Over the past few months, there has been a rising chorus of commentators calling attention to the rapid growth of real estate prices in China. Many of them have even invoked the dreaded “b” word to describe the rocketing residential values. But is China really on the verge of a bubble? Could we see a repeat of what happened here across the Pacific?

Shanghai's Pudong District

Maybe not. While there are some similarities between the U.S. bubble market of the last decade and China’s meteoric rise in real estate, there are enough distinctions to suggest that it could play out differently for the latter.

China’s real estate market has benefited from low interest rates and government attempts to boost growth — in the form of a $500 billion-plus stimulus program — just as housing in the United States did. But some of the key elements in the U.S. bubble, such as exotic mortgage financing and property flipping, are either uncommon or nonexistent in China.

As NAR Chief Economist Lawrence Yun points out, they don’t have subprime loans in China, and the downpayment requirements are much higher in that country: 30 percent for primary residences, 40 percent for second homes, and 50 percent for raw land.

“Maybe it’s just a reflection of a high-growth rate, and people moving up into middle and upper-middle classes,” Yun said this week regarding China’s real estate growth. “My guess is that it’s not a bubble, but it most likely will taper off [soon].”

Still, it’s hard not to get nervous when you read that prices in some of the more upscale parts of Shanghai have gone up by more than 50 percent in less than a year. Or stories of speculation like a recent one in the Washington Post about Wang Zhongwei, a stock market analyst who had mortgage payments on two apartments that amounted to twice his take-home pay, but managed to sell them both for a relatively impressive profit. (”It’s much easier than working every day to make money,” Wang said of the transactions.)

Also, much of the boom in China’s housing is in the luxury sector, and the apparent hubris in the naming of some of these new developments, like Palais de Fortune and Rich Gate, is really incredible. (Seriously, calling a neighborhood something like Moneyville or Bigbucksburg would have been only slightly less subtle than that.) Consequently, most of the homes are financially out of reach for the average Chinese citizen.

So why should U.S. real estate practitioners be concerned about what’s going on in China? Two reasons:

1. The potential economic fallout. Business and finance are more global than ever, and economic problems are rarely confined to a nation’s borders. If the downturn in U.S. housing could cause the government of Iceland to collapse (to cite just one problem), then a severe dip in China’s real estate market could do some amount of economic and political damage internationally as well.
2. Real estate’s reputation. A housing recovery in the United States and other countries is still not entirely assured, and if real estate in China collapses, it could be another major blow to the perception of the home as a sound investment around the world.

We’ll just have to wait and see if China’s high-flying real estate market comes in for a smooth landing, or crashes and burns.

Watch our videos for economic research updates further down the post.

In the midst of the mortgage meltdown it was hard to keep track of everything the federal government was doing to keep the credit freeze from sinking the economy. There was the massive bank rescue, with the idea that an equity infusion from taxpayers would shore up banks so they could start financing mortgages again; there was the temporary increase in loan limits in high-cost areas for loans backed by Fannie Mae, Freddie Mac, and FHA; and there was the first-time home buyer tax credit, now expanded to include move-up buyers.

But one federal effort that never received quite the same attention as the others, probably because it doesn’t lend itself to a term that rolls off the tongue like “tax credit” or “bank bailout,” is the Federal Reserve’s massive intervention in the mortgage-backed securities market.

Memories can be fuzzy, but roughly 18 months ago the concern was that mortgage interest rates would have to rise considerably to attract investors to Fannie and Freddie securities because their usual customers, including investors outside the U.S., no longer wanted to hold anything backed by mortgages. With no investors there could be no market liquidity until rates rose high enough to draw in money.

Enter the Federal Reserve, with a commitment to spend up to $1.25 trillion to buy the securities.

Well, that purchase commitment is set to expire at the end of March (although the Fed could decide to extend the program), and the question on analysts’ minds is whether mortgage rates will have to rise to attract investors to fill the gap left by the pull-out.

I would say the closest thing to a consensus is that rates will in fact rise but not dramatically, and not by enough to stop sales, at least by themselves. Here’s why analysts think this.

First, there’s no money to be made investing in cash. In the midst of the meltdown, investors were essentially paying the government to take their money. We’re no longer in that situation, of course, but there remains little yield in Treasurys.

Second, the return on corporate bonds, which come with no public backing, are at the point where they’re no longer that attractive. Right now “A”-rated corporate bonds are yielding spreads of about 160 percentage points over Treasurys, according to analysts.

