From Realtor Magazine Online, Daily Real Estate News December 31, 2007
The U.S. Census Bureau calculates that the nation’s population will be 303.15 million on New Year’s Day, up 0.9 percent from 2,842,103 registered on Jan. 1, 2007.
In 2008, the population will increase by one person every 13 seconds. That increase will be the result of one birth every 8 seconds and one death every 11 seconds and one immigrant arriving every 30 seconds.
And all these new residents have to live somewhere – a good sign for the housing market, experts predict.
Source: Reuters News (12/27/07)
Monday, December 31, 2007
NAR: Existing-Home Sales Inch Up in November
From Realtor Magazine Online, Daily Real Estate News December 31, 2007
Existing-home sales rose slightly in November, indicating a stabilization in housing in the wake of mortgage disruptions earlier this year, according to the NATIONAL ASSOCIATION OF REALTORS®.
Total existing-home sales — including single-family, townhomes, condominiums and co-ops — rose 0.4 percent to a seasonally adjusted annual rate of 5 million units in November. That represents a slight increase from an upwardly revised pace of 4.98 million in October.
However, existing-home sales are 20 percent below the 6.25 million-unit level in November 2006.
“Near term, existing-home sales should continue to hover in a narrow range, just as they have since September, and that’s good news because it’ll be a further sign that the housing market is stabilizing,” says NAR Chief Economist Lawrence Yun. “Mortgage interest rates are near historic lows and the most current data shows decelerating price declines, along with a modest reduction in the number of homes on the market.”
Disruptions in mortgage availability and pricing peaked in August, which caused sales to slow in subsequent months, according to NAR.
Housing Stats
The national median existing-home price for all housing types was $210,200 in November, down 3.3 percent from November 2006 when the median was $217,300. But there remains a downward drag on the national median as the mix of closed sales has shifted away from expensive markets.
“Just like the weather, there are large local variations in home prices,” Yun says.
A quarterly examination of price performance on a metropolitan basis shows nearly two-thirds of metro areas are showing price increases. Among the many metros experiencing healthy local price gains are Farmington, N.M.; Reading, Pa.; Columbia, S.C., and Fargo, N.D. Here’s how single-family and condo existing-home sales fared:
- Single-family homes: rose 0.7 percent to a seasonally adjusted annual rate of 4.4 million in November from 4.37 million in October, but are 19.9 percent below the 5.49 million-unit pace in November 2006. Median home price: $208,700 in November, down 3.7 percent from a year earlier.
- Existing condominium and co-ops: slipped 1.6 percent to a seasonally adjusted annual rate of 600,000 units in November from 610,000 in October, and are 20.6 percent below the 756,000-unit level in November 2006. Median existing condo price: $221,100, down 0.7 percent from in November 2006.
Meanwhile, total housing inventory declined 3.6 percent at the end of November to 4.27 million existing homes available for sale. That represents a 10.3-month supply at the current sales pace, down from a 10.7-month supply in October.
“Inventory is still high, and further reduction in prices may be required in some areas to induce buyers back into the market,” Yun says.
According to Freddie Mac, the national average commitment rate for a 30-year, conventional, fixed-rate mortgage fell to 6.21 percent in November from 6.38 percent in October; the rate was 6.24 percent in November 2006.
Regional Breakdown
Here’s what happened with existing-home sales across the country:
- West: increased 10.3 percent in November to a level of 960,000, but are 25 percent below a year ago. Median price: $325,800, which is 6.8 percent lower than November 2006.
- Midwest: existing-home sales were unchanged at an annual rate of 1.18 million in November, but are 16.9 percent below November 2006. Median price: $163,000, down 0.5 percent from a year ago.
- South: declined 2 percent to an annual rate of 1.99 million in November, and are 19.4 percent below a year ago. Median price: $174,200, which is 2.5 percent below November 2006.
- Northeast: fell 3.3 percent to an annual pace of 870,000 in November, and are 19.4 percent below November 2006. Median price: $258,300, down 3.2 percent from a year ago.
Legislative Action Needed
To help the housing market rebound, NAR President Dick Gaylord says that Congress should expand affordable financing.
“Consumers have some choices with safer conventional financing, but raising the limit on conforming loans would significantly revive home sales,” he says. “This would help creditworthy buyers in hard hit regions — like California and Florida — by greatly increasing access to low-interest-rate mortgages.”
Existing-home sales rose slightly in November, indicating a stabilization in housing in the wake of mortgage disruptions earlier this year, according to the NATIONAL ASSOCIATION OF REALTORS®.
Total existing-home sales — including single-family, townhomes, condominiums and co-ops — rose 0.4 percent to a seasonally adjusted annual rate of 5 million units in November. That represents a slight increase from an upwardly revised pace of 4.98 million in October.
However, existing-home sales are 20 percent below the 6.25 million-unit level in November 2006.
“Near term, existing-home sales should continue to hover in a narrow range, just as they have since September, and that’s good news because it’ll be a further sign that the housing market is stabilizing,” says NAR Chief Economist Lawrence Yun. “Mortgage interest rates are near historic lows and the most current data shows decelerating price declines, along with a modest reduction in the number of homes on the market.”
Disruptions in mortgage availability and pricing peaked in August, which caused sales to slow in subsequent months, according to NAR.
Housing Stats
The national median existing-home price for all housing types was $210,200 in November, down 3.3 percent from November 2006 when the median was $217,300. But there remains a downward drag on the national median as the mix of closed sales has shifted away from expensive markets.
“Just like the weather, there are large local variations in home prices,” Yun says.
A quarterly examination of price performance on a metropolitan basis shows nearly two-thirds of metro areas are showing price increases. Among the many metros experiencing healthy local price gains are Farmington, N.M.; Reading, Pa.; Columbia, S.C., and Fargo, N.D. Here’s how single-family and condo existing-home sales fared:
- Single-family homes: rose 0.7 percent to a seasonally adjusted annual rate of 4.4 million in November from 4.37 million in October, but are 19.9 percent below the 5.49 million-unit pace in November 2006. Median home price: $208,700 in November, down 3.7 percent from a year earlier.
- Existing condominium and co-ops: slipped 1.6 percent to a seasonally adjusted annual rate of 600,000 units in November from 610,000 in October, and are 20.6 percent below the 756,000-unit level in November 2006. Median existing condo price: $221,100, down 0.7 percent from in November 2006.
Meanwhile, total housing inventory declined 3.6 percent at the end of November to 4.27 million existing homes available for sale. That represents a 10.3-month supply at the current sales pace, down from a 10.7-month supply in October.
“Inventory is still high, and further reduction in prices may be required in some areas to induce buyers back into the market,” Yun says.
According to Freddie Mac, the national average commitment rate for a 30-year, conventional, fixed-rate mortgage fell to 6.21 percent in November from 6.38 percent in October; the rate was 6.24 percent in November 2006.
Regional Breakdown
Here’s what happened with existing-home sales across the country:
- West: increased 10.3 percent in November to a level of 960,000, but are 25 percent below a year ago. Median price: $325,800, which is 6.8 percent lower than November 2006.
- Midwest: existing-home sales were unchanged at an annual rate of 1.18 million in November, but are 16.9 percent below November 2006. Median price: $163,000, down 0.5 percent from a year ago.
- South: declined 2 percent to an annual rate of 1.99 million in November, and are 19.4 percent below a year ago. Median price: $174,200, which is 2.5 percent below November 2006.
- Northeast: fell 3.3 percent to an annual pace of 870,000 in November, and are 19.4 percent below November 2006. Median price: $258,300, down 3.2 percent from a year ago.
Legislative Action Needed
To help the housing market rebound, NAR President Dick Gaylord says that Congress should expand affordable financing.
“Consumers have some choices with safer conventional financing, but raising the limit on conforming loans would significantly revive home sales,” he says. “This would help creditworthy buyers in hard hit regions — like California and Florida — by greatly increasing access to low-interest-rate mortgages.”
Friday, December 28, 2007
National Home Prices Face Modest Decline
From Realtor Magazine Online, Daily Real Estate News December 28, 2007
While some housing markets in Florida, Nevada, and California have had sharp declines, nationally home prices have been far less dramatic.
Home prices fell 0.4 percent nationally in the third quarter, according to the Office of Federal Housing Enterprise Oversight. That's the first decline after 50 straight quarters of appreciation averaging 1.62 percent per quarter.
The decrease in housing prices has only begun to eat into the nearly 13 years of quarterly price gains. The National Association of Home Builders said in November that only 42 percent of all homes sold in the third quarter were priced low enough to be affordable for families earning the national median income of $59,000.
Moody's Economy.com and Banc of America Securities predict the worst is yet to come with housing prices tumbling 15 percent from peak to trough, which they forecast won't occur until early 2009.
Source: The Associated Press, J.W. Elphinstone (12/27/07)
While some housing markets in Florida, Nevada, and California have had sharp declines, nationally home prices have been far less dramatic.
Home prices fell 0.4 percent nationally in the third quarter, according to the Office of Federal Housing Enterprise Oversight. That's the first decline after 50 straight quarters of appreciation averaging 1.62 percent per quarter.
The decrease in housing prices has only begun to eat into the nearly 13 years of quarterly price gains. The National Association of Home Builders said in November that only 42 percent of all homes sold in the third quarter were priced low enough to be affordable for families earning the national median income of $59,000.
Moody's Economy.com and Banc of America Securities predict the worst is yet to come with housing prices tumbling 15 percent from peak to trough, which they forecast won't occur until early 2009.
Source: The Associated Press, J.W. Elphinstone (12/27/07)
Developers Target Run-Down Neighborhoods
From Realtor Magazine Online, Daily Real Estate News December 28, 2007
Where can a prudent real estate investor look for value and return now that preferred locations have plateaued or even declined?
For some, the answer is still undervalued urban areas.
Buffalo, N.Y., for instance, is undergoing renewal and attracting investment as city fathers woo bioinformatics and human genome research companies to the downtown area.
"Property in Buffalo is ripe for the picking. It's still possible to get in on the ground floor here," says Anthony Kissling, director of Kissling Interests, a 100-year-old New York City investment firm. Kissling owns 20 buildings in Buffalo with 800 apartments, all of which are rented.
In suburban Dallas, developers are spending $1.3 billion in public and private money to rehab Oak Cliff, a gritty neighborhood built on the western shore of the Trinity River. The river bank itself is being turned into a park two times the size of New York’s Central Park, complete with hiking and biking paths, equestrian center, arboretum, and wildlife refuge.
Oak Cliff is defying the national housing slump, says Dallas planning and development consultant Jeff West, president of Jeff West Consulting. "Speculators already are moving through Oak Cliff one block at a time," he says.
Source: Investor’s Business Daily, David DeVoss (12/27/07)
Where can a prudent real estate investor look for value and return now that preferred locations have plateaued or even declined?
For some, the answer is still undervalued urban areas.
Buffalo, N.Y., for instance, is undergoing renewal and attracting investment as city fathers woo bioinformatics and human genome research companies to the downtown area.
"Property in Buffalo is ripe for the picking. It's still possible to get in on the ground floor here," says Anthony Kissling, director of Kissling Interests, a 100-year-old New York City investment firm. Kissling owns 20 buildings in Buffalo with 800 apartments, all of which are rented.
In suburban Dallas, developers are spending $1.3 billion in public and private money to rehab Oak Cliff, a gritty neighborhood built on the western shore of the Trinity River. The river bank itself is being turned into a park two times the size of New York’s Central Park, complete with hiking and biking paths, equestrian center, arboretum, and wildlife refuge.
Oak Cliff is defying the national housing slump, says Dallas planning and development consultant Jeff West, president of Jeff West Consulting. "Speculators already are moving through Oak Cliff one block at a time," he says.
Source: Investor’s Business Daily, David DeVoss (12/27/07)
Business Gloom, Consumer Cheer
From Business Week, Economic Focus-From Action Economics December 27, 2007, 1:57PM EST
New data suggest businesses may be reining in spending amid an uncertain outlook. But the consumer appears surprisingly upbeat.
Economic reports released Dec. 27 suggest that U.S. businesses may be ringing in the New Year with growing caution, while consumers are displaying a cheerier outlook. Weakness in durable goods orders and continued deterioration in the data on first-time unemployment filings suggest that companies wariness about the economic outlook may be affecting spending, which would prove problematic for the economy in early 2008.
And yet a higher-than-expected reading on a widely followed survey of consumer confidence in December proved to be a relief. These figures, combined with other sales data, suggest that the consumer has yet to show the widely expected signs of "cracking" in response to housing and credit-market turmoil. The economy remains more at risk to restraint from business managers than consumers.
Here is Action Economics' rundown of the Dec. 27 reports:
Durable Goods Orders
Durable goods orders rebounded a small 0.1% in November after three consecutive monthly declines. October's initial 0.4% decline was not revised. On a year-over-year basis, orders were down 0.3% (from 3.1% in October). Transportation orders rose 1.9%, while excluding transportation, November orders were down 0.7%. Orders for nondefense capital goods excluding aircraft fell 0.4% after a 2.9% decline in October (-2.3% originally), while shipments for this component rebounded 0.2%. Inventories rose 0.8%, while overall shipments were flat.
The figures revealed weaker-than-expected orders-and-shipments data overall, and for equipment as well, though the inventory data were stronger than expected, which has buffered the near-term gross domestic product impact of the figures. We have lowered our fourth-quarter GDP growth estimate to 1.5% from 1.7%, and now expect the equipment and software component of GDP in the quarter to post a 3% rate of decline following growth of 6.2% in the third quarter and 4.7% in the second.
The greater risk for the economy is beyond the fourth quarter, when the restraint in both orders and shipments for equipment through November may suggest that business caution in the face of credit-market turmoil is indeed holding back demand. Yet, the weakness in the November durables figures is at odds with the bounce in the available industrial production and motor vehicle figures for the month, hence making the December and January data critical for assessing where the volatile factory and equipment sectors of the economy are headed as we enter the first quarter.
The mix of data in the report has left a November business inventory forecast of 0.5%, following the surprisingly lean 0.2% gain in October. We now expect a 0.5% November factory orders gain with a 0.5% shipments increase, and a 0.7% gain for factory inventories overall.
