The talk is definitely just an extension of the book. It's certainly not. I've got one slide on the book. So you see the slide you got to get the book just get me to read the book but it's really beyond the book going much more for the book is much more what the heck happened and why did it get so screwed up and certainly people and we can exchange ideas about that because lots of people disagree about the picture I've painted and that's going to be a debate going on for I think a couple decades in academic research over what was the most important cause of the mortgage and financial crisis which were the causes but I'm doing a lot of speculation today and I think I've got some good speculators here so I hope I make them to join me in that effort but this is the warning. I'm a planner. But I'm cautious about making especially quantitative prediction and too many folks have broken their reputations legs in the last ten years in terms of prognosticating about real estate too many folks said that housing prices can only go up you know we can look at what price indices are doing and predict but I'm really aiming for a kind of broad stroke out what we might expect and lots of what you might expect is going to depend on lots of other things that have on the face of it not as much to do with real estate as we as as we might guess. Meaning you know what goes on in the real economy economy and effect on me all those things mortgage finance real estate and those things are really hard. And this is my one slide and seriously you can tell just by the density of this slide that it's hard to say that it's it's hard to put in one picture what happened. But this is I think this is not my own single her perspective but I think what a baleful knowledge says about what caused a mortgage crisis and clearly the mortgage crisis was the catalyst to the broader financial crisis and basically this wasn't a story about what happened in one thousand nine hundred nine or two thousand and four or some particular year it was the him elation of a number of policy decisions federal policies decisions that said I deregulated kind of let loose mortgage market in finance and really capital market in this country was the best way to bring about benefits to homeowners to would be homeowners to lenders and that the market would pretty much. And people would make rational decisions about what housing prices were going to do what kind of loan they could afford. How many loans they should make in a year of a certain kind but basically up until one nine hundred eighty at least we had a much more regulated system of mortgage finance and capital markets that did not let people do whatever they wanted with want to put it kind of block but in the one nine hundred eighty S. And this was a this isn't just isolated pieces of of deregulation here and there the. It was a fairly clear blueprint in the one thousand nine hundred two report to the president on how to liberalize consumer finance and mortgage markets and the idea was let investors global investors get greater access to consumers link the global capital markets as regularly as possible to homeowners to consumers and that will give people the most credit best credit to do that you had to get rid of lots of laws that restrict credit flows the take you could charge certain interest. A lot of these laws were state laws. So the federal government stepped in pretty much in one thousand eighty to ninety two and said no more it's going to be federal policy that runs the stuff and then a riot. E of policies are also created to the silicate what's called securitization instead of having a lender make a loan home alone keep a loan recover on the loan long as quickly sold them to a security lots of people read about this the slicing and dicing Well this wasn't just an organic behavior this was the still a tainted by federal policy the regulation and proactive tax treatment proactive ways to structure finance that were legislated was the stuff that happened later Sure lots of kind of incremental changes that all moved in the same direction towards more capital flows into mortgage markets. I've got a couple of examples here basically two thousand and four for example the big investment banks in the country instead of having to hold basically something like five percent or seven percent of their assets and cash could now only hold one percent or two percent. And so it increased the amount of money they could land in crew. The risk of that landing. Basically this created a very kind of response grown gradual mortgage and capital market that sub prime lending it started way before two thousand but there wasn't as much money until recently flowing into that market. So what happened in the last ten years was a set of macroeconomic global conditions the dot com bust two thousand and one money flowing out of stocks into real estate a lot of money accumulating overseas because we weren't making anything we were only buying things and so those folks were making more and more capital or capital and then higher oil prices and oil prices go up what happens. Guess what a few countries get lots of money lots of cash. So there was just a lot of cash in the global system both in the U.S. but especially outside the US and as the system got more and more deregulated the path of least resistance for that capital the highest return the least restriction was less mortgage could've gone anywhere. It went into mostly into the U.S. Now I'm going to talk about the results. Lots of them and least descriptive terms. This is basically metropolitan vacancy rates of single family homes. In only a three year period the change from two thousand and six to two thousand and nine first quarter first quarter and these are some of the largest metropolitan areas in the country and I've got them right from basically the highest at the