Enter mortgage-backed securities, which come with public backing, and right now they’re yielding spreads of about 140 percentage points over Treasurys. Some analysts say the spreads would only have to rise a bit to attract money because of the safety offered by the government. As investors come into the market, spreads would narrow, keeping rates from rising too high.

That’s the thinking, at any rate, and it’s not too far from what NAR Chief Economist Lawrence Yun has been saying for a couple of months now. At his press conference earlier this week to release end-of-year 2009 and December monthly existing-home sales figures, he said mortgage rates might rise after the Fed pull-out by 70 basis points.

That’s not an insignificant amount, to be sure, but with rates today still at historically low levels, a 70-basis-point rise by itself would be unlikely to stall sales. (See 44-second video clip of Yun’s comment.)

What’s more important by far is the jobs picture, he says. If we keep shedding jobs, or even simply not adding jobs, then even continued Fed support of mortgage securities would do little to keep home sales on a growth path. (See 30-second video clip of Yun’s comment.)

For that reason, analysts who are wondering about the health of home sales in the months ahead might be looking at the wrong thing if they’re looking at the Fed pull-out. To get a sense of what the future holds, their attention should really be turned to the issue of jobs.

Full coverage of existing-home sales news conference:

For all those who have been burned by the economic downturn, the “Success Out of Ashes” session of the International Builders’ Show Wednesday provided some advice for getting back on track.

John Geoffroy, president of Atlanta-based Construction Data Control, was one of three panelists who shared how he has found success through 42 years of industry ups and downs.

Connect With Customers: Write cards or pick up the phone and call past clients – let them know you are still in business; let them know you are survivors.

Talk With Your Staff: Brainstorm ideas with your team and be creative. Consider diversification, such as refurbishing foreclosed homes. “There is an opportunity here for someone,” Geoffroy says.

Rethink Your Plans: When are you losing money? Do you need to approach your business differently? Geoffroy emphasizes cutting unnecessary office costs. Do more online.

Go Green: Understand what consumers want and what they are talking about. Buyers are educated today, Geoffroy says, so be able to explain what green is and know how your clients are going to save money in energy costs. Consider writing a white paper on each house that explains the green aspects, why it’s sensitive to the environment, and the cost savings.

Know Your Customers: Today, quality and reliability is triumphing over quantity and extravagances. People are shopping seriously because budgets are not what they used to be, Geoffroy says.

“If you think things are bad, you have company,” said Bill Allen, owner of a management consulting company that focuses on the home building industry. He estimated an overall 15 percent drop in net profits nationwide. “And the economy is not turning around quickly.”

In addition to Geoffroy’s recommendations, Allen suggests recruiting members to your sales team who have a little “street smarts” in the community. It will help you gain credibility and notoriety.

And practice makes perfect. Facilitate practice sessions with your co-workers and practitioners.

For more coverage from the International Builders’ Show in Las Vegas, also visit our Styled, Staged & Sold blog.

In the world of architects, builders, and designers, the annual debut of the New American Home at the International Builders’ Show is an institution. For 27 years it has been the mainstay of the convention, the pinnacle for all things new, the height for which to reach – the cutting-edge, state-of-the-art, ultimate trend-setting home.

But this year there is no New American Home to tour at the show in Las Vegas. That’s because this year the realities of the economic climate have proven themselves heartbreaking once again.

The storm culminated with two blows against Adam Knecht, general manager of Domanico Custom Homes and builder of the 2010 New American Home. First, the original private financier dropped out in February 2009, just one month after construction began. Then, the tight lending environment made it impossible to secure adequate financing to finish the project. By October, construction was all together halted, followed by foreclosure in December. Thus, for the first time in the history of the program, the home was not completed in time for the show and proved to be a sign-of-the-times for the housing industry.

“It’s disappointing for everyone right now,” said Rob Williams, design architect on the project.

Then there was the fire.

While in the midst of the financial woes, the house directly next door to the New American Home burned to the ground last year. It was a startling midnight call for Williams who presented pictures of the blaze, which was so hot that it melted parts of the New American Home and all windows in the front of the house blew out.

It seems the New American Home couldn’t catch a break this year.

Rendering of the back patio and pool of the 2010 New American Home.

Despite being roughly 80 percent finished, the home’s digitally enhanced renderings in the virtual tour provided a real-life photographic feel.

Could it be real? Not yet. The present day photos shown during the virtual tour provide a stark comparison to the final product renderings, reminding the audience that the home’s completion has yet to be achieved.

One International Builders’ Show audience member questioned the project’s 6,800-square-foot size, and whether the sponsors, the National Council of the Housing Industry (NCHI) and Builder Magazine, considered the home’s fit in today’s market.