Initial Jobless Claims
U.S. initial jobless claims rose 1,000, to 349,000 (vs. economists' median forecast of 340,000) for the week ended Dec. 22. The gain extends the post-August uptrend in initial claims, though we are still short of the 359,000 high for the year hit in early February. Continuing claims jumped 75,000, to 2,713,000, for the week ended Dec. 15. This figure marks the highest reading since November, 2005, when continuing claims were boosted in the wake of Hurricane Katrina.
The claims figures have continued to deteriorate through December, and we have further reduced our December nonfarm payroll forecast to 70,000. We can't read too much into weekly claims data during the gap between mid-November and mid-January, but the uptrend in initial claims through the last three months leaves risk to the labor market as we enter the first quarter, as does the particularly steep uptrend in continuing claims.
Note that our December payroll forecast now lies below the 94,000 payroll gain seen in November, as well as the 94,000 average monthly gain for the last six months overall. We assume the unemployment rate will remain at 4.7% for at least one more month.
Consumer Confidence Index
The rise in the Conference Board's U.S. consumer confidence index to 88.6 in December reversed part of the outsize 8-point drop to a revised 87.8 (from 87.3) in November, hence partly closing the prior gap with the other available measures.
Today's reported December gain contradicted the small drop seen in the Michigan sentiment index to 75.5 in December from 76.1 in November, as well as the deterioration in the weekly ABC/Washington Post figure to a -21.3 average thus far in December from a -19.3 average in November.
The drop in most confidence measures over the August-to-December period is comparable to the declines seen in the aftermath of hurricanes Katrina and Rita, when a surge in energy prices of comparable size to the current one threatened the economy. Gasoline prices may be a bigger driver of current confidence declines than market turmoil, given that various surveys show little public awareness of tighter credit conditions, alongside the usual disinterest of the public in the details of financial market mechanics.
The November retail sales and personal income reports showed huge sales gains alongside a falling savings rate, which is characteristic of periods when confidence declines are a result of energy price gains that actually boost spending. As troublesome as the confidence declines over the past five months are, given market fears that credit-market turmoil will prompt a pullback in consumer spending, the data thus far show little evidence of a break in actual consumer activity.
by Michael Englund, principal director and chief economist for Action Economics.
New data suggest businesses may be reining in spending amid an uncertain outlook. But the consumer appears surprisingly upbeat.
Economic reports released Dec. 27 suggest that U.S. businesses may be ringing in the New Year with growing caution, while consumers are displaying a cheerier outlook. Weakness in durable goods orders and continued deterioration in the data on first-time unemployment filings suggest that companies wariness about the economic outlook may be affecting spending, which would prove problematic for the economy in early 2008.
And yet a higher-than-expected reading on a widely followed survey of consumer confidence in December proved to be a relief. These figures, combined with other sales data, suggest that the consumer has yet to show the widely expected signs of "cracking" in response to housing and credit-market turmoil. The economy remains more at risk to restraint from business managers than consumers.
Here is Action Economics' rundown of the Dec. 27 reports:
Durable Goods Orders
Durable goods orders rebounded a small 0.1% in November after three consecutive monthly declines. October's initial 0.4% decline was not revised. On a year-over-year basis, orders were down 0.3% (from 3.1% in October). Transportation orders rose 1.9%, while excluding transportation, November orders were down 0.7%. Orders for nondefense capital goods excluding aircraft fell 0.4% after a 2.9% decline in October (-2.3% originally), while shipments for this component rebounded 0.2%. Inventories rose 0.8%, while overall shipments were flat.
The figures revealed weaker-than-expected orders-and-shipments data overall, and for equipment as well, though the inventory data were stronger than expected, which has buffered the near-term gross domestic product impact of the figures. We have lowered our fourth-quarter GDP growth estimate to 1.5% from 1.7%, and now expect the equipment and software component of GDP in the quarter to post a 3% rate of decline following growth of 6.2% in the third quarter and 4.7% in the second.
The greater risk for the economy is beyond the fourth quarter, when the restraint in both orders and shipments for equipment through November may suggest that business caution in the face of credit-market turmoil is indeed holding back demand. Yet, the weakness in the November durables figures is at odds with the bounce in the available industrial production and motor vehicle figures for the month, hence making the December and January data critical for assessing where the volatile factory and equipment sectors of the economy are headed as we enter the first quarter.
The mix of data in the report has left a November business inventory forecast of 0.5%, following the surprisingly lean 0.2% gain in October. We now expect a 0.5% November factory orders gain with a 0.5% shipments increase, and a 0.7% gain for factory inventories overall.
Initial Jobless Claims
U.S. initial jobless claims rose 1,000, to 349,000 (vs. economists' median forecast of 340,000) for the week ended Dec. 22. The gain extends the post-August uptrend in initial claims, though we are still short of the 359,000 high for the year hit in early February. Continuing claims jumped 75,000, to 2,713,000, for the week ended Dec. 15. This figure marks the highest reading since November, 2005, when continuing claims were boosted in the wake of Hurricane Katrina.
The claims figures have continued to deteriorate through December, and we have further reduced our December nonfarm payroll forecast to 70,000. We can't read too much into weekly claims data during the gap between mid-November and mid-January, but the uptrend in initial claims through the last three months leaves risk to the labor market as we enter the first quarter, as does the particularly steep uptrend in continuing claims.
Note that our December payroll forecast now lies below the 94,000 payroll gain seen in November, as well as the 94,000 average monthly gain for the last six months overall. We assume the unemployment rate will remain at 4.7% for at least one more month.
Consumer Confidence Index
The rise in the Conference Board's U.S. consumer confidence index to 88.6 in December reversed part of the outsize 8-point drop to a revised 87.8 (from 87.3) in November, hence partly closing the prior gap with the other available measures.
Today's reported December gain contradicted the small drop seen in the Michigan sentiment index to 75.5 in December from 76.1 in November, as well as the deterioration in the weekly ABC/Washington Post figure to a -21.3 average thus far in December from a -19.3 average in November.
The drop in most confidence measures over the August-to-December period is comparable to the declines seen in the aftermath of hurricanes Katrina and Rita, when a surge in energy prices of comparable size to the current one threatened the economy. Gasoline prices may be a bigger driver of current confidence declines than market turmoil, given that various surveys show little public awareness of tighter credit conditions, alongside the usual disinterest of the public in the details of financial market mechanics.
The November retail sales and personal income reports showed huge sales gains alongside a falling savings rate, which is characteristic of periods when confidence declines are a result of energy price gains that actually boost spending. As troublesome as the confidence declines over the past five months are, given market fears that credit-market turmoil will prompt a pullback in consumer spending, the data thus far show little evidence of a break in actual consumer activity.
by Michael Englund, principal director and chief economist for Action Economics.
Wednesday, December 26, 2007
Are Extra Monthly Mortgage Payments OK?
From Realtor Magazine Online, Daily Real Estate News December 26, 2007
Getting a windfall and using it to pay off the mortgage sounds like it should reduce the monthly amount owed, but often it doesn’t.
Fixed-rate mortgage holders who pay off a big chunk of their mortgage are likely to shorten the payoff period, but the infusion of cash probably won’t reduce at all the amount they owe monthly.
Holders of adjustable-rate mortgages who are making fully amortizing payments will get a payment adjustment at the point where the payment is recalculated after a rate adjustment.
Mortgages with an interest-only option should see their payment decline – unless the servicer handles the reset differently than the industry norm. Many delay the payment adjustment for a year, sometimes more.
The most responsive type of mortgage to oversized payments is the home ownership accelerator, because it has no fixed payment requirement. The monthly amount owed fluctuates with the amount the mortgage holder has available to pay.
Source: The Washington Post, Jack Guttentag (12/22/2007)
Getting a windfall and using it to pay off the mortgage sounds like it should reduce the monthly amount owed, but often it doesn’t.
Fixed-rate mortgage holders who pay off a big chunk of their mortgage are likely to shorten the payoff period, but the infusion of cash probably won’t reduce at all the amount they owe monthly.
Holders of adjustable-rate mortgages who are making fully amortizing payments will get a payment adjustment at the point where the payment is recalculated after a rate adjustment.
Mortgages with an interest-only option should see their payment decline – unless the servicer handles the reset differently than the industry norm. Many delay the payment adjustment for a year, sometimes more.
The most responsive type of mortgage to oversized payments is the home ownership accelerator, because it has no fixed payment requirement. The monthly amount owed fluctuates with the amount the mortgage holder has available to pay.
Source: The Washington Post, Jack Guttentag (12/22/2007)
Despite Dollar Drop, Good Buys Overseas
From Realtor Magazine Online, Daily Real Estate News December 26, 2007
The European property market continues to appeal to U.S. buyers, despite the declining value of the dollar.
Some see foreign properties as a good place to park their dollars as opposed to the unpredictable U.S. market.
Although housing prices in many European countries are outpacing the U.S. market, there are deals to be found in Southern and Eastern Europe, experts say.
"You don't get as good a value as you would have a couple of years ago," says Jim Gillespie, president and chief executive of Coldwell Banker. But he believes that there are lots of good deals still available.
The 2007 Coldwell Banker Home Price Comparison Index, which compared the cost of a 2,200-square-foot, four-bedroom, 2 1/2 -bathroom home with a family room and two-car garage in 317 markets, pinpointed good deals in some markets and high prices in others.
The study ranked Dublin as the most expensive market, at $2.1 million, followed by Milan, Italy, $1.9 million; Rome, $1.7 million; and Paris, $1.7 million. Bogota, Colombia, ranked as the most affordable foreign market in the study at $140,100.
Los Angeles Times, Michelle Hofmann (12/23/2007)
The European property market continues to appeal to U.S. buyers, despite the declining value of the dollar.
Some see foreign properties as a good place to park their dollars as opposed to the unpredictable U.S. market.
Although housing prices in many European countries are outpacing the U.S. market, there are deals to be found in Southern and Eastern Europe, experts say.
"You don't get as good a value as you would have a couple of years ago," says Jim Gillespie, president and chief executive of Coldwell Banker. But he believes that there are lots of good deals still available.
The 2007 Coldwell Banker Home Price Comparison Index, which compared the cost of a 2,200-square-foot, four-bedroom, 2 1/2 -bathroom home with a family room and two-car garage in 317 markets, pinpointed good deals in some markets and high prices in others.
The study ranked Dublin as the most expensive market, at $2.1 million, followed by Milan, Italy, $1.9 million; Rome, $1.7 million; and Paris, $1.7 million. Bogota, Colombia, ranked as the most affordable foreign market in the study at $140,100.
Los Angeles Times, Michelle Hofmann (12/23/2007)
Friday, December 21, 2007
Mortgage Rates Rise for 2nd Week
From Realtor Magazine Online, Daily Real Estate News December 21, 2007
After sinking to a two-year low just two weeks ago, mortgage rates have returned to an upward trajectory.
Freddie Mac numbers showed that interest on 30-year fixed home loans averaged 6.14 percent for the current week, up from 6.11 percent the week before; while 15-year fixed loans bumped up to 5.79 percent from 5.78 percent over that same period.
One-year adjustable-rate mortgages edged up to 5.51 percent from 5.50 percent; and five-year ARMs settled at 5.90 percent, up a notch from 5.89 percent last week.
"Stronger-than-expected inflation reports and retail sales for November put upward pressure on long-term interest rates last week," says Freddie Mac chief economist Frank Nothaft.
Source:Baltimore Sun(12/21/07)
After sinking to a two-year low just two weeks ago, mortgage rates have returned to an upward trajectory.
Freddie Mac numbers showed that interest on 30-year fixed home loans averaged 6.14 percent for the current week, up from 6.11 percent the week before; while 15-year fixed loans bumped up to 5.79 percent from 5.78 percent over that same period.
One-year adjustable-rate mortgages edged up to 5.51 percent from 5.50 percent; and five-year ARMs settled at 5.90 percent, up a notch from 5.89 percent last week.
"Stronger-than-expected inflation reports and retail sales for November put upward pressure on long-term interest rates last week," says Freddie Mac chief economist Frank Nothaft.
Source:Baltimore Sun(12/21/07)
TAX BREAK FOR MORTGAGE DEBT FORGIVENESS
From C.A.R., Realegal
President Bush signed into law today a new measure giving tax breaks to homeowners who have mortgage debt forgiven. Under preexisting law, the debt forgiven by a lender, such as for short sales and refinances, was generally taxable to the borrower as debt discharge income. With the passage of the Mortgage Forgiveness Debt Relief Act of 2007, a taxpayer does not have to pay federal income tax on debt forgiven for a loan secured by a qualified principal residence.
This tax break applies to debts discharged from January 1, 2007 to December 31, 2009. Qualified principal residence indebtedness is debt incurred in acquiring, constructing, or substantially improving the residence (up to $2 million for refinances).
For purposes of calculating capital gains, any debts discharged excluded from income under the new law must be subtracted from the basis of the taxpayer's principal residence (but not below zero). However, taxpayers may generally exclude from capital gains income up to $250,000 (or $500,000 for married couples filing jointly) for properties owned and used as their principal residence for at least two of the last five years.
For a copy of the Mortgage Forgiveness Debt Relief Act of 2007, go to http://www.govtrack.us/congress/bill.xpd?bill=h110-3648.
President Bush signed into law today a new measure giving tax breaks to homeowners who have mortgage debt forgiven. Under preexisting law, the debt forgiven by a lender, such as for short sales and refinances, was generally taxable to the borrower as debt discharge income. With the passage of the Mortgage Forgiveness Debt Relief Act of 2007, a taxpayer does not have to pay federal income tax on debt forgiven for a loan secured by a qualified principal residence.
This tax break applies to debts discharged from January 1, 2007 to December 31, 2009. Qualified principal residence indebtedness is debt incurred in acquiring, constructing, or substantially improving the residence (up to $2 million for refinances).
For purposes of calculating capital gains, any debts discharged excluded from income under the new law must be subtracted from the basis of the taxpayer's principal residence (but not below zero). However, taxpayers may generally exclude from capital gains income up to $250,000 (or $500,000 for married couples filing jointly) for properties owned and used as their principal residence for at least two of the last five years.
For a copy of the Mortgage Forgiveness Debt Relief Act of 2007, go to http://www.govtrack.us/congress/bill.xpd?bill=h110-3648.