bottom. Is the highest vacancy rate at the beginning of the national foreclosure crisis and not surprisingly Detroit was. At the top of that list and then the red is the good the store the red is the tooth out the increase the two thousand and eight vacancy rate and you can see we were third of the seven thousand metros in two thousand and six and actually if you look at the red We're third still but what you see is every Metro saw an increase in vacancy pretty much. And many metros that were very low places like Riverside California Tampa. Sacramento very low vacancy rates in two short years kind of lead the pack in vacancy and these were the areas where the most subprime lending was done. And the the highest foreclosure rates occurred during the national crisis. So what does this play out in terms of kind of neighborhood geography these couple maps that I'm going to show you are from Know About a year ago. And these are foreclosed properties as a percentage of all properties in a zip code zip code level map and you can see kind of the south of I twenty of the metro is where a lot of these kind of high foreclosure. Neighborhoods with lots of foreclosures are concentrated but also places like. You know central Gwinnett. Out here and then some. Outer areas but this whole kind of sweat and of course the southwest side in the south side of the city very hard hit. I'm going to show you in a minute that I think things are changing quite a bit and there's this kind of severe migration. Out of the city. Remember this is the aftermath of the sub prime foreclosure crisis we're now facing a prime foreclosure crisis where the loans are much more widely distributed much more suburbanized. At the same time even during the subprime crisis of the same period of time but this is the San Diego Metro and this. The city boundary of San Diego and you can see the high foreclosure rate high for foreclosure neighborhoods in San Diego or ex-urban really far from the city. And a lot of the kind of California Florida metros look like this kind of boom bust really high appreciation rate cities a lot of the subprime lending occurred out here. But what we're now seeing and this is kind of more current this is or closure filings for. Six counties in metropolitan Atlanta. Sense two thousand and basically I've got Fulton and a cabin red kind of the core counties and the others in the. Green and what you see is when we get to about late wait mid to late wait the suburban in this one that goes way up here is going at this one here is Henry County. We now have a situation where the highest foreclosure numbers the more the most filings per property are in Gwinnett and Henry compared to Fulton or to cab which traditionally over here it always been much higher foreclosure places and this is the changing nature of the foreclosure crisis. It's spreading as property values have gone down pretty much everywhere. It's getting lots more folks on able to refinance or sell their houses and then we've got on employment hitting a much wider swath of folks across all different kinds of geographies and even these places that are down here. They're still the rate of change is very fast the foreclosure crisis I'm afraid this little dip by the way right here this is the national moratorium on foreclosures that occurred in late zero weight kind of waiting for the Obama administration to settle and and on Vale it's foreclosure loan modification programs. One. The after mass. You know some folks are familiar with the new federal policy called Neighborhood Stabilization Program and I offer to buy have municipalities local governments buy foreclosed properties reuse them reoccupied them get them reoccupied to neighborhoods aren't stuck with vacant buildings. Well that program was legislated around here. In two thousand and eight and if you went back. And you went into a neighborhood hit hard like the Pittsburgh neighborhood in Atlanta our the West and a lot of the foreclosed properties would be Banco home would be what are called real estate owned properties in the name of banks. But what's happened sense that increasingly it's not that there aren't any more of those but sense that a lot of these properties are being sold especially low when properties. I say low and I mean inexpensive some of them are severely distressed. Some of them been vandalized. Stuff has been ripped out of them or they're just dilapidated houses others are just low value for other reasons. This is basically the percent the numbers here are the percent of foreclosed property sold in the year that sold for over thirty thousand dollars so that number one for ninety five percent ninety percent and for the first four months of zero nine. It's only fifty two percent. So half of the foreclosed properties and. This is Fulton County in Fulton County that were sold were sold for less than thirty thousand dollars. It's you know you might say well that's great that's great opportunity for home buyers some of it is one big concern is who's buying those homes are they being reoccupied there's a lot of concern. Some evidence that folks are buying those properties investors sitting on them. Sometimes I heard today from a colleague who spoke and wrote. Bruce's class former student. That they're not paying taxes the evidence is some of them are not paying property taxes. So we have a vacancy problem that shifted from bank ownership to investor ownership. It's not necessarily a better kind of situation. One of the things that happened in people say when they look at Atlanta and this is real important going forward is well Atlanta didn't have the problem that California Florida. Las Vegas prices didn't rise dramatically. So I want to show you a couple things. This black line is the rate of price increase from two thousand and two thousand and nine. From about how well quoted from well quoted. Kind of