Project Director Brian Muehlbauer clarified that the architect, builder, designers, and product suppliers are selected by NCHI, but have artistic license concerning the specs of the home. What’s more, a 6,800-square-foot house isn’t unusual for that area of Las Vegas, Muehlbauer said.

The home was recently sold at auction for a fraction of the estimated $3.5 million price. And according to Williams, construction of the home is expected to be complete this spring by Domanico and financed by the new home owners.

But the cutting edge work that has gone into the New American Home has seemingly been overshadowed by the story of the home’s financing woes. It is a multi-generation home that celebrates indoor/outdoor living spaces and cutting edge sustainability features. Imagine Alice walking down a floating staircase rather than falling down the rabbit hole into a wonderland of a new, green, luxury home.

Here is a list of features included in the New American Home:

Construction Methods and Materials

• Apex Block System
• High Fly Ash Concrete
• Reflective Roof Coating
• Recycled Glass Tiles and Countertop Material
• Sustainable Resource Materials (Bamboo, Cork)
• Construction Waste Management Practices
• Grey Water System

Indoor Air Quality

• Low VOC Paints, Stains, Adhesives & Sealants
• Formaldehyde Free Wood Cabinetry, Paneling & Sheathing
• Borate based Cellulose Insulation
• No CFC, HCFC or Halon Based HVAC Refrigerants
• Air filtration system and ventilators

Energy Conservation

• Photovoltaic Panels
• Solar Domestic Hot Water System
• Solar Pool Heating System
• Tankless Water Heaters
• Hydronic Space Heating
• Whole House Automation System
• Whole House Lighting Control System
• Tubular Skylights
• Energy Star Appliances
• Energy Star HVAC
• Florescent & Led Lighting
• Green Roof System

Water Conservation

• Dual Flush Waterclosets
• Low Flow Shower Head & Faucets
• Grey Water Collection System
• Energy Star Appliances

Site and Landscaping

• Native & Drought Tolerant Plants
• Weather Controlled Irrigation System
• Rainwater Collection System
• Erosion Sediment Control

Years ago I attended a conference for a major real estate franchise and one of the speakers was a consultant who helped sales associates plan their financial future. The initial question he posed to the practitioners in the audience was, “Are you done yet? If you are, please raise your hand.”

His meaning was, Have you achieved the financial position you envisioned for yourself so that, when the time is right, you can retire comfortably?

As you might expect, few hands went up to signal that they were done.

Retirement is one of those topics that nags at us, and for you, as independent contractors whose earnings reflect what you produce, retirement rests entirely on your own shoulders.

For those of you who are diligent about funding your IRA, you’re to be applauded, because it takes discipline and foresight to fund your tax-deferred account enough each year to prepare for a comfortable future.

Because of your sacrifices, it’s surely been painful to watch the hit your IRA has taken these last few years because of macro-economic matters entirely outside your control. No doubt it makes you wonder sometimes why you’re letting fund managers take a percentage of your account to pay themselves a fee.

At another franchise conference I attended last year, there was another type of financial consultant speaking. This one from a type of firm that’s known as a passive custodian for self-directed IRAs. These entities enable you to take control of all or part of your IRA so you can leverage your expertise and make decisions on how to invest your savings.

I spoke with one of these consultants last week (not the same one as at the franchise show) to learn more about these investment vehicles. Her main point during our conversation was that, as real estate professionals, you are well-positioned to manage at least some of your IRA money by using a portion of it to invest in real estate.

The first question we discussed was: If someone experienced in real estate wanted to invest in real estate, why would they do it through their retirement account? After all, by investing their money in real estate outside their retirement account, they can lower their taxes through depreciation, among other things.

Her answer: If your horizon is long term, then when you’re ready to retire, you can sell your asset without paying capital gains taxes because the property is an asset of your IRA, and the proceeds go into your IRA. Then you can withdraw your proceeds in monthly installments, based on what you need to meet your living expenses, and pay taxes on those withdrawals at just the regular rate.

Any time you get into tax issues, you’re always on complicated ground and any decisions involving self-directed IRAs should only be done in consultation with a specialist; there are always nuances that only a specialist can discuss knowledgeably.

But, generally speaking, a self-directed IRA is something to consider, especially if you know of a good piece of real estate that you believe will see strong appreciation in the years ahead, notwithstanding current market conditions. You can pull out some money and invest in it as you normally might, or you can invest in it through your IRA using a self-directed mechanism. Then, when you sell, your proceeds are tax-free until you start withdrawing the money; then, when you do, your tax liability is at the regular rate.