Thursday, December 20, 2007
Calif.: Buyer's Agent Agreements Grow More Common
From Realtor Magazine Online, Daily Real Estate News December 20, 2007
Buyer’s agent contracts in which buyers make all offers through their buyer representative or pay the representative a commission anyway are popular in some parts of the country like the midwest but have been slow to catch on in others.
Only about 10 percent of California Association of REALTORS® members use buyer loyalty contracts. In one type of contract, if the buyer winds up making an offer within six months on a house that the practitioner showed them (not just drove by but toured the interior), the rep is entitled to the commission.
Most contracts are for a fixed period of time – a weekend if an out-of-state buyer is coming in to look or two weeks if it's someone local. But the obligation to pay the practitioner a commission extends for six months if the home being bought is one seen during the initial showing period.
Some buyer’s agents also charge clients a retainer – $250 is typical – despite the fact that California and other states have stringent and somewhat cumbersome rules governing how the money is handled. The retainer is generally refundable at closing.
Source: The Los Angeles Times, Ann Brenoff (12/16/2007)
Buyer’s agent contracts in which buyers make all offers through their buyer representative or pay the representative a commission anyway are popular in some parts of the country like the midwest but have been slow to catch on in others.
Only about 10 percent of California Association of REALTORS® members use buyer loyalty contracts. In one type of contract, if the buyer winds up making an offer within six months on a house that the practitioner showed them (not just drove by but toured the interior), the rep is entitled to the commission.
Most contracts are for a fixed period of time – a weekend if an out-of-state buyer is coming in to look or two weeks if it's someone local. But the obligation to pay the practitioner a commission extends for six months if the home being bought is one seen during the initial showing period.
Some buyer’s agents also charge clients a retainer – $250 is typical – despite the fact that California and other states have stringent and somewhat cumbersome rules governing how the money is handled. The retainer is generally refundable at closing.
Source: The Los Angeles Times, Ann Brenoff (12/16/2007)
Wednesday, December 19, 2007
Commercial Real Estate Fundamentals Remain Sound
From Realtor Magazine Online, Daily Real Estate News December 19, 2007
The fundamentals in commercial real estate remain healthy with only slight increases in vacancy rates expected for the office and industrial sectors during 2008, although credit restrictions have recently slowed overall investment activity, according to the latest "Commercial Real Estate Outlook"of the NATIONAL ASSOCIATION OF REALTORS®.
NAR Chief Economist Lawrence Yun says commercial fundamentals are essentially sound.
“Although vacancy rates remain relatively low for all sectors, they are expected to rise slightly in the office and industrial markets during the coming year because much of the space being absorbed is in high-quality buildings or is built-to-suit,” he says. “As a result, there is a fair amount of older space on the market, particularly in the industrial sector where obsolescence is a factor, although industrial rents are showing healthy gains. Vacancy rates in the retail and multifamily sectors are projected to tighten in 2008 with rents rising in all sectors.”
Yun says the credit crunch has been impacting the market over the last few months, but 2007 is already a record for commercial real estate investment.
“Tighter credit conditions will limit individual commercial real estate investment deals moving forward,” he says. “Because capitalization rates are already very low, it is likely that commercial property prices will ease. The era of rapid commercial property price increases has ended.”
Record Investment
A record $325 billion was invested in commercial real estate in the first 10 months of 2007, up from $306.8 billion for all of 2006; that total does not include transactions valued at less than $5 million or investments in the hospitality sector, based on analysis of data from Real Capital Analytics.
Patricia Nooney of Saint Louis, chair of the REALTORS® Commercial Alliance, says commercial real estate investment is expected to stay historically strong.
“Even with the credit crunch there’s been no significant impact on institutional investors, and it’s unrealistic to set new records every year in a cyclical business,” she says “There’s been a shift in investment activity to foreign buyers, who are taking advantage of the dollar’s decline relative to other currencies. With many areas showing favorable fundamentals, commercial property in the U.S. has become very attractive to foreign investors.”
The NAR forecast in four major commercial sectors analyzes quarterly data for various tracked metro areas. The sectors are the office, industrial, retail and multifamily markets. Historic metro data were provided by Torto Wheaton Research and Real Capital Analytics. Office MarketWith jobs still being created, the demand for office space remains positive and is helping to absorb the more than 30 million square feet of new space becoming available in the current quarter. Investment grade office properties with solid income streams will be the most in demand by institutional investors, equity funds and foreign investors. Since not all of the vacated space is being back-filled or leased, office vacancies are forecast to rise to 13.2 percent by the fourth quarter of 2008 from an estimated 12.9 percent in the current quarter; it was 12.6 percent at the end of 2006.
Annual rent growth in the office sector should be 8.0 percent this year and 2.0 percent in 2008, after rising 5.2 percent in 2006.Projections for the fourth quarter show areas with the lowest office vacancies include New York City; Honolulu; Tucson, Ariz.; Long Island, N.Y.; Los Angeles; and Riverside, Calif., all with vacancy rates of 10 percent or less.
Net absorption of office space in 57 markets tracked, which includes the leasing of new space coming on the market as well as space in existing properties, is likely total 55.4 million square feet in 2007 and 43 million next year, but below the 81.2 million in 2006.
Office building transaction volume in the first 10 months of this year totaled a record $173.5 billion, compared with $133.5 billion for all of 2006. So far this year foreign investors purchased $12.5 billion worth of office properties, with buyers from the Middle East and Germany accounting for half of that volume.
Industrial Market
The weaker dollar is fueling an increase in exports, but leasing activity has declined in port distribution hubs, and vacancy rates in those markets are edging up; some users are building or renting in secondary markets.
With abundant land and relatively low concerns regarding site remediation, secondary and tertiary markets are experiencing greater interest. So far this year, nearly 16 percent of industrial investment has taken place outside of the 58 primary markets tracked.
Vacancy rates in the industrial sector are projected to average 9.4 percent in the fourth quarter and 9.5 percent by the end of 2008; vacancies averaged 9.4 percent in the fourth quarter of 2006. Annual rent growth will more than double to 3.3 percent by the end of 2007 and is seen at 1.3 percent a year from now, compared with a 1.4 percent annual gain at the end of 2006.
The areas with the lowest industrial vacancies include Los Angeles; San Francisco; Tucson; Orange County, Calif.; Portland, Ore.; and Las Vegas, all with vacancy rates of 6.1 percent or less.
Net absorption of industrial space in 58 markets tracked is expected total 127.4 million square feet in 2007 and 144.0 million next year, down from 205.4 million in 2006.
Industrial transaction volume in the first 10 months of 2007 was $35.8 billion, compared with $38.9 billion for all of 2006.
Retail Market
Even with a decline in consumer confidence, retail vacancy rates remain fairly stable. Declining production of new space will help improve fundamentals in this sector during 2008.Vacancy rates in the retail sector will probably rise to 8.9 percent in the current quarter from 8.0 percent at the end of last year, and then ease to 8.6 percent by the fourth quarter of 2008.
Average retail rent should grow by 2.2 percent this year and 1.9 percent in 2008, after rising 3.9 percent in 2006.
Retail markets with the lowest vacancies include San Francisco; Orange County, Calif.; San Jose, Calif.; Ventura County, Calif.; Washington, D.C.; and San Diego, all with vacancy rates of 5.5 percent or less.
Net absorption of retail space in 53 tracked markets is forecast at 18.6 million square feet for 2007 and 24.7 million next year, up from 10.5 million in 2006.
Retail transaction volume in the first 10 months of this year totaled $52.9 billion, exceeding the $46.9 billion for all of 2006. The Southeast is the most sought-out region this year.
Multifamily Market
The apartment rental market — multifamily housing — is experiencing increased demand from the slowdown in home sales. With a rising population and a growing number of households, vacancies are tightening and rents are rising.
Multifamily vacancy rates are projected to average 5.4 percent in the current quarter, down from 5.9 percent in the fourth quarter of last year, and then continue to decline to 5.1 percent by the end of 2008. Average rent is likely to rise 3.1 percent for 2007 and 3.8 percent next year, following a 4.1 percent increase in 2006.
Multifamily net absorption is expected to total 234,400 units in 59 tracked metro areas in 2007, below the 229,500 last year, but should rise to 245,800 in 2008.
The areas with the lowest apartment vacancies include Northern New Jersey, Salt Lake City, San Jose, San Diego, Nashville and Philadelphia, all with vacancy rates of 3.3 percent or less.
Multifamily transactions in the first 10 months of this year totaled $62.3 billion, compared with $87.4 billion for all of 2006. The sale of buildings originally constructed as condos are being sold to multifamily investors in markets like Washington, D.C., and South Florida.
Many markets have seen condo “for sale” signs change to “apartment for lease” signs almost overnight. Some condominium complexes are being converted into office buildings, and others are becoming mixed-use projects.
The fundamentals in commercial real estate remain healthy with only slight increases in vacancy rates expected for the office and industrial sectors during 2008, although credit restrictions have recently slowed overall investment activity, according to the latest "Commercial Real Estate Outlook"of the NATIONAL ASSOCIATION OF REALTORS®.
NAR Chief Economist Lawrence Yun says commercial fundamentals are essentially sound.
“Although vacancy rates remain relatively low for all sectors, they are expected to rise slightly in the office and industrial markets during the coming year because much of the space being absorbed is in high-quality buildings or is built-to-suit,” he says. “As a result, there is a fair amount of older space on the market, particularly in the industrial sector where obsolescence is a factor, although industrial rents are showing healthy gains. Vacancy rates in the retail and multifamily sectors are projected to tighten in 2008 with rents rising in all sectors.”
Yun says the credit crunch has been impacting the market over the last few months, but 2007 is already a record for commercial real estate investment.
“Tighter credit conditions will limit individual commercial real estate investment deals moving forward,” he says. “Because capitalization rates are already very low, it is likely that commercial property prices will ease. The era of rapid commercial property price increases has ended.”
Record Investment
A record $325 billion was invested in commercial real estate in the first 10 months of 2007, up from $306.8 billion for all of 2006; that total does not include transactions valued at less than $5 million or investments in the hospitality sector, based on analysis of data from Real Capital Analytics.
Patricia Nooney of Saint Louis, chair of the REALTORS® Commercial Alliance, says commercial real estate investment is expected to stay historically strong.
“Even with the credit crunch there’s been no significant impact on institutional investors, and it’s unrealistic to set new records every year in a cyclical business,” she says “There’s been a shift in investment activity to foreign buyers, who are taking advantage of the dollar’s decline relative to other currencies. With many areas showing favorable fundamentals, commercial property in the U.S. has become very attractive to foreign investors.”
The NAR forecast in four major commercial sectors analyzes quarterly data for various tracked metro areas. The sectors are the office, industrial, retail and multifamily markets. Historic metro data were provided by Torto Wheaton Research and Real Capital Analytics. Office MarketWith jobs still being created, the demand for office space remains positive and is helping to absorb the more than 30 million square feet of new space becoming available in the current quarter. Investment grade office properties with solid income streams will be the most in demand by institutional investors, equity funds and foreign investors. Since not all of the vacated space is being back-filled or leased, office vacancies are forecast to rise to 13.2 percent by the fourth quarter of 2008 from an estimated 12.9 percent in the current quarter; it was 12.6 percent at the end of 2006.
Annual rent growth in the office sector should be 8.0 percent this year and 2.0 percent in 2008, after rising 5.2 percent in 2006.Projections for the fourth quarter show areas with the lowest office vacancies include New York City; Honolulu; Tucson, Ariz.; Long Island, N.Y.; Los Angeles; and Riverside, Calif., all with vacancy rates of 10 percent or less.
Net absorption of office space in 57 markets tracked, which includes the leasing of new space coming on the market as well as space in existing properties, is likely total 55.4 million square feet in 2007 and 43 million next year, but below the 81.2 million in 2006.
Office building transaction volume in the first 10 months of this year totaled a record $173.5 billion, compared with $133.5 billion for all of 2006. So far this year foreign investors purchased $12.5 billion worth of office properties, with buyers from the Middle East and Germany accounting for half of that volume.
Industrial Market
The weaker dollar is fueling an increase in exports, but leasing activity has declined in port distribution hubs, and vacancy rates in those markets are edging up; some users are building or renting in secondary markets.
With abundant land and relatively low concerns regarding site remediation, secondary and tertiary markets are experiencing greater interest. So far this year, nearly 16 percent of industrial investment has taken place outside of the 58 primary markets tracked.
Vacancy rates in the industrial sector are projected to average 9.4 percent in the fourth quarter and 9.5 percent by the end of 2008; vacancies averaged 9.4 percent in the fourth quarter of 2006. Annual rent growth will more than double to 3.3 percent by the end of 2007 and is seen at 1.3 percent a year from now, compared with a 1.4 percent annual gain at the end of 2006.
The areas with the lowest industrial vacancies include Los Angeles; San Francisco; Tucson; Orange County, Calif.; Portland, Ore.; and Las Vegas, all with vacancy rates of 6.1 percent or less.
Net absorption of industrial space in 58 markets tracked is expected total 127.4 million square feet in 2007 and 144.0 million next year, down from 205.4 million in 2006.
Industrial transaction volume in the first 10 months of 2007 was $35.8 billion, compared with $38.9 billion for all of 2006.
Retail Market
Even with a decline in consumer confidence, retail vacancy rates remain fairly stable. Declining production of new space will help improve fundamentals in this sector during 2008.Vacancy rates in the retail sector will probably rise to 8.9 percent in the current quarter from 8.0 percent at the end of last year, and then ease to 8.6 percent by the fourth quarter of 2008.
Average retail rent should grow by 2.2 percent this year and 1.9 percent in 2008, after rising 3.9 percent in 2006.
Retail markets with the lowest vacancies include San Francisco; Orange County, Calif.; San Jose, Calif.; Ventura County, Calif.; Washington, D.C.; and San Diego, all with vacancy rates of 5.5 percent or less.
Net absorption of retail space in 53 tracked markets is forecast at 18.6 million square feet for 2007 and 24.7 million next year, up from 10.5 million in 2006.
Retail transaction volume in the first 10 months of this year totaled $52.9 billion, exceeding the $46.9 billion for all of 2006. The Southeast is the most sought-out region this year.