source of the housing prices. Over for the U.S. as a whole. The black dotted line is Phoenix the kind of classic big boom bust market prices went way up. At the peak prices were you know in two thousand and six were two and a half times prices in two thousand in that short a period of time and then they've com rocketing downward. OPI was a Atlanta didn't have that problem. Well Atlanta is a Metro would have been I don't have it here. It would have been somewhere in there but that's because the suburban areas mostly didn't see rapid appreciation but the central city of Atlanta which is this red deep red line was pretty much at the U.S. trajectory. But neighborhoods like this is the West and. This is Pittsburgh neighborhood on the southwest South Side and this is Reynolds town. You saw dramatic bubbles booms and busts you can see the trajectory down. Lots of folks were seeing their property taxes double and triple in a very short period of time and now they're seeing their property values go. Down from one hundred fifty thousand to fifty thousand or less it's it. It has positive impacts for some folks but it for the folks who were there at the beginning I think if folks are the results are kind of outcomes are unequivocal negative. They either got displaced by the property taxes or now they're there or they're seeing in neighborhoods just kind of crumble around them on the positive side on the average home prices are much more affordable. This is the ratio of kind of home price to income for the Metro It started in two thousand just over two went up to two two and three quarters and his come down a lot. I'm afraid it's coming down too fast and it's causing that that's because of rapid price declines and that has some negative effects but at least there are lots of opportunities for new homebuyers. The problem is getting a loan is pretty much for lots for about a third of the market in Atlanta and I think it's actually higher in Atlanta. Getting a loan is not a problem but the contingency is that a lot of kind of moderate income homebuyers are almost entirely reliant on the Federal Housing Administration to get along. Whereas two years ago F.H.A. loans were about five percent of all purchase loans or less they're now about a third twenty five percent to thirty five percent. And in low income neighborhoods they're more like half so people say well let the market. You know we should be meddling in the market. Well if you didn't let the F.H.A. metal on the market things would be a lot worse than they are now you would essentially take away a third or more of housing demand and it's already pretty weak. What does this mean going forward. Well I think. It's really shown the kind of downside of home ownership. I'm not a person to say homeownership doesn't have any benefits we should get rid of homeownership as a goal but the notion that especially moderate income folks should be putting one hundred percent of their savings into buying a home when especially in a volatile market or potentially volatile market. So that their kind of entire portfolio of long term investment just it's not a very compelling. Paradigm anymore. It might not have ever been a compelling paradigm. But I think homeownership can have lots of benefits I think it can have lots of benefits to communities. I think wealth building in general of traditional fee simple home ownership. Going forward. Is questionable. And I think actually if we don't regulate mortgage markets much more strongly. It's going to be a negative and we're going to see continuing booms and busts. And some people are going to get lucky and get in and get out at the right time. But most people are going to get hurt. I think if we can stabilize the financial markets make it go back to a kind of traditional plain vanilla mortgage market that and housing markets will become calmer and home ownership can become part of your portfolio but you're not going to make ten percent a year on your home and. This is my real most speculative slide. And this is basically the DAR the solid line dark lines. The red is the home ownership rate this is sixty three percent to sixty nine percent. This is the homeownership rate in Atlanta metro. This is the homeownership rate for the U.S. And this is where we are now it's been heading downward and these are my kind of scenarios. Without trying to get into exact numbers. I think if we the first in area is we really regulate mortgage markets much more substantially we get rid of funky products we take we go back to much more kind of conventional and cautious underwriting we're going to see some more decline in home ownership especially with average incomes continuing to fall. But it's going to be a steady decline. Probably not too rapid if we. But that also assume that we keep a federal involvement in supplying mortgage credit. We have these entities Fannie Mae and Freddie Mac. which are now government controlled if we pull them out of the mortgage market which submental are recommending that we just kind of get rid of them and let private capital markets kind of the sub prime Capital Markets. Supply the capital. I think we're going back to the last five to seven years. We're going to see lots of wacky products lots of risk shifted on the home buyers. So that's that's kind of the solid gray is that we we and bugger all involvement and we don't regulate much that's the existing level. We're going to see just continuing kind of booms and busts and my made point is besides the harm that those individuals. It really screws up neighborhoods and cities. You know I just talking to. County assessor not too long ago they can't plan when property values are going up and down by twenty percent the entire kind of automated property appraisal property tax appraisal system doesn't really work when property values are going down thirty percent a year or