Because there is a lot more to this type of retirement investment than meets the eye, REALTOR® Magazine will be hosting a free webinar on self-directed IRAs on Thursday, Feb. 25, at 3 p.m. Eastern Time. The presenter is Sandra Reese, senior vice president of Millennium Trust Company in Oak Brook, Ill. She’s been involved in self-directed IRAs for years and knows them top to bottom. We’ve asked her to limit her presentation to about 40 minutes so we can spend the last 20 minutes answering the questions you send to us by instant messaging during the course of her remarks.

Of course, we won’t be able to answer all questions, but we’ll look for areas of the most uncertainty and have her address those issues. We’ll also provide some resources for you to get more detailed information later.

Although we’ll just be hearing from Sandra, we’ll list other passive custodians so you can talk to a wide range of people if you’re interested in exploring the idea with others later.

Register for the free webinar now. After you click on the link, scroll down to find the registration button.

During a session yesterday morning at the 2010 Inman Real Estate Connect conference in New York, Inman News founder and publisher Brad Inman pressed Sam Sebastian, Google’s director of local and business-to-business markets, about the search engine’s plans to buy Trulia. Sebastian would neither confirm nor deny, but did elaborate that Google is actively looking to acquire one to two small technology companies a month.*

Corporate M&A activity aside, lots of innovative real estate ideas and tactics were discussed at the event. A majority of the 2,000 practitioners and techies in attendance agree that 2009 forced them to do business differently and rethink their plans.

Some tech experts, such as New York Times Editor Sam Grobart, believe tablet PCs are the wave of the future. He noted that Bill Gates made this prediction in 2001, but expects that 2010 will actually be the year they take off with Apple’s long-awaited but yet-to-be-confirmed version of the handheld computer (which would probably irk Gates to no end).

In the coming months, watch out for more applications to integrate social media. Example of this include PegShot, which allows you to upload photos in real time while tagging information about location, and Nabewise.com, which gives users detailed information about neighborhoods.

The dire market has forced practitioners to think differently and drastically cut costs—Jonathan Kauffmann, principal broker/owner of Nest Realty, said his firm has scaled back in office space and now uses virtual assistants.

Also, Ken Baris, president of Jordan Baris REALTORS explained that his office hosted several property tax events in 2009, in which his associates helped their clients lower the amount they owed by as much as 20 percent. He also cultivated a deal with his local Lexus dealership to become the official car of his business. His associates receive a discount on the luxury cars and the dealership sends leads over to the office.

More insights from Inman Connect to come.

*This blog entry has been corrected from the original posting.  Google is looking to acquire one to two companies, not specifically real estate technology companies.

The opening session of Inman Real Estate Connect 2010 in New York was markedly more optimistic than just a year ago where practitioners gathered at the Marriott Marquis for the three-day conference. While still cautious, Brad Inman, the founder of Inman News, said he was encouraged by the fact that the stock market has been so bullish since March of last year in his kickoff speech.

However, he also warns that some hesitation is in order, and recommended watching the following closely:

• The financial situation of the FHA
• The Federal Reserve’s program to buy mortgage-backed securities (which is supposed to expire after March)
• The effect of the home buyer tax credit in getting consumers off the fence.

Inman is also concerned about the amount of money the Fed has already printed and will need to print to keep the U.S. economy moving forward, and if it will result in severe inflation. He points out that inflation traditionally has been good for the real estate market. With so many things at play, it’s hard to forecast the market for 2010, he says.

What a difference two years makes. In early 2008, Dubai’s growth seemed nearly unstoppable. The emboldened emirate of the U.A.E. was actively courting investors from the United States and other nations. There were 5,000 residential and commercial real estate projects in the works. I got a bird’s-eye view of many of these gleeming buildings and subdivisions during a five-day press trip sponsored by Nakheel, one of the major government-owned developers in the city-state. I wrote about the trip in REALTOR® Magazine in February 2008.

Lately, nearly all the news out of Dubai has been about its teetering on the brink of financial collapse. At the eleventh hour last month, neighboring Abu Dhabi came up with $10 billion in bailout funds that seem to have staved off a full-on default by the emirate. But the headlines shifted this week as the world’s tallest skyscraper (though admittedly short on tenants) opened this week in the Persian Gulf community.

The long-awaited Burj Dubai tower, however, has been renamed before its first occupants can even settle in. The 2717 ft. building is now to be referred to as Burj Khalifa, in honor of the neighboring sheikh who is keeping Dubai’s economy quasi-solvent. Relinquishing some of its independence to Sheikh Khalifa and his emirate’s oil-rich reserves may be a tough pill to swallow for upstart Dubai at this moment of intense architectural and civc pride. But both locals and the global community are surely breathing a sigh of relief that the city-state’s future seems assured. And it doesn’t hurt that Macy’s is intending to open in the Burj in the next few months, its first overseas outpost anywhere.