Multifamily Market
The apartment rental market — multifamily housing — is experiencing increased demand from the slowdown in home sales. With a rising population and a growing number of households, vacancies are tightening and rents are rising.
Multifamily vacancy rates are projected to average 5.4 percent in the current quarter, down from 5.9 percent in the fourth quarter of last year, and then continue to decline to 5.1 percent by the end of 2008. Average rent is likely to rise 3.1 percent for 2007 and 3.8 percent next year, following a 4.1 percent increase in 2006.
Multifamily net absorption is expected to total 234,400 units in 59 tracked metro areas in 2007, below the 229,500 last year, but should rise to 245,800 in 2008.
The areas with the lowest apartment vacancies include Northern New Jersey, Salt Lake City, San Jose, San Diego, Nashville and Philadelphia, all with vacancy rates of 3.3 percent or less.
Multifamily transactions in the first 10 months of this year totaled $62.3 billion, compared with $87.4 billion for all of 2006. The sale of buildings originally constructed as condos are being sold to multifamily investors in markets like Washington, D.C., and South Florida.
Many markets have seen condo “for sale” signs change to “apartment for lease” signs almost overnight. Some condominium complexes are being converted into office buildings, and others are becoming mixed-use projects.
Existing Home Sales to Trend Up in 2008
From National Association of Realtors
WASHINGTON, D.C. - Existing-home sales are projected to trend up in 2008, with pending home sales showing a slight near-term rise, according to the latest forecast by the National Association of Realtors®. However, a recovery for new-home sales is unlikely before 2009.
Lawrence Yun, NAR chief economist, said the worst part of the credit crunch has already worked its way through the data. “The unusual mortgage disruptions that peaked in August were clearly seen in lower home sales that were finalized in September and October, so the market was underperforming,” he said. “Now that mortgage conditions have improved, some postponed activity should turn up in existing-home sales over the next couple of months, and I expect sales at fairly stable to slightly higher levels.”
The Pending Home Sales Index,* a forward-looking indicator based on contracts signed in October, increased 0.6 percent to an index of 87.2 from an upwardly revised reading of 86.7 in September. It was the second consecutive monthly gain, but remained 18.4 percent below the October 2006 index of 106.8. “The broad trend over the coming year will be a gradual rise in existing-home sales, but because sales are exceptionally low in the final months of 2007, total sales for 2008 will be only modestly higher than 2007,” Yun said.
The PHSI in the Northeast jumped 16.0 percent in October to 80.6 but is 11.1 percent below a year ago. In the West, the index rose 8.4 percent to 87.3 but is 16.9 percent lower than October 2006. The index in the Midwest slipped 1.4 percent in October to 85.5 and is 11.7 percent below a year ago. In the South, the index dropped 7.8 percent in October to 91.6 and is 25.3 percent below October 2006.
“The improvement in the Northeast reaffirms a trend apparent for some months now that shows signs of recovery, noteworthy because that was the first region to slump, and the gain in the West indicates some easing of interest rates for jumbo loans,” Yun said. “Lawmakers need to understand that raising the loan limits on FHA and GSE-backed conventional loans will markedly improve mortgage availability.”
Existing-home sales are likely to total 5.67 million this year, the fifth highest on record, rising to 5.70 million in 2008, in contrast with 6.48 million in 2006. Existing-home prices should be down 1.9 percent to a median of $217,600 for all of 2007, and then rise 0.3 percent to $218,300 in 2008.
“Home price growth in the vast affordable midsection of America will help raise the national median existing-home price slightly in 2008. I then expect price appreciation to return to more normal patterns in 2009, perhaps rising one or two percentage points above the rate of inflation,” Yun said.
“Even with a modest decline in the national aggregate price this year, it’s important to keep in mind that nearly two-thirds of the metro areas in the U.S. are showing price increases,” he said. “The apparent disparity results from fewer sales in high-cost markets, so a change in the mix of sales is dragging down the national median home price.”
Areas showing healthy price gains include disparate markets such as Gary-Hammond, Ind.; Binghamton, N.Y.; Corpus Christi, Texas; and Spokane, Wash. “We can’t emphasis enough how much local conditions vary, even within a given area, so it’s important for consumers to make decisions based on local market conditions.”
New-home sales are forecast at 788,000 this year and 693,000 in 2008, down from 1.05 million 2006; no sustained improvement is seen for new homes until 2009. Because builders have correctly adjusted production, housing starts, including multifamily units, will probably total 1.36 million this year and 1.16 million in 2008, down from 1.80 million last year. The median new-home price is projected to drop 3.0 percent to $239,100 for 2007, and then decline another 0.2 percent to $236,600 in 2008.
The 30-year fixed-rate mortgage is estimated to rise slowly to the 6.4 percent range by the end of 2008, with additional cuts in the Fed funds rate lowering short-term interest rates; Growth in the U.S. gross domestic product (GDP) should be 2.1 percent in 2007, down from a 2.9 percent growth rate last year; GDP growth is forecast to improve to 2.4 percent in 2008; The unemployment rate is likely to average 4.6 percent for 2007, unchanged from last year, but rise to 5.0 percent in 2008. Inflation, as measured by the Consumer Price Index, will probably be 2.8 percent this year and 2.7 percent in 2008, down from 3.2 percent in 2006. Inflation-adjusted disposable personal income is estimated to grow 3.1 percent this year, the same as in 2006, and then grow 2.2 percent next year.
WASHINGTON, D.C. - Existing-home sales are projected to trend up in 2008, with pending home sales showing a slight near-term rise, according to the latest forecast by the National Association of Realtors®. However, a recovery for new-home sales is unlikely before 2009.
Lawrence Yun, NAR chief economist, said the worst part of the credit crunch has already worked its way through the data. “The unusual mortgage disruptions that peaked in August were clearly seen in lower home sales that were finalized in September and October, so the market was underperforming,” he said. “Now that mortgage conditions have improved, some postponed activity should turn up in existing-home sales over the next couple of months, and I expect sales at fairly stable to slightly higher levels.”
The Pending Home Sales Index,* a forward-looking indicator based on contracts signed in October, increased 0.6 percent to an index of 87.2 from an upwardly revised reading of 86.7 in September. It was the second consecutive monthly gain, but remained 18.4 percent below the October 2006 index of 106.8. “The broad trend over the coming year will be a gradual rise in existing-home sales, but because sales are exceptionally low in the final months of 2007, total sales for 2008 will be only modestly higher than 2007,” Yun said.
The PHSI in the Northeast jumped 16.0 percent in October to 80.6 but is 11.1 percent below a year ago. In the West, the index rose 8.4 percent to 87.3 but is 16.9 percent lower than October 2006. The index in the Midwest slipped 1.4 percent in October to 85.5 and is 11.7 percent below a year ago. In the South, the index dropped 7.8 percent in October to 91.6 and is 25.3 percent below October 2006.
“The improvement in the Northeast reaffirms a trend apparent for some months now that shows signs of recovery, noteworthy because that was the first region to slump, and the gain in the West indicates some easing of interest rates for jumbo loans,” Yun said. “Lawmakers need to understand that raising the loan limits on FHA and GSE-backed conventional loans will markedly improve mortgage availability.”
Existing-home sales are likely to total 5.67 million this year, the fifth highest on record, rising to 5.70 million in 2008, in contrast with 6.48 million in 2006. Existing-home prices should be down 1.9 percent to a median of $217,600 for all of 2007, and then rise 0.3 percent to $218,300 in 2008.
“Home price growth in the vast affordable midsection of America will help raise the national median existing-home price slightly in 2008. I then expect price appreciation to return to more normal patterns in 2009, perhaps rising one or two percentage points above the rate of inflation,” Yun said.
“Even with a modest decline in the national aggregate price this year, it’s important to keep in mind that nearly two-thirds of the metro areas in the U.S. are showing price increases,” he said. “The apparent disparity results from fewer sales in high-cost markets, so a change in the mix of sales is dragging down the national median home price.”
Areas showing healthy price gains include disparate markets such as Gary-Hammond, Ind.; Binghamton, N.Y.; Corpus Christi, Texas; and Spokane, Wash. “We can’t emphasis enough how much local conditions vary, even within a given area, so it’s important for consumers to make decisions based on local market conditions.”
New-home sales are forecast at 788,000 this year and 693,000 in 2008, down from 1.05 million 2006; no sustained improvement is seen for new homes until 2009. Because builders have correctly adjusted production, housing starts, including multifamily units, will probably total 1.36 million this year and 1.16 million in 2008, down from 1.80 million last year. The median new-home price is projected to drop 3.0 percent to $239,100 for 2007, and then decline another 0.2 percent to $236,600 in 2008.
The 30-year fixed-rate mortgage is estimated to rise slowly to the 6.4 percent range by the end of 2008, with additional cuts in the Fed funds rate lowering short-term interest rates; Growth in the U.S. gross domestic product (GDP) should be 2.1 percent in 2007, down from a 2.9 percent growth rate last year; GDP growth is forecast to improve to 2.4 percent in 2008; The unemployment rate is likely to average 4.6 percent for 2007, unchanged from last year, but rise to 5.0 percent in 2008. Inflation, as measured by the Consumer Price Index, will probably be 2.8 percent this year and 2.7 percent in 2008, down from 3.2 percent in 2006. Inflation-adjusted disposable personal income is estimated to grow 3.1 percent this year, the same as in 2006, and then grow 2.2 percent next year.
Monday, December 17, 2007
Insurers Favor High-Value Homes
From Realtor Magazine Online, Daily Real Estate News December 17, 2007
Insurers are offering owners of multi-million-dollar coastal homes insurance packages that — while costly — provide extensive coverage not usually available to owners of lesser properties.
The main reason that insurers like high-value homes is their top-quality construction, which makes them more likely to withstand hurricanes and earthquakes."
Along the coast, newer homes tend to be of higher value, but they're also better constructed," says Robert Hartwig, president of the Insurance Information Institute. "The fact of the matter is [high-value homes] are built like bunkers."
Nevertheless, this sort of insurance isn’t cheap. Chubb Group, which is one of the major writers in this space, charges about $10,000 per year for a $2 million home — with costs in vulnerable and expensive areas like Miami Beach running as much as $25,000 per year. Deductibles are 2 percent to 5 percent.
Installing such safety measures as lightning rods, surge protectors, back-up communications for alarm systems, seismic gas valve shut-offs, and low-temperature sensors in colder climates can cut costs up to 15 percent.
Source: Investor’s Business Daily, Brad Kelly (12/13/07)
Insurers are offering owners of multi-million-dollar coastal homes insurance packages that — while costly — provide extensive coverage not usually available to owners of lesser properties.
The main reason that insurers like high-value homes is their top-quality construction, which makes them more likely to withstand hurricanes and earthquakes."
Along the coast, newer homes tend to be of higher value, but they're also better constructed," says Robert Hartwig, president of the Insurance Information Institute. "The fact of the matter is [high-value homes] are built like bunkers."
Nevertheless, this sort of insurance isn’t cheap. Chubb Group, which is one of the major writers in this space, charges about $10,000 per year for a $2 million home — with costs in vulnerable and expensive areas like Miami Beach running as much as $25,000 per year. Deductibles are 2 percent to 5 percent.
Installing such safety measures as lightning rods, surge protectors, back-up communications for alarm systems, seismic gas valve shut-offs, and low-temperature sensors in colder climates can cut costs up to 15 percent.
Source: Investor’s Business Daily, Brad Kelly (12/13/07)
Thursday, December 13, 2007
A dirty job, but someone has to do it!
From The Economist Print Edition, Dec 13th 2007 WASHINGTON, DC
In concert, central bankers try showering cash on the credit crisis.
CENTRAL bankers are supposed to be boring and predictable. But on December 12th the rich world's monetary authorities stunned financial markets with a dramatic, joint plan to ease the liquidity squeeze in global money markets. America's Federal Reserve, the Bank of England, the European Central Bank (ECB), the Bank of Canada and the Swiss National Bank all pitched in. The central banks of Sweden and Japan said they, too, were watching developments and would act as necessary. All told, it was an impressive show of central-bank co-ordination.
Financial markets have been seizing up for weeks. The spreads between the federal funds rate and the prices charged by banks to borrow from each other have widened dramatically since early November (see chart). By some measures, the financial system is more blocked than it was in September. And it has long been clear that central banks' attempts to sort out the mess were failing. The Fed's discount window, for instance, through which it lends direct to banks, has barely been approached, despite the soaring spreads in the interbank market.
The quarter-point cuts in its federal funds rate and discount rate on December 11th were followed by a steep sell-off in the stockmarket. This was only partially reversed the next day after the central-bank effort. On December 12th the crucial interbank market did reflect more confidence, however. The three-month lending rate in dollars fell more than a quarter of a percentage point.
The central banks have pinched each others' best ideas for how best to ensure that liquidity gets where it is needed. And they have also, in effect, acknowledged the international nature of the liquidity squeeze, by promising to provide reciprocal currency-swap lines.
The Fed made the most dramatic changes. It introduced a “term-auction facility” through which all banks eligible to borrow from the discount window could bid for one-month money. The first two auctions are to be held on December 17th and 20th, with $20 billion to be sold at each. Two more are to follow in January. The Fed also announced temporary swap lines with the ECB and the Swiss National Bank, worth $24 billion, allowing those banks to lend dollars to banks pledging euros or other currencies.
The Bank of England promised to inject more money into the markets, increasing its two forthcoming term auctions, on December 18th and January 15th, from £2.85 billion ($5.8 billion) to £11.35 billion each time. In all, £20 billion will be supplied at three-month maturities, where strains have once again become particularly acute. And unlike its previous emergency auctions, in late September and October, the price of these funds will be determined by market demand at the auction, not set at the penalty rate that deterred any bank from bidding for the money.
The hope is that by extending the maturity of central-bank money, broadening the range of collateral against which banks can borrow and shifting from direct lending to an auction, the central bankers will bring down spreads in the one- and three-month money markets. There will be no net addition of liquidity. What the central bankers add at longer-term maturities, they will take out in the overnight market.