going up thirty percent year. It's it's it's hard to function and it's certainly hard for government to function. I want to shift away a little bit from the residential because you know what people keep saying the. Other shoe to drop is commercial. And multifamily property that shoe is already dropped. It's just not as obvious it's it's at least three quarters of the way down. And it landed I think to beef to be honest is spearing worse than the country as a whole partly because it was so over build. I'm kind of commercial property and this is this is just the table in the laugh is the cities with the largest increases metros the largest increases and retail vacancy rate retail property and Atlanta is eight on the list and it's the only Metro on that list that isn't from the four crisis hotspot states that are Arizona California or Florida land it is the only Metro not in those not in those states and you can see in all of the commercial sector. We're seeing increasing vacancies deteriorating properties of values are falling. And one of the other things that's happening that kind of is certainly related to those vacancy problems is the cost of capital. What we saw during the boom is basically the difference between these two lines narrow and these two lines the black line is. Is what are called treasury rates this is the money you can get get if you invest in the Treasury bond the safest thing out there. This is essential leave the return you get if you invest in retail property and that number and you can consider at the required return an investor wants that number continue to go down and the difference between those numbers do not reflect the risk involved in retail. Real estate. Now since. The crisis there is a dramatic divergence of those two lines and the only reason that this red line is still around seven or eight percent in the survey is because these Treasury rates are being cut solo and that's federal policy. It's completely federal policy that's not happening organically the Federal Reserve is buying up all kinds of mortgage backed securities. Treasury security prices are being cut below. And so we are we. If we are hitting any kind of bottom in the housing market or a real estate market. It's only a bottom. That is. In the context of of very aggressive federal policy to keep money cheap if we didn't continue that things would be much worse from that and some people say we shouldn't but there would be much higher costs of capital. Now I want to finish by making a few comments about what this all means to kind of planning and urban development and I've got seven quick points. One is we have to move beyond what I call finance driven planning. And I really do think that planners kind of threw out their responsibilities during the boom and I'm not saying just this time I think they tend to in general. Because if the lender says it's a good deal and the investor says it's a good deal government should get out of the way local government. It's hard to say no if supposedly we have an efficient market efficient capital markets that say this is a good investment and I think it really I mean even as recently as early two thousand and eight I read about the city of Madeira California without one of the highest foreclosure rates in the country. I measured something like six or seven percent of properties or bank own they had a proposal to build five thousand units of owner occupied housing and they passed the proposal. Yet they had probably more than that in terms of vacant units. Bank Owned vacant units and the belief was in the article that I read that the market will come back we're OK. The second point is that these rising risk premiums are root. Are related partly to just declining markets on the real you know higher vacancies lower rent streams. But they're also reflecting much higher risk premiums from investors that risk premium that had shrunken is now bigger and if you want me to invest in your project. I'm going to be much more risk averse than I was before and that I am concerned means. Well a famous kind of urban historian named Bob Fishman Robert Fishman at Michigan. Gave a presentation recently says that's going to be great for central cities because investors are going to be scary of those risky projects out in the suburbs. Because there are no that you know building far from the central city is up is a risky thing now I'm not so sure we're talking about perceived risks and the history of finance mortgage finance especially is that lenders tend to have. You know kind of like the things they're used to and sense you know most lenders live in the suburbs I'm not so sure that suburban development is going to be Iraq serving development is going to be kind of disavowed under higher concerns for risks in fact people like Chris Lineberger a Brookings have argued in the past that excessive focus on risk is discouraged things like new urban development as discourage mixed use development that you know very cautious lenders won't finance those things I think in general. He's been right and some of those barriers have been broken down the concern whether is the kind of plain vanilla approach in real estate invest. I meant her to help cities over the long run. I think this is a clear role for planners especially for planners who believe that risks are often perceived incorrectly. Meaning one of my jobs is to really find out what the real risks of investment in central cities is versus suburbs and if the market the lenders are saying we don't like that mix do stuff over by Atlantic Station or on the west side. I need to show them whether what the true risks are or what the true. Expected uncertainties are and not in kind of deal with that and hopefully come back. Misperceptions a third point is how size and I roll into this condominiums because they're kind of two sides of the same coin some