The torch has been passed: The world’s tallest building, the Burj Khalifa (2,717 feet), opened yesterday in the city of Dubai, passing the Taipei 101 (1,670 feet) by a wide margin. (Note: Until recently, the tower was known as the Burj Dubai—more on that in a few paragraphs.) The tower will be a mixed-use building, with condos, hotel rooms, retail shops, and offices, and the centerpiece of a new complex in the heart of this most well-known Middle Eastern metropolis.

Now, any time the world’s-tallest-building record is broken, it’s significant. But this is extra significant because the preceding record was absolutely shattered. It’s something like Albert Pujols or Ryan Howard hitting 100 home runs in a single baseball season, or someone beating Usain Bolt in the 100-meter dash by four seconds.

In architectural terms, the only way to compare other buildings to this new structure is by stacking them on top of each other. For example, imagine if you could pick up the Empire State Building and put it on the roof of the Sears Tower. That would only be about a hundred feet taller than the the Burj Khalifa.

Apart from its remarkable height, the other noteworthy thing about the Burj Khalifa is that it’s served as a barometer of larger trends in real estate and economics. Although it didn’t officially open until now, I think the tower is fitting culmination to the decade we just lived through.

Construction started on the building back in 2004, when a real estate boom was driving a large part of Dubai’s (and much of the world’s) growing wealth. It neared completion just as Dubai’s (and much of the world’s) economy started to tank, and was renamed at practically the last minute as a gesture to the political head of oil-rich rival city Abu Dhabi, which gave the financially troubled metropolis cash infusions—or bailouts, if you like—totaling more than $20 billion. By the time the building actually opened, rents had fallen by about 50 percent from their peak prices in 2008. Moreover, vacancies in office space will probably exceed 25 percent for the foreseeable future.

Still, its problems aside, who wouldn’t want to see this thing in person?

Update: My colleague Wendy Cole talks about her experiences on a press trip to Dubai in this post. Agent Genius’s take is here.

More than 10 days and 3,000 words later, we’ve finally reached the top-ranked real estate development of the decade. The “winner” is …

#1: Housing Goes Boom and Bust

I have to be honest: I feel like this entry is kind of cheating. It just seems too broad to offer up as a single development. Why not talk about something more specific, like the subprime crisis? Surely that’s emblematic of the larger issue, isn’t it?

But, really, the boom and bust in housing wasn’t just the real estate story of the decade, it was the economic story of the decade. And even that’s not really doing it justice. To put it another way, it would be impossible to write the Great American Novel about this time period without including the tumultuous real estate market in some way. For that reason, I feel like there’s no getting around putting it at the top of this list.

I’m not going to go through all of the events that produced the explosion in housing values and the ensuing drop, partly because I’ve already touched on some of them in previous #Top10inRE blogs, and it’s simply too much to cover in a single post.

But I would like to discuss, briefly, what we’ll take from all this into the next decade and beyond. There are some obvious lessons, such as scaling back on exotic mortgages and easy credit. Then there are some that are more problematic.

The one I find most troubling is how we’ve perceived homes as an asset. In the housing mania that lasted roughly from 2001 to 2006, consumers came to view their homes as a very safe, sustainable investment that would yield high returns for everyone in a short amount of time. The fact that there has never been such an investment in the history of investing did not seem to deter them in the least.

But after the housing bubble burst, the pendulum swung too far in the other direction. The conventional wisdom came to be that houses were no longer investments, but rather mere shelter. This isn’t quite right, either. While home ownership does provide a roof over one’s head, so does renting. And there’s a reason why, even now, the majority of people in this country prefer the former.

Real estate is a store of wealth, one that does appreciate in value. But it’s not the kind of investment that’s going to provide 50 percent or greater returns in just a couple of years for an indefinite period of time. The sooner everyone—practitioners, lenders, buyers, sellers—realizes this, the sooner we’ll be on the road to a long-term, tenable recovery in real estate.

Well, that’s my list for this decade. Let me know if you think I left anything out!

Other Major Real Estate Developments of the Decade

2. The Fall of Fannie and Freddie

3. Government-Led Recovery

4. The Practitioner Explosion

5. Commercial Crash

6. HVCC

7. Record Lows in Mortgage Rates

8. RE.net

9. Real Estate on TV

10. Going Green