In some ways, the announcement is a triumph for the ECB. Both the Fed and the Bank of England have shifted away from the familiar tools of a lender-of-last resort—providing funds freely to institutions at a penalty rate. They have moved closer to the ECB's approach of auctioning funds to a broader set of actors against a wider range of collateral—in effect becoming a market of last resort. The shift makes sense: in both Britain and America it was increasingly clear that the stigma associated with approaching the central bank directly was deterring deserving borrowers. Bagehot's dictum needed updating when the crisis of confidence affected entire markets rather than single banks.
But there are risks. The first is that, for all the fanfare, the central banks' plan will make little difference. After all, it does nothing to remove the fundamental reason why investors are worried about lending to banks. This is the uncertainty about potential losses from subprime mortgages and the products based on them, and—given that uncertainty—the banks' own desire to hoard capital against the chance that they will have to strengthen their balance sheets. Nor is the shift from direct lending to auction sure to work: for all the praise heaped upon the ECB, the spread between the ECB's repo rate and euro-denominated interbank rates is no less worrying than that in America or Britain.
Furthermore, central banks will now be more intricately involved in the unwinding of the credit mess. Since more banks have access to the liquidity auction, the central banks are implicitly subsidising weaker banks relative to stronger ones. By broadening the range of acceptable collateral, the central banks are taking more risks onto their balance sheets.
Set against the dangers of all-out financial seizure, these risks seem worth taking. More important, if they succeed in even modestly loosening the money markets, they will reduce the pressure on central banks to use the broader tool of lower policy rates. Across the developed world monetary policy is becoming increasingly hard to steer. Growth is slowing, because of the fall-out from the financial turmoil and the weakening American economy. In its recent Economic Outlook the OECD revised down expectations for 2008 growth in virtually every country. Yet strong growth in emerging economies is stoking commodity-price inflation. Even if financial markets were functioning normally, central bankers would face hard choices. With the system gummed up, that calculus is harder still.
In concert, central bankers try showering cash on the credit crisis.
CENTRAL bankers are supposed to be boring and predictable. But on December 12th the rich world's monetary authorities stunned financial markets with a dramatic, joint plan to ease the liquidity squeeze in global money markets. America's Federal Reserve, the Bank of England, the European Central Bank (ECB), the Bank of Canada and the Swiss National Bank all pitched in. The central banks of Sweden and Japan said they, too, were watching developments and would act as necessary. All told, it was an impressive show of central-bank co-ordination.
Financial markets have been seizing up for weeks. The spreads between the federal funds rate and the prices charged by banks to borrow from each other have widened dramatically since early November (see chart). By some measures, the financial system is more blocked than it was in September. And it has long been clear that central banks' attempts to sort out the mess were failing. The Fed's discount window, for instance, through which it lends direct to banks, has barely been approached, despite the soaring spreads in the interbank market.
The quarter-point cuts in its federal funds rate and discount rate on December 11th were followed by a steep sell-off in the stockmarket. This was only partially reversed the next day after the central-bank effort. On December 12th the crucial interbank market did reflect more confidence, however. The three-month lending rate in dollars fell more than a quarter of a percentage point.
The central banks have pinched each others' best ideas for how best to ensure that liquidity gets where it is needed. And they have also, in effect, acknowledged the international nature of the liquidity squeeze, by promising to provide reciprocal currency-swap lines.
The Fed made the most dramatic changes. It introduced a “term-auction facility” through which all banks eligible to borrow from the discount window could bid for one-month money. The first two auctions are to be held on December 17th and 20th, with $20 billion to be sold at each. Two more are to follow in January. The Fed also announced temporary swap lines with the ECB and the Swiss National Bank, worth $24 billion, allowing those banks to lend dollars to banks pledging euros or other currencies.
The Bank of England promised to inject more money into the markets, increasing its two forthcoming term auctions, on December 18th and January 15th, from £2.85 billion ($5.8 billion) to £11.35 billion each time. In all, £20 billion will be supplied at three-month maturities, where strains have once again become particularly acute. And unlike its previous emergency auctions, in late September and October, the price of these funds will be determined by market demand at the auction, not set at the penalty rate that deterred any bank from bidding for the money.
The hope is that by extending the maturity of central-bank money, broadening the range of collateral against which banks can borrow and shifting from direct lending to an auction, the central bankers will bring down spreads in the one- and three-month money markets. There will be no net addition of liquidity. What the central bankers add at longer-term maturities, they will take out in the overnight market.
In some ways, the announcement is a triumph for the ECB. Both the Fed and the Bank of England have shifted away from the familiar tools of a lender-of-last resort—providing funds freely to institutions at a penalty rate. They have moved closer to the ECB's approach of auctioning funds to a broader set of actors against a wider range of collateral—in effect becoming a market of last resort. The shift makes sense: in both Britain and America it was increasingly clear that the stigma associated with approaching the central bank directly was deterring deserving borrowers. Bagehot's dictum needed updating when the crisis of confidence affected entire markets rather than single banks.
But there are risks. The first is that, for all the fanfare, the central banks' plan will make little difference. After all, it does nothing to remove the fundamental reason why investors are worried about lending to banks. This is the uncertainty about potential losses from subprime mortgages and the products based on them, and—given that uncertainty—the banks' own desire to hoard capital against the chance that they will have to strengthen their balance sheets. Nor is the shift from direct lending to auction sure to work: for all the praise heaped upon the ECB, the spread between the ECB's repo rate and euro-denominated interbank rates is no less worrying than that in America or Britain.
Furthermore, central banks will now be more intricately involved in the unwinding of the credit mess. Since more banks have access to the liquidity auction, the central banks are implicitly subsidising weaker banks relative to stronger ones. By broadening the range of acceptable collateral, the central banks are taking more risks onto their balance sheets.
Set against the dangers of all-out financial seizure, these risks seem worth taking. More important, if they succeed in even modestly loosening the money markets, they will reduce the pressure on central banks to use the broader tool of lower policy rates. Across the developed world monetary policy is becoming increasingly hard to steer. Growth is slowing, because of the fall-out from the financial turmoil and the weakening American economy. In its recent Economic Outlook the OECD revised down expectations for 2008 growth in virtually every country. Yet strong growth in emerging economies is stoking commodity-price inflation. Even if financial markets were functioning normally, central bankers would face hard choices. With the system gummed up, that calculus is harder still.
Fed Rate Cut Likely to Help Only Some ARM Borrowers
From Realtor Magazine Online, Daily Real Estate News December 13, 2007
The biggest beneficiaries of the Federal Reserve’s rate cut are borrowers with adjustable-rate mortgages linked to one-year Treasury bills, says Greg McBride, senior financial analyst for Bankrate.com.
On an ARM with a margin of 2.5 percentage points above the Treasury index, the new rate would be 5.7 percent, McBride says, instead of the 7.5 percent it would have been if the loan had reset in July. For a homeowner with a $200,000 mortgage balance and 27 years left on the loan, that works out to an increase of $140 a month, vs. $370 if the rate had reset a few months ago.
About half of adjustable-rate mortgages are tied to Treasury securities. However, the Fed rate cut will not help borrowers whose adjustable-rate mortgages are tied to the London Interbank Offered Rate, or LIBOR index. Most subprime loans are tied to the LIBOR.
Source: USA Today, Sandra Block (12/12/2007)
The biggest beneficiaries of the Federal Reserve’s rate cut are borrowers with adjustable-rate mortgages linked to one-year Treasury bills, says Greg McBride, senior financial analyst for Bankrate.com.
On an ARM with a margin of 2.5 percentage points above the Treasury index, the new rate would be 5.7 percent, McBride says, instead of the 7.5 percent it would have been if the loan had reset in July. For a homeowner with a $200,000 mortgage balance and 27 years left on the loan, that works out to an increase of $140 a month, vs. $370 if the rate had reset a few months ago.
About half of adjustable-rate mortgages are tied to Treasury securities. However, the Fed rate cut will not help borrowers whose adjustable-rate mortgages are tied to the London Interbank Offered Rate, or LIBOR index. Most subprime loans are tied to the LIBOR.
Source: USA Today, Sandra Block (12/12/2007)
Fed Pumps Up Banking System to Treat Credit Crunch
From Realtor Magazine Online, Daily Real Estate News December 13, 2007
The Federal Reserve announced an agreement Wednesday with four foreign central banks to inject billions of dollars into the world’s financial system to make more money available for big banks to lend to smaller ones.
The Fed said it would lend at least $40 billion to cash-strapped U.S. banks starting next week, and make $24 billion available to the European Central Bank and the Swiss National Bank to alleviate demand for dollars in Europe. It also has agreed to make dollars available to the Canadian and British central banks.
The move is seen as an innovative approach to ending the credit crunch and warding off recession than just lowering the benchmark interest rate.
"This Fed has surprised people with its ability to think outside the box," says Jay H. Bryson, global economist for Wachovia Corp. "It's trying to take a more targeted approach to financial problems, instead of the sledgehammer of cutting the benchmark federal funds rate.
By themselves, the Fed actions will not reverse slumping home prices or erase trouble with mortgage-backed securities that have fallen out of favor with investors because of the subprime home loan crisis. But analysts say that the concerted effort by the central banks would help the global financial system buy time to fix the problems on its own.
Source Los Angeles Times, Peter G. Gosselin (12/13/2007)
The Federal Reserve announced an agreement Wednesday with four foreign central banks to inject billions of dollars into the world’s financial system to make more money available for big banks to lend to smaller ones.
The Fed said it would lend at least $40 billion to cash-strapped U.S. banks starting next week, and make $24 billion available to the European Central Bank and the Swiss National Bank to alleviate demand for dollars in Europe. It also has agreed to make dollars available to the Canadian and British central banks.
The move is seen as an innovative approach to ending the credit crunch and warding off recession than just lowering the benchmark interest rate.
"This Fed has surprised people with its ability to think outside the box," says Jay H. Bryson, global economist for Wachovia Corp. "It's trying to take a more targeted approach to financial problems, instead of the sledgehammer of cutting the benchmark federal funds rate.
By themselves, the Fed actions will not reverse slumping home prices or erase trouble with mortgage-backed securities that have fallen out of favor with investors because of the subprime home loan crisis. But analysts say that the concerted effort by the central banks would help the global financial system buy time to fix the problems on its own.
Source Los Angeles Times, Peter G. Gosselin (12/13/2007)
Home loan apps post gains
From Inman News, Thursday, December 13, 2007
Mortgage application volume rose last week even as interest rates climbed, the Mortgage Bankers Association reported Wednesday.
The group's market composite index, a measure of total home loan application volume, gained 2.5 percent on a seasonally adjusted basis from the end of November, pushed higher by strong refinancing activity.
MBA reported an increase of 4.3 percent in the index that tracks applications for refinancings and a 1.7 percent gain in the purchase-loan index. As a result, the refi share of applications last week rose to 57.6 percent from 56 percent the previous week.
The adjustable-rate mortgage (ARM) share of activity, however, dropped to 9.4 percent from 11.6 percent the week before.
Borrowing costs rose considerably last week as the average contract interest rate on 30-year fixed-rate mortgages jumped to 6.07 percent from 5.82 percent one week earlier, and the average 15-year fixed climbed to 5.72 percent from 5.38 percent. The average rate on one-year ARMs moved from 6.28 percent to 6.31 percent.
Points, or loan-processing fees expressed as a percent of the total loan amount, averaged 1.17 on the 30-year loans, 1.01 on the 15-year, and 0.97 on one-year ARMs -- compared with 1.07, 1.12 and 0.99, respectively, in the previous week. These points include the origination fee and are based on loan-to-value ratios of 80 percent.
The Mortgage Bankers Association survey covers approximately 50 percent of all U.S. retail residential mortgage originations, and has been conducted weekly since 1990. Respondents include mortgage bankers, commercial banks and thrifts.
Mortgage application volume rose last week even as interest rates climbed, the Mortgage Bankers Association reported Wednesday.
The group's market composite index, a measure of total home loan application volume, gained 2.5 percent on a seasonally adjusted basis from the end of November, pushed higher by strong refinancing activity.
MBA reported an increase of 4.3 percent in the index that tracks applications for refinancings and a 1.7 percent gain in the purchase-loan index. As a result, the refi share of applications last week rose to 57.6 percent from 56 percent the previous week.
The adjustable-rate mortgage (ARM) share of activity, however, dropped to 9.4 percent from 11.6 percent the week before.
Borrowing costs rose considerably last week as the average contract interest rate on 30-year fixed-rate mortgages jumped to 6.07 percent from 5.82 percent one week earlier, and the average 15-year fixed climbed to 5.72 percent from 5.38 percent. The average rate on one-year ARMs moved from 6.28 percent to 6.31 percent.
Points, or loan-processing fees expressed as a percent of the total loan amount, averaged 1.17 on the 30-year loans, 1.01 on the 15-year, and 0.97 on one-year ARMs -- compared with 1.07, 1.12 and 0.99, respectively, in the previous week. These points include the origination fee and are based on loan-to-value ratios of 80 percent.
The Mortgage Bankers Association survey covers approximately 50 percent of all U.S. retail residential mortgage originations, and has been conducted weekly since 1990. Respondents include mortgage bankers, commercial banks and thrifts.
Overnight real estate rates higher
From Inman News, Thursday, December 13, 2007
Long-term mortgage interest rates were up Wednesday, and the benchmark 10-year Treasury bond yield climbed to 4.09 percent.
The 30-year fixed-rate average rose to 5.79 percent, and the 15-year fixed rate gained to 5.39 percent.
The 1-year adjustable rate was up at 5.58 percent.
The 30-year Treasury bond yield edged up to 4.54 percent.
Points on these mortgages range from zero to 3.5.
Rates and bonds are current as of 7:15 p.m. Eastern Standard Time. Mortgage rate figures are according to Bankrate.com, which publishes nightly averages based on its survey of 4,000 banks in 50 states.
Long-term mortgage interest rates were up Wednesday, and the benchmark 10-year Treasury bond yield climbed to 4.09 percent.
The 30-year fixed-rate average rose to 5.79 percent, and the 15-year fixed rate gained to 5.39 percent.
The 1-year adjustable rate was up at 5.58 percent.
The 30-year Treasury bond yield edged up to 4.54 percent.
Points on these mortgages range from zero to 3.5.