evidence and I'm hoping other folks can comment on this is that builders are buildings thinking about building smaller houses and this may not just be because of financial issues and can people afford the big houses but it could be about things like carbon footprints and long term concerns of energy costs. So this stuff interacts with things like climate change issues but the other big thing is one of the big components of a lot of what was called progressive redevelopment or urban development in lots of big cities. Was the condominium and boy if any model of ownership has proven a disaster in this crisis. It's the condominium and. I'm not saying it's a permanent problem but it's it's at least a temporary problem trying to get a loan on a new condominium. In a new building is very very difficult right now there's lots of policy discussions about making it easier but lenders particularly Fannie Mae and Freddie Mac. Don't like those kinds of loans don't want to see a lot of investors or developers owning the condos in your building. And it can be a real problem. So the future of the condominium. I think is a little bit in question. Of the fourth point is that I think we really and lots of folks know about this stuff and locally have been working on it. Clued in some of the panels is really expanding the tenure choices between ownership and rental. Meaning what about things like she unity Land Trust limited activity really what's called now shared equity housing ways to reduce risk. It also reduces potential return. But take a lot of the risk out of the ownership. Situation and the basic idea some entity owns the land in the communal interest model and you just buy the buildings over the variation in prices and values and the risk of foreclosure all go down. You are going to not going to make twenty percent a year on your on your investment but you're also not going to go into foreclosure nearly as easily and that's not just a kind of state policy issue that's a local planning issue. How do we encourage that is planners. The next point is and I think this is a really big one and Rick and I were and I think we're in a meeting this summer kind of a focus group and a planner from I think it was going at County said you know one of the good things about this is we now have a fiscal argument for Mick for more diversity in land use because if we only build between two hundred fifty and three hundred thousand dollars and single family homes and that's all we have in our jurisdiction and that market tanks. We're in deep trouble. Even if in the short run the fiscal impact analysis that some planner did said that wins because the property values are high. It's by. Not diversifying land use and I would argue not to first of income points on the housing side having some lower income some higher income. You make a much riskier you create a riskier tax base. So now instead of just doing good diversifying land use for new urban principals or other principals we have a fiscal org And certainly the worst hit municipalities around the country are really monolithically designed places. The Central Valley of California places like that. Lots of parts of Florida completely single family owner occupied. Two last points one is this kind of neighborhood stabilization effort somehow and this is a whole nother form. We need public entities and I really do think public and nonprofit partnerships need to be able to move much more quickly to acquire property and that's a whole very complex topic but this shedding of properties by the banks into atomistic investors. Many of them who may be purely speculating not paying taxes. We need to be able to have stronger ways to control land. Adam municipal level really. And we have a land bank here and work has been done good work. I know Clara has been involved good work to make that a more effective entity. We also need to have part of this Frank Alexander for folks who know him would say we need much stronger tax foreclosure abilities to be able to take properties if they do become tax to other folks from other states of things like spot light where they can take properties by essentially eminent domain I know that's a dirty word in Georgia. But we have a very weak system in Georgia for dealing with public control of Bandon property or delinquent product the kind of property that has many harm. Still to local communities finally. As the kind of big haunts in Pittsburgh in the West and in Atlanta showed. You know a few years ago Atlanta was billed as the fastest gentrifying city in the country. I'm a little bit worried a lot of the gentrification was illusionary it was a lot of people buying homes and hope and values would go up renting them out so often times. It was a gentrification based on easy money. Both for commercial property and single family and we need more sustainable model of revile it meant that doesn't depend on and doesn't depend on very really doesn't depend on very rapid acquisition and turnover of property. I come from the Midwest the upper Midwest. I was just kind of stunned to see how quickly properties turn over. I've I've seen foreclosures on the same property four or five times in a few years people buying property speculating losing somebody else buys them. We need and I think public control of a vacant property would go towards that. But I also think that number one tool for this is something that the state in the city can only do a little bit about right now which is regulate lending regulate capital markets and mortgage markets. If you control the flow of capital to be justifiable unsustainable and rational it will be hard to do a lot of damage and run up these prices these prices were only able to be run up as fast as they were because there was essential an infinite source of capital flowing into them into those neighborhoods and I'll stop there. Thank you.