanted to refinance two loans on her West Simsbury, Conn., home: a fixed-rate mortgage with a 5.75% rate and a second mortgage with an adjustable rate that she worries will rise sharply in coming years.

Refinancing would save them around $125 a month on their first mortgage while providing a fixed rate on their second loan. But extinguishing that mortgage by refinancing into one larger loan—considered a "cash-out" refinance—would trigger an additional fee.

That, plus several thousand dollars in closing costs, ultimately persuaded the couple not to refinance after all. "It's not a matter of our credit. We just can't get a good enough rate to make the refi worth it," says Ms. Grandahl, a 53-year-old land-records researcher who has three children in college.

Falling home values are one of the biggest factors raising borrowers' refinancing costs. Borrowers with less than 20% equity may have to pay for mortgage insurance.

On Monday, the Obama administration said it would extend for a year a program launched last April to help homeowners with little or no equity to refinance. That program, which had been set to expire this June, was called a "failure" last week by analysts at Barclays Capital. While the administration had said it would benefit millions, so far just 188,000 borrowers who owe between 80% and 105% of the value of their homes had refinanced through December.

Last September, it was expanded to include borrowers who owe up to 125% of their home value, but fewer than 2,000 borrowers have used that program through December.

Federal Government Helping Residents Move From Sub-Standard Apartments

News-Journal Online

Better days should be ahead for most residents of the Daytona Village Apartments -- people who say they've endured faulty appliances, rampant cockroaches and constant tussles with the owner over everything from repairs to federal government checks they should receive each month for utility bills.

The U.S. Department of Housing and Urban Development is helping tenants of the Keech Street complex who receive HUD's rental assistance each month to move in the next few weeks to other private rental properties and take their subsidies with them.

Saying property owner Surujnauth "Oscar" Bharrat has failed too many inspections, HUD is immediately cutting off the roughly $30,000 in rental assistance it sends each month to Bharrat and sending the money instead to the Daytona Beach Housing Authority for distribution.

"We're painfully aware of the conditions and that's unacceptable," Housing Authority Senior Case Manager Debbe Noland told about 50 residents gathered Thursday afternoon to explain the relocation process.

"You have to remember, we've been dealing with an owner who's non-compliant," HUD Senior Project Manager Debra Varley said later in the meeting.

Bharrat did not attend Thursday's meeting, but in an interview late last week said he's the victim. He said he's been set up by tenants who refuse pest control and trash his property so it will fail inspections, allowing them to relocate to nicer rental properties on the government's dime.

The Orlando area man also accused some residents of pocketing their utility subsidies and stealing power from neighboring apartments. He said he ripped out breaker and meter boxes to stop them. Now the city is taking him to court for pulling out those boxes, said Sgt. Bill Bailey, a Daytona Beach police officer in charge of code enforcement.

Bharrat, who said he has spent tens of thousands of dollars on repairs, filed for bankruptcy protection two weeks ago. He said he has no intention of walking away from the property he has poured his life savings into, but he's probably going to lose many of his tenants over the next month or two.

Some who don't meet the Housing Authority's tougher standards for Section 8 assistance will lose their federal rent subsidy, but they don't have to move from the Daytona Village Apartments if they can figure out how to cover their rent.

This could results in many new developments throughout the state of Texas. The Housing Authority's new enhanced standards for Section 8 assistance and federal rent subsidies could begin to influence rent levels in these Texas communities: Houston apartments, Dallas apartments, Fort Worth apartments, San Antonio apartments, Austin apartments. For more information and to find new apartments for rent in Texas, visit lucktruck.com.

At the meeting Thursday, when asked who wanted to stay at the Daytona Village Apartments, no one raised a hand. If any of the 54 families who receive subsidies do want to stay and continue to get federal assistance, the units will have to pass city inspections.

It's possible the property could be condemned, and if that happens it would have to shut down until repairs were made, said Emory Counts, the city's director of Community and Economic Development.

Earlier this week, tenant Ericka Sipp said she had already started looking for a new place to live. Sipp, a 38-year-old mother of three, said she did not have power for a month after Bharrat ripped out her main circuit breaker.

"I'll be a thorn in (Bharrat's) side until the ending chapter of Daytona Village," she said.

Tenants are not the only ones unhappy with Bharrat. The city has been trying for more than a year to collect past-due water bills, now totalling about $51,000, Bailey said.

Bharrat is also scheduled to go before the city's code enforcement board next month on charges that he has done work at Daytona Village Apartments without permits, Bailey said.