Rates and bonds are current as of 7:15 p.m. Eastern Standard Time. Mortgage rate figures are according to Bankrate.com, which publishes nightly averages based on its survey of 4,000 banks in 50 states.
Wednesday, December 12, 2007
Mortgage Applications Rise 2.5 Percent for the Week
From Realtor Magazine Online, Daily Real Estate News December 12, 2007
Mortgage applications rose again last week, up 2.5 percent to 811.8 from 791.8 the previous week on an adjusted basis, according to the weekly mortgage applications survey released by the Mortgage Bankers Association.
On an unadjusted basis, the index increased 1.4 percent compared with the previous week and was up 14.2 percent compared with the same week a year ago.
The refinance index rose 4.3 percent and the refinance share of mortgage activity increased to 57.6 percent of total applications, even though average mortgage rates were up slightly.
Here's what happened with interest rates for the week:
- 30-year fixed-rate mortgages increased to 6.07 percent from 5.82 percent.
- 15-year fixed-rate mortgages increased to 5.72.
- 1-year ARMs increased to 6.31 percent.
Source: Mortgage Bankers Association (12/12/07)
Mortgage applications rose again last week, up 2.5 percent to 811.8 from 791.8 the previous week on an adjusted basis, according to the weekly mortgage applications survey released by the Mortgage Bankers Association.
On an unadjusted basis, the index increased 1.4 percent compared with the previous week and was up 14.2 percent compared with the same week a year ago.
The refinance index rose 4.3 percent and the refinance share of mortgage activity increased to 57.6 percent of total applications, even though average mortgage rates were up slightly.
Here's what happened with interest rates for the week:
- 30-year fixed-rate mortgages increased to 6.07 percent from 5.82 percent.
- 15-year fixed-rate mortgages increased to 5.72.
- 1-year ARMs increased to 6.31 percent.
Source: Mortgage Bankers Association (12/12/07)
Fed Cuts Key Rate a Quarter Point to 4.25 Percent
From Realtor Magazine Online, Daily Real Estate News December 12, 2007
The Federal Reserve dropped the federal funds rate by one-quarter point Tuesday to 4.25 percent. The rate reduction is the third this year.
The Fed also lowered its lending rates to banks by one-quarter-percentage point to 4.75 percent. That was the fourth cut to the discount rate since mid-August.
Both the funds rate and the prime rate are now at their lowest levels in nearly two years. The Fed hopes the cuts will stimulate economic growth, but Wall Street investors had hoped for more and the market responded by falling 300 points on Tuesday.
"Economic growth is slowing, reflecting the intensification of the housing correction and some softening in business and consumer spending. Moreover, strains in financial markets have increased in recent weeks," the Fed said in a statement explaining its decision to cut rates again.
Source: The Associated Press, Jeannine Aversa (12/11/07)
The Federal Reserve dropped the federal funds rate by one-quarter point Tuesday to 4.25 percent. The rate reduction is the third this year.
The Fed also lowered its lending rates to banks by one-quarter-percentage point to 4.75 percent. That was the fourth cut to the discount rate since mid-August.
Both the funds rate and the prime rate are now at their lowest levels in nearly two years. The Fed hopes the cuts will stimulate economic growth, but Wall Street investors had hoped for more and the market responded by falling 300 points on Tuesday.
"Economic growth is slowing, reflecting the intensification of the housing correction and some softening in business and consumer spending. Moreover, strains in financial markets have increased in recent weeks," the Fed said in a statement explaining its decision to cut rates again.
Source: The Associated Press, Jeannine Aversa (12/11/07)
Monday, December 10, 2007
Fed Expected to Cut Key Rates on Tuesday
From Realtor Magazine Online, Daily Real Estate News December 10, 2007
The Federal Reserve is poised to cut its key rates again when it meets Tuesday.
The predicted reduction by as much as a half point in the wake of a credit crisis caused by investments in subprime mortgages has left some analysts skeptical about the Fed’s role in financial markets.
Some critics say lowering rates means the Fed is bailing out investors and encouraging more sloppy decision-making.
Janet Yellen, president of the Federal Reserve Bank of San Francisco, said: "We face a risk that the problems in the housing market could spill over" and sap consumer spending "in a bigger way" than anticipated.
William Poole, president of the Federal Reserve Bank of St. Louis, puts the situation more bluntly. "It makes no sense to let the economy suffer from continuing declines in stock prices for the purpose of `teaching stock market speculators a lesson,'" he says.
Source: The Associated Press, Jeannine Aversa (12/09/2007)
The Federal Reserve is poised to cut its key rates again when it meets Tuesday.
The predicted reduction by as much as a half point in the wake of a credit crisis caused by investments in subprime mortgages has left some analysts skeptical about the Fed’s role in financial markets.
Some critics say lowering rates means the Fed is bailing out investors and encouraging more sloppy decision-making.
Janet Yellen, president of the Federal Reserve Bank of San Francisco, said: "We face a risk that the problems in the housing market could spill over" and sap consumer spending "in a bigger way" than anticipated.
William Poole, president of the Federal Reserve Bank of St. Louis, puts the situation more bluntly. "It makes no sense to let the economy suffer from continuing declines in stock prices for the purpose of `teaching stock market speculators a lesson,'" he says.
Source: The Associated Press, Jeannine Aversa (12/09/2007)
NAR: Another Monthly Gain for Pending Home Sales
From Realtor Magazine Online, Daily Real Estate News December 10, 2007
The Pending Home Sales Index, a forward-looking indicator based on contracts signed, increased 0.6 percent in October, marking the second consecutive monthly gain, according to the NATIONAL ASSOCIATION OF REALTORS®.
The index rose to 87.2 from an upwardly revised reading of 86.7 in September. However, the October index still was 18.4 percent below year-earlier reading of 106.8.
“The broad trend over the coming year will be a gradual rise in existing-home sales,” says Lawrence Yun, NAR’s chief economist. “But because sales are exceptionally low in the final months of 2007, total sales for 2008 will be only modestly higher than 2007.” A recovery for new-home sales is unlikely before 2009, he adds.
Yun says the worst part of the credit crunch has already worked its way through the data: “Now that mortgage conditions have improved, some postponed activity should turn up in existing-home sales over the next couple of months, and I expect sales at fairly stable to slightly higher levels.”
Existing-home sales in 2007 are likely to total 5.67 million this year, the fifth highest on record, and then rise to 5.70 million in 2008. By comparison, home sales in 2006 totaled 6.48 million.
Regional Pending Home Sales Data
Pending home sales in the Northeast jumped 16.0 percent in October to 80.6 but is 11.1 percent below a year ago. In the West, the index rose 8.4 percent to 87.3 but is 16.9 percent lower than October 2006. The index in the Midwest slipped 1.4 percent in October to 85.5 and is 11.7 percent below a year ago. In the South, the index dropped 7.8 percent in October to 91.6 and is 25.3 percent below October 2006.
“The improvement in the Northeast reaffirms a trend apparent for some months now that shows signs of recovery, noteworthy because that was the first region to slump, and the gain in the West indicates some easing of interest rates for jumbo loans,” Yun says.
He says that raising the loan limits on FHA and GSE-backed conventional loans will markedly improve mortgage availability.
A Look at Prices: Slight Growth Expected
Prices for existing homes should be down 1.9 percent to a median of $217,600 for all of 2007, and then rise 0.3 percent to $218,300 in 2008.
“Home price growth in the vast affordable midsection of America will help raise the national median existing-home price slightly in 2008. I then expect price appreciation to return to more normal patterns in 2009, perhaps rising one or two percentage points above the rate of inflation,” Yun said.
Even with a modest decline in the national aggregate price this year, it’s important to keep in mind that nearly two-thirds of the metro areas in the U.S. are showing price increases, Yun says. “The apparent disparity results from fewer sales in high-cost markets, so a change in the mix of sales is dragging down the national median home price.”
Areas showing healthy price gains include disparate markets such as Gary-Hammond, Ind.; Binghamton, N.Y.; Corpus Christi, Texas; and Spokane, Wash. “We can’t emphasis enough how much local conditions vary, even within a given area, so it’s important for consumers to make decisions based on local market conditions.”
Forecast for New Home Sales
New-home sales are forecast at 788,000 this year and 693,000 in 2008, down from 1.05 million 2006; no sustained improvement is seen for new homes until 2009.
Because builders have correctly adjusted production, housing starts, including multifamily units, will probably total 1.36 million this year and 1.16 million in 2008, down from 1.80 million last year.
The median new-home price is projected to drop 3.0 percent to $239,100 for 2007, and then decline another 0.2 percent to $236,600 in 2008.
Economic Outlook: Mortgage, GDP, Employment
The 30-year fixed-rate mortgage is estimated to rise slowly to the 6.4 percent range by the end of 2008, with additional cuts in the Fed funds rate lowering short-term interest rates.
Growth in the U.S. gross domestic product (GDP) should be 2.1 percent in 2007, down from a 2.9 percent growth rate last year; GDP growth is forecast to improve to 2.4 percent in 2008.
The unemployment rate is likely to average 4.6 percent for 2007, unchanged from last year, but rise to 5.0 percent in 2008. Inflation, as measured by the Consumer Price Index, will probably be 2.8 percent this year and 2.7 percent in 2008, down from 3.2 percent in 2006. Inflation-adjusted disposable personal income is estimated to grow 3.1 percent this year, the same as in 2006, and then grow 2.2 percent next year.
The Pending Home Sales Index, a forward-looking indicator based on contracts signed, increased 0.6 percent in October, marking the second consecutive monthly gain, according to the NATIONAL ASSOCIATION OF REALTORS®.
The index rose to 87.2 from an upwardly revised reading of 86.7 in September. However, the October index still was 18.4 percent below year-earlier reading of 106.8.
“The broad trend over the coming year will be a gradual rise in existing-home sales,” says Lawrence Yun, NAR’s chief economist. “But because sales are exceptionally low in the final months of 2007, total sales for 2008 will be only modestly higher than 2007.” A recovery for new-home sales is unlikely before 2009, he adds.
Yun says the worst part of the credit crunch has already worked its way through the data: “Now that mortgage conditions have improved, some postponed activity should turn up in existing-home sales over the next couple of months, and I expect sales at fairly stable to slightly higher levels.”
Existing-home sales in 2007 are likely to total 5.67 million this year, the fifth highest on record, and then rise to 5.70 million in 2008. By comparison, home sales in 2006 totaled 6.48 million.
Regional Pending Home Sales Data
Pending home sales in the Northeast jumped 16.0 percent in October to 80.6 but is 11.1 percent below a year ago. In the West, the index rose 8.4 percent to 87.3 but is 16.9 percent lower than October 2006. The index in the Midwest slipped 1.4 percent in October to 85.5 and is 11.7 percent below a year ago. In the South, the index dropped 7.8 percent in October to 91.6 and is 25.3 percent below October 2006.
“The improvement in the Northeast reaffirms a trend apparent for some months now that shows signs of recovery, noteworthy because that was the first region to slump, and the gain in the West indicates some easing of interest rates for jumbo loans,” Yun says.
He says that raising the loan limits on FHA and GSE-backed conventional loans will markedly improve mortgage availability.
A Look at Prices: Slight Growth Expected
Prices for existing homes should be down 1.9 percent to a median of $217,600 for all of 2007, and then rise 0.3 percent to $218,300 in 2008.
“Home price growth in the vast affordable midsection of America will help raise the national median existing-home price slightly in 2008. I then expect price appreciation to return to more normal patterns in 2009, perhaps rising one or two percentage points above the rate of inflation,” Yun said.
Even with a modest decline in the national aggregate price this year, it’s important to keep in mind that nearly two-thirds of the metro areas in the U.S. are showing price increases, Yun says. “The apparent disparity results from fewer sales in high-cost markets, so a change in the mix of sales is dragging down the national median home price.”
Areas showing healthy price gains include disparate markets such as Gary-Hammond, Ind.; Binghamton, N.Y.; Corpus Christi, Texas; and Spokane, Wash. “We can’t emphasis enough how much local conditions vary, even within a given area, so it’s important for consumers to make decisions based on local market conditions.”
Forecast for New Home Sales
New-home sales are forecast at 788,000 this year and 693,000 in 2008, down from 1.05 million 2006; no sustained improvement is seen for new homes until 2009.
Because builders have correctly adjusted production, housing starts, including multifamily units, will probably total 1.36 million this year and 1.16 million in 2008, down from 1.80 million last year.
The median new-home price is projected to drop 3.0 percent to $239,100 for 2007, and then decline another 0.2 percent to $236,600 in 2008.
Economic Outlook: Mortgage, GDP, Employment
The 30-year fixed-rate mortgage is estimated to rise slowly to the 6.4 percent range by the end of 2008, with additional cuts in the Fed funds rate lowering short-term interest rates.
Growth in the U.S. gross domestic product (GDP) should be 2.1 percent in 2007, down from a 2.9 percent growth rate last year; GDP growth is forecast to improve to 2.4 percent in 2008.
The unemployment rate is likely to average 4.6 percent for 2007, unchanged from last year, but rise to 5.0 percent in 2008. Inflation, as measured by the Consumer Price Index, will probably be 2.8 percent this year and 2.7 percent in 2008, down from 3.2 percent in 2006. Inflation-adjusted disposable personal income is estimated to grow 3.1 percent this year, the same as in 2006, and then grow 2.2 percent next year.
Sunday, December 9, 2007
Expecting a bottom in the U.S. Dollar
US Dollar - we have been expecting a bottom formation for some time and the EURO looked topping.
RTT News wrote, "With the global central banks abandoning their bias towards higher rates and starting to cut rates, the dollar may begin to recover from the abysmal depth it has sunk to.
This past week, both the Bank of Canada and the Bank of England lowered their respective benchmark interest rates. Lower interest rates in the rest of the world will make the major foreign currencies relatively less attractive, thereby weakening them.
Additionally, AG Edwards currency analyst Patrick Fearon believes that the dollar is low enough that it could prompt foreign officials to mount a coordinated effort to support the greenback."
A stronger dollar is not so good for U.S. companies that export, but is better of the U.S. consumer who buys product from overseas or travels abroad.
A strong dollar would also help the broader U.S. stock market.
Again, we reiterate: "NOW is the time for holders of strong foreign currencies to be buying California property!
RTT News wrote, "With the global central banks abandoning their bias towards higher rates and starting to cut rates, the dollar may begin to recover from the abysmal depth it has sunk to.
This past week, both the Bank of Canada and the Bank of England lowered their respective benchmark interest rates. Lower interest rates in the rest of the world will make the major foreign currencies relatively less attractive, thereby weakening them.
Additionally, AG Edwards currency analyst Patrick Fearon believes that the dollar is low enough that it could prompt foreign officials to mount a coordinated effort to support the greenback."
A stronger dollar is not so good for U.S. companies that export, but is better of the U.S. consumer who buys product from overseas or travels abroad.
A strong dollar would also help the broader U.S. stock market.
Again, we reiterate: "NOW is the time for holders of strong foreign currencies to be buying California property!
Friday, December 7, 2007
30-Year Mortgage Rates Fall to 2-Year Low
From Realtor Magazine Online, Daily Real Estate News December 7, 2007
Concerns that a severe housing downturn and prolonged credit crisis could rattle consumer confidence and hurt the broader economy contributed to a sharp drop in mortgage rates this week, according to Freddie Mac.
Interest on 30-year fixed loans sank to 5.96 percent from 6.10 percent last week, landing at the lowest point seen since September 2005.
Borrowing costs on 15-year fixed products fell to 5.65 percent from 5.73 percent over the week and five-year adjustable-rate mortgages were down to 5.75 percent from 5.86 percent, but one-year ARMs bucked the southward trend by bumping up to 5.46 percent from 5.43 percent.
"With lower consumer spending and personal income gains in October, interest rates on U.S. Treasury securities fell lower this week and mortgage rates followed," said Freddie Mac chief economist Frank Nothaft.
Source: Baltimore Sun (12/07/07)
Concerns that a severe housing downturn and prolonged credit crisis could rattle consumer confidence and hurt the broader economy contributed to a sharp drop in mortgage rates this week, according to Freddie Mac.
Interest on 30-year fixed loans sank to 5.96 percent from 6.10 percent last week, landing at the lowest point seen since September 2005.
Borrowing costs on 15-year fixed products fell to 5.65 percent from 5.73 percent over the week and five-year adjustable-rate mortgages were down to 5.75 percent from 5.86 percent, but one-year ARMs bucked the southward trend by bumping up to 5.46 percent from 5.43 percent.
"With lower consumer spending and personal income gains in October, interest rates on U.S. Treasury securities fell lower this week and mortgage rates followed," said Freddie Mac chief economist Frank Nothaft.
Source: Baltimore Sun (12/07/07)
Thursday, December 6, 2007
Backers say up to 1.2 million loans eligible for refis, workouts
Inman News, Thursday, December 06, 2007
A plan to refinance or freeze the interest rates on up to 1.2 million subprime adjustable-rate mortgages for five years is not a "silver bullet" solution for all homeowners, but will help reduce the impact of the housing downturn on the economy and communities affected by foreclosures, Treasury Secretary Henry Paulson said Thursday.
Paulson was the point man as the Bush administration rolled out a much-anticipated agreement with mortgage lenders and loan servicers in the face of criticism not only from consumer advocates -- some say it won't help enough borrowers -- but warnings from some in the lending industry who said an interest rate freeze could discourage investors from financing future loans.
The agreement has the backing of the American Securitization Forum, which represents companies that issue mortgage backed securities, as well as investors, loan servicers and rating agencies. ASF Executive Director George Miller said the agreement provides a common framework to evaluate borrowers’ situations, and expedites processes for loan servicers to pursue refinancing and loan modification options on a more systematic basis.
The ASF today published a 34-page document outlining procedures for servicers to follow in streamlining refinancings or loan modifications on ARM loans that are scheduled to reset in the next 2 1/2 years.
Paulson said he hoped that the guidelines would be adopted as "customary standard practice across the entire servicing industry," because the current system would "not be sufficient" to handle the 1.8 million owner-occupied subprime ARM resets expected in 2008 and 2009.
According to the framework, loans eligible for streamlined refinancing or modification such as an interest rate freeze must be ARM loans on owner-occupied homes originated between Jan. 1, 2005 and July 31, 2007, with an initial interest rate reset between Jan. 1, 2008 and July 31, 2010.
Under the guidelines, only borrowers with FICO scores less than 660 and facing an increase in monthly payments greater than 10 percent will be eligible for fast-track loan modifications. Borrowers who don't meet the "FICO test" may qualify for loan modifications after individual reviews of their current income and debt obligations.
Although the Bush administration says up to 1.2 million ARM loans may be eligible for refinancing or modifications, the Center for Responsible Lending, estimated that a much smaller number of families -- perhaps 145,000 -- will actually see any relief.
The administration's estimate is based on the belief that nearly two-thirds of the 1.8 million homeowners with subprime ARM loans facing interest rate resets in the next two years can afford their introductory rate, but won’t be able to afford higher payments after their loans reset.
But many subprime borrowers have second, "piggyback" mortgages that pose obstacles to loan modifications, CRL warned, and loan servicers will still have financial incentives to foreclose on loans, rather than engage in workouts.
"The plan relies on voluntary decisions by individual mortgage servicers and investors, (and) does not remove the strong financial and legal incentives servicers have to foreclose on loans rather than modify them," CRL said in a statement. "Recent experience shows that the likelihood of widespread modifications is small under this 'business as usual' approach."
CRL said Congress should also allow bankruptcy judges to modify the terms of mortgage loans for borrowers who file for Chapter 13 bankruptcy protection, saying it could prevent up to 600,000 foreclosures. The lending industry opposes pending legislation that would change the bankruptcy code to do just that, saying it would raise the cost of borrowing.
The rating agency Standard & Poor's issued a report raising concerns that wholesale interest rate freezes on subprime ARM loans could force it to lower its ratings on subprime mortgage-backed securities (MBS). Such concerns have prompted others in the industry to warn that wholesale loan workouts will discourage investment in MBS, worsening the ongoing credit crunch.
Paulson said the plan, while not perfect, is part of a broader effort the Bush administration has undertaken to address the housing downturn. Those efforts are in two areas, he said: limiting the impacts of the current downturn, and taking steps to protect housing and credit markets in the future by tightening regulations.
To limit the impact of the current downturn, the administration's FHASecure program allows some homeowners who are already in default to refinance into loans guaranteed by the Federal Housing Administration (FHA). HUD Secretary Alphonso Jackson said today that FHA has received 118,000 refinance applications since the program was announced in September, and that 35,000 homeowners have already refinanced into FHA-backed loans.
Jackson said FHA expects to process another 50,000 refinance loans by the end of the year, and that a pending bill to lower FHA down payment requirements, allow it to insure larger mortgages, and expand "risk-based" pricing, would allow FHA to back an additional 250,000 loans by the end of 2008. All told, Jackson said, FHA may be able to guarantee up to 800,000 loans in fiscal year 2008.
On the regulatory front, President Bush said at a press conference today that the Federal Reserve will announce stronger lending standards later this month. HUD and federal banking regulators, Bush said, are taking steps to improve disclosure requirements.
Bush chastised Congress for failing to pass an FHA modernization bill or legislation to reform oversight of the government-sponsored enterprises Freddie Mac and Fannie Mae.
Paulson and James Lockhart, director of the Office of Federal Housing Enterprise Oversight (OFHEO), echoed the president's call for a GSE modernization bill.
Lockhart said Fannie Mae and Freddie Mac "have played an extremely important role in supporting the mortgage market as all the problems erupted this summer," growing their market share of all new mortgages to more than 60 percent, up from 38 percent last year.
Although the House passed a GSE reform bill in May, there is disagreement in the Senate over limits on Fannie and Freddie's loan portfolios and whether to raise the $417,000 conforming loan limit.
~ By Matt Carter
A plan to refinance or freeze the interest rates on up to 1.2 million subprime adjustable-rate mortgages for five years is not a "silver bullet" solution for all homeowners, but will help reduce the impact of the housing downturn on the economy and communities affected by foreclosures, Treasury Secretary Henry Paulson said Thursday.
Paulson was the point man as the Bush administration rolled out a much-anticipated agreement with mortgage lenders and loan servicers in the face of criticism not only from consumer advocates -- some say it won't help enough borrowers -- but warnings from some in the lending industry who said an interest rate freeze could discourage investors from financing future loans.
The agreement has the backing of the American Securitization Forum, which represents companies that issue mortgage backed securities, as well as investors, loan servicers and rating agencies. ASF Executive Director George Miller said the agreement provides a common framework to evaluate borrowers’ situations, and expedites processes for loan servicers to pursue refinancing and loan modification options on a more systematic basis.
The ASF today published a 34-page document outlining procedures for servicers to follow in streamlining refinancings or loan modifications on ARM loans that are scheduled to reset in the next 2 1/2 years.
Paulson said he hoped that the guidelines would be adopted as "customary standard practice across the entire servicing industry," because the current system would "not be sufficient" to handle the 1.8 million owner-occupied subprime ARM resets expected in 2008 and 2009.
According to the framework, loans eligible for streamlined refinancing or modification such as an interest rate freeze must be ARM loans on owner-occupied homes originated between Jan. 1, 2005 and July 31, 2007, with an initial interest rate reset between Jan. 1, 2008 and July 31, 2010.
Under the guidelines, only borrowers with FICO scores less than 660 and facing an increase in monthly payments greater than 10 percent will be eligible for fast-track loan modifications. Borrowers who don't meet the "FICO test" may qualify for loan modifications after individual reviews of their current income and debt obligations.
Although the Bush administration says up to 1.2 million ARM loans may be eligible for refinancing or modifications, the Center for Responsible Lending, estimated that a much smaller number of families -- perhaps 145,000 -- will actually see any relief.
The administration's estimate is based on the belief that nearly two-thirds of the 1.8 million homeowners with subprime ARM loans facing interest rate resets in the next two years can afford their introductory rate, but won’t be able to afford higher payments after their loans reset.
But many subprime borrowers have second, "piggyback" mortgages that pose obstacles to loan modifications, CRL warned, and loan servicers will still have financial incentives to foreclose on loans, rather than engage in workouts.
"The plan relies on voluntary decisions by individual mortgage servicers and investors, (and) does not remove the strong financial and legal incentives servicers have to foreclose on loans rather than modify them," CRL said in a statement. "Recent experience shows that the likelihood of widespread modifications is small under this 'business as usual' approach."
CRL said Congress should also allow bankruptcy judges to modify the terms of mortgage loans for borrowers who file for Chapter 13 bankruptcy protection, saying it could prevent up to 600,000 foreclosures. The lending industry opposes pending legislation that would change the bankruptcy code to do just that, saying it would raise the cost of borrowing.
The rating agency Standard & Poor's issued a report raising concerns that wholesale interest rate freezes on subprime ARM loans could force it to lower its ratings on subprime mortgage-backed securities (MBS). Such concerns have prompted others in the industry to warn that wholesale loan workouts will discourage investment in MBS, worsening the ongoing credit crunch.
Paulson said the plan, while not perfect, is part of a broader effort the Bush administration has undertaken to address the housing downturn. Those efforts are in two areas, he said: limiting the impacts of the current downturn, and taking steps to protect housing and credit markets in the future by tightening regulations.
To limit the impact of the current downturn, the administration's FHASecure program allows some homeowners who are already in default to refinance into loans guaranteed by the Federal Housing Administration (FHA). HUD Secretary Alphonso Jackson said today that FHA has received 118,000 refinance applications since the program was announced in September, and that 35,000 homeowners have already refinanced into FHA-backed loans.
Jackson said FHA expects to process another 50,000 refinance loans by the end of the year, and that a pending bill to lower FHA down payment requirements, allow it to insure larger mortgages, and expand "risk-based" pricing, would allow FHA to back an additional 250,000 loans by the end of 2008. All told, Jackson said, FHA may be able to guarantee up to 800,000 loans in fiscal year 2008.
On the regulatory front, President Bush said at a press conference today that the Federal Reserve will announce stronger lending standards later this month. HUD and federal banking regulators, Bush said, are taking steps to improve disclosure requirements.
Bush chastised Congress for failing to pass an FHA modernization bill or legislation to reform oversight of the government-sponsored enterprises Freddie Mac and Fannie Mae.
Paulson and James Lockhart, director of the Office of Federal Housing Enterprise Oversight (OFHEO), echoed the president's call for a GSE modernization bill.
Lockhart said Fannie Mae and Freddie Mac "have played an extremely important role in supporting the mortgage market as all the problems erupted this summer," growing their market share of all new mortgages to more than 60 percent, up from 38 percent last year.
Although the House passed a GSE reform bill in May, there is disagreement in the Senate over limits on Fannie and Freddie's loan portfolios and whether to raise the $417,000 conforming loan limit.
~ By Matt Carter
Bush Wins Agreement to Freeze Mortgages
From Realtor Magazine Online, Daily Real Estate News December 6, 2007
Major mortgage lenders have agreed to lock in interest rates for five years on adjustable-rate loans made to financially troubled homeowners who obtained adjustable-rate subprime mortgages between Jan. 1, 2005, and July 31, 2007.
The deal with the Bush administration represents a compromise between mortgage firms and banks that wanted to freeze rates for one or two years and banking regulators who wanted seven years.
Mortgage lenders such as Countrywide Financial, big banks such as Citigroup, and nonprofit groups as well as Republicans and Democrats all support the agreement. The deal has the potential to head off a major foreclosure crisis, advocates say, considering the millions of borrowers facing a sharp increase in rates before July 31, 2010.
Source: Washington Post, David Cho, Neil Irwin (12/06/07)
Major mortgage lenders have agreed to lock in interest rates for five years on adjustable-rate loans made to financially troubled homeowners who obtained adjustable-rate subprime mortgages between Jan. 1, 2005, and July 31, 2007.
The deal with the Bush administration represents a compromise between mortgage firms and banks that wanted to freeze rates for one or two years and banking regulators who wanted seven years.
Mortgage lenders such as Countrywide Financial, big banks such as Citigroup, and nonprofit groups as well as Republicans and Democrats all support the agreement. The deal has the potential to head off a major foreclosure crisis, advocates say, considering the millions of borrowers facing a sharp increase in rates before July 31, 2010.
Source: Washington Post, David Cho, Neil Irwin (12/06/07)
Wednesday, December 5, 2007
Mortgage Volume Soars After Thanksgiving
From Realtor Magazine Online, Daily Real Estate News December 5, 2007
During the week after Thanksgiving, mortgage application volume rose 22.5 percent on a seasonally adjusted basis to 791.8, recovering significantly from a holiday slowdown.
On an unadjusted basis, applications rose 51.5 percent and were up 24.2 percent from the same week in 2006.
The Refinance Index increased 31.9 percent to 2761.3 from 2093.0 the previous week. The refinance share of mortgage activity increased to 56.0 percent of total applications from 51.4 percent the previous week.
These numbers reflect a correction made to the Thanksgiving Week numbers released by the association. The previously reported numbers were too high, making the Thanksgiving week fall off more dramatic than was reported last week.
This week’s rising numbers appear to be at least partially in response to falling interest rates.
- 30-year fixed-rate mortgages decreased to 5.82 percent from 6.09 percent
- 15-year fixed-rate mortgages decreased to 5.38 percent from 5.69 percent
- 1-year ARMs increased to 6.28 percent from 6.24 percent
Source: Mortgage Bankers Association (12/05/2007)
During the week after Thanksgiving, mortgage application volume rose 22.5 percent on a seasonally adjusted basis to 791.8, recovering significantly from a holiday slowdown.
On an unadjusted basis, applications rose 51.5 percent and were up 24.2 percent from the same week in 2006.
The Refinance Index increased 31.9 percent to 2761.3 from 2093.0 the previous week. The refinance share of mortgage activity increased to 56.0 percent of total applications from 51.4 percent the previous week.
These numbers reflect a correction made to the Thanksgiving Week numbers released by the association. The previously reported numbers were too high, making the Thanksgiving week fall off more dramatic than was reported last week.
This week’s rising numbers appear to be at least partially in response to falling interest rates.
- 30-year fixed-rate mortgages decreased to 5.82 percent from 6.09 percent
- 15-year fixed-rate mortgages decreased to 5.38 percent from 5.69 percent
- 1-year ARMs increased to 6.28 percent from 6.24 percent
Source: Mortgage Bankers Association (12/05/2007)
Tuesday, December 4, 2007
Credit Score Primer: What Buyers Need to Know to Get a Loan
From Realtor Magazine Online, Daily Real Estate News December 4, 2007
In the wake of the credit crisis, lenders have become much pickier about whom they lend to. Here are some basic facts that will help potential borrowers understand what they face.
The measurement that most lenders use to assess applicants' credit risk is the FICO score developed by Fair Isaac Corp. The score ranges from 300 to 850.
There's not one FICO score. Buyers have three: one for each of the three credit bureaus, Experian, TransUnion, and Equifax. Each credit score is based on information the credit bureau keeps on file. Since credit bureaus don't share their data with one another, the three FICO scores may differ, sometimes by as much as 100 points.
The components of a FICO score are:
Payment history: 35 percent
Amounts owed: 30 percent
Length of credit history: 15 percent
New credit: 10 percent
Types of credit used: 10 percent
A consumer with a 580 credit score might qualify under FHA requirements, but, generally, in order to qualify for a prime loan, a borrower must have a credit score above 620 for a conventional loan at all and above 720 for a loan at terms and rates most borrowers would consider desirable.
Source: The Dallas Morning News, Pamela Yip (12/03/07)
In the wake of the credit crisis, lenders have become much pickier about whom they lend to. Here are some basic facts that will help potential borrowers understand what they face.
The measurement that most lenders use to assess applicants' credit risk is the FICO score developed by Fair Isaac Corp. The score ranges from 300 to 850.
There's not one FICO score. Buyers have three: one for each of the three credit bureaus, Experian, TransUnion, and Equifax. Each credit score is based on information the credit bureau keeps on file. Since credit bureaus don't share their data with one another, the three FICO scores may differ, sometimes by as much as 100 points.
The components of a FICO score are:
Payment history: 35 percent
Amounts owed: 30 percent
Length of credit history: 15 percent
New credit: 10 percent
Types of credit used: 10 percent
A consumer with a 580 credit score might qualify under FHA requirements, but, generally, in order to qualify for a prime loan, a borrower must have a credit score above 620 for a conventional loan at all and above 720 for a loan at terms and rates most borrowers would consider desirable.
Source: The Dallas Morning News, Pamela Yip (12/03/07)
Loose-lipped Fed Officials
Paraphrased from Schaeffer's Opening View, December 4, 2007
Wall Street's action is being foreshadowed by next week's FOMC meeting. The Fed's announcement on Dec. 11th will move the markets and impact the housing markets.
San Francisco Federal Reserve President Janet Yellen on Monday night became the third official from the bank to hint at another interest rate cut. It seems that financial woes are hardly over for our friends overseas, with credit crunch tensions in Europe virtually palpable.
Did someone say "interest rate cut?" After the market close on Monday, the aforementioned Fed official said that, since the big bank's last meeting, the economy had slowed down more than she expected. The unusually chatty Federal Open Market Committee is expected to meet and make their decision on December 11.
And, speaking of rate cuts, The Bank of Canada today will decide whether to cut interest rates of their own. The Canadians are currently at a 4.5% rate, but economists say it may be too close to call on whether the maple leaf-toters will make the cut. Central banks in the U.K. and Australia are slated to make rate-cut decisions of their own later this week.
Wall Street's action is being foreshadowed by next week's FOMC meeting. The Fed's announcement on Dec. 11th will move the markets and impact the housing markets.
San Francisco Federal Reserve President Janet Yellen on Monday night became the third official from the bank to hint at another interest rate cut. It seems that financial woes are hardly over for our friends overseas, with credit crunch tensions in Europe virtually palpable.
Did someone say "interest rate cut?" After the market close on Monday, the aforementioned Fed official said that, since the big bank's last meeting, the economy had slowed down more than she expected. The unusually chatty Federal Open Market Committee is expected to meet and make their decision on December 11.
And, speaking of rate cuts, The Bank of Canada today will decide whether to cut interest rates of their own. The Canadians are currently at a 4.5% rate, but economists say it may be too close to call on whether the maple leaf-toters will make the cut. Central banks in the U.K. and Australia are slated to make rate-cut decisions of their own later this week.
Monday, December 3, 2007
Investment Firm Optimistic About Global Housing
From Realtor Magazine Online, Daily Real Estate News December 3, 2007
London-base global investment company LaSalle Investment Management told clients that the outlook for global real estate is strong, despite recent turbulence in the U.S. market and debt markets in general.LaSalle expects strong returns from Europe and the Asia-Pacific region in 2008 as demand outstrips the supply of housing and rentals, and drives up prices.
In the U.S., LaSalle plans to invest more money in health care facilities, senior housing, and student housing. But Jacques Gordon, global head of research and strategy, said the remainder of the U.S. market “should return to normalcy in 2008.”
Now is the best time to Invest-In-California Property.com!
London-base global investment company LaSalle Investment Management told clients that the outlook for global real estate is strong, despite recent turbulence in the U.S. market and debt markets in general.LaSalle expects strong returns from Europe and the Asia-Pacific region in 2008 as demand outstrips the supply of housing and rentals, and drives up prices.
In the U.S., LaSalle plans to invest more money in health care facilities, senior housing, and student housing. But Jacques Gordon, global head of research and strategy, said the remainder of the U.S. market “should return to normalcy in 2008.”
Now is the best time to Invest-In-California Property.com!
Friday, November 30, 2007
Help May Be on the Way
From Businessweek Online News, November 28, 2007, 5:11PM EST
Skeptics abound, but Hank Paulson says a breakthrough is near that could rescue troubled homeowners
Passing squall or supersized economic blowout?
However the housing and credit-market upheavals play out, they will shape the legacy of Treasury Secretary Henry M. Paulson Jr. From the start, he has tried to orchestrate a private-sector-led response to the wave of home loan defaults and price declines under way. But progress has been glacial.
Yet a comprehensive program may be within reach.
It would get mortgage lenders, servicers, and investors to help eligible homeowners to renegotiate adjustable-rate mortgages (ARMs) that will reset and become far more expensive. "Well before the end of the year, we will have a template—and the infrastructure in place to make it easier to handle the wave [of resets] that is coming at us," he said in an interview with BusinessWeek.
"Focusing on the Middle"
The problem so far: Refinancing relief has largely been on a case-by-case basis, and the industry has been unable to agree on broad-based criteria that would allow it to quickly evaluate large pools of homeowners based on their financial standing. As things stand now, mortgage servicers have adjusted just 1% of the subprime loans on which rates reset in the first half of 2007, according to Moody's Investors Service (MCO).
Given the scale of the crisis, and the complexity of the ownership of securitized mortgages, only a sweeping plan involving all the industry players is likely to prevent a wave of foreclosures. Paulson, who was scheduled to meet mortgage leaders on Nov. 29, argues that a deal could go a long way toward easing pressures. He says the talks, which involve servicers and investors covering 85% of the market, will give rise to a far speedier and standardized method both for processing such workouts and determining who might be eligible.
Those who can readily pay after their resets won't qualify, of course. Yet neither will those who don't have the financial means to own a home even after refinancing. "We're focusing on the middle bucket," says Paulson. "We'll have broad agreement on criteria that will make it easier to modify mortgages in the volumes we need."
ARM Wrestling
Some sort of breakthrough would be welcome. With market conditions deteriorating and Wall Street fearful that recession risks are rising, critics are asking whether the Administration needs to get far more aggressive in its approach. The U.S. stock market has been in manic-depressive mode for weeks on recession worries, and credit conditions have tightened.
Next year, without a better mechanism for home loan workouts, the mortgage industry turmoil could enter a dangerous new phase. Through September, roughly $45 billion in subprime ARMs were reset each quarter this year, according to Banc of America Securities (BAC). Starting in December, and through all of next year, that will jump to an average of $90 billion a quarter.
Paulson's efforts, if successful, would build on a similar push by Sheila C. Bair, head of the Federal Deposit Insurance Corp. In late October, she argued that mortgage servicers and lenders should simply freeze interest rates on resetting ARMs at the initial teaser rate, often around 7% to 9%. That's already above the mortgage rates borrowers with good credit pay. To qualify, borrowers would have to live in the homes—speculators need not apply—and be current on their payments.
So far, she has found one taker: On Nov. 20, California Governor Arnold Schwarzenegger announced a deal with four of the largest mortgage lenders in the state to streamline the loan-workout process and extend for at least several years the initial mortgage rates for struggling subprime borrowers. With some 500,000 loans scheduled to reset in the state over the next two years, California officials say the changes could help some 100,000 homeowners.
A Housing Market Emergency
Some complain the feds haven't done as much as they could. Yale University economist Robert J. Shiller and Clinton-era Treasury Secretary Lawrence H. Summers, who both warn that the U.S. housing market could face price declines of 25% to 30% in the next several years, have recently criticized what they see as a too-timid response to the crisis. Shiller says: "When someone's in the emergency room, you've got to give them care right away."
Shiller thinks personal bankruptcy laws should be modified to make it easier for troubled borrowers to stay in their homes. Summers argues that more is needed to keep money flowing to creditworthy home buyers, using the Federal Housing Administration, Freddie Mac (FRE), and Fannie Mae (FNM)—huge government-chartered entities that buy mortgages and package them into securities. He suggests that the government may even need to provide loans directly, or extend tax breaks to stretched families.
Paulson says his team is anything but timid. "We are examining all public policy ideas," he says. "We are being aggressive, and our thinking continues to evolve as we learn more."
Realistic Values
Shiller and others believe more could be done through the FHA. Already, the Bush Administration has backed a program to let the agency expand its loan guarantees to some subprime buyers able to refinance their loans. But Alex J. Pollock, formerly head of the Federal Home Loan Bank of Chicago and now at the conservative American Enterprise Institute (AEI), says the FHA could take on a larger role in helping to ease pressures on subprime buyers whose homes are now worth less than their mortgages.
Pollock argues that the FHA should insure the refinancing of such mortgages at more realistic new prices, with Fannie or Freddie then buying the new loans from the mortgage lender. "What you want is a place where the borrower comes out ahead based on the current value of the home, and the lender comes out ahead compared with foreclosure," he says. This will "prevent the bust from going into a self-reinforcing downward cycle."
A severe housing bust is a scenario unacceptable to Paulson and the Bush Administration, though there is deep aversion among some free-market purists for anything that smells like a bailout. "This is what happens when people make imprudent decisions," says Peter J. Wallison, a Reagan-era Treasury official now at the AEI. He doesn't think the government can do much more to head off a housing-led recession than continue to cut interest rates. But in the face of worsening economic conditions, that is a view Paulson doesn't embrace.
~ By Jane Sasseen, with Dawn Kopecki and Christopher Palmeri.
Skeptics abound, but Hank Paulson says a breakthrough is near that could rescue troubled homeowners
Passing squall or supersized economic blowout?
However the housing and credit-market upheavals play out, they will shape the legacy of Treasury Secretary Henry M. Paulson Jr. From the start, he has tried to orchestrate a private-sector-led response to the wave of home loan defaults and price declines under way. But progress has been glacial.
Yet a comprehensive program may be within reach.
It would get mortgage lenders, servicers, and investors to help eligible homeowners to renegotiate adjustable-rate mortgages (ARMs) that will reset and become far more expensive. "Well before the end of the year, we will have a template—and the infrastructure in place to make it easier to handle the wave [of resets] that is coming at us," he said in an interview with BusinessWeek.
"Focusing on the Middle"
The problem so far: Refinancing relief has largely been on a case-by-case basis, and the industry has been unable to agree on broad-based criteria that would allow it to quickly evaluate large pools of homeowners based on their financial standing. As things stand now, mortgage servicers have adjusted just 1% of the subprime loans on which rates reset in the first half of 2007, according to Moody's Investors Service (MCO).
Given the scale of the crisis, and the complexity of the ownership of securitized mortgages, only a sweeping plan involving all the industry players is likely to prevent a wave of foreclosures. Paulson, who was scheduled to meet mortgage leaders on Nov. 29, argues that a deal could go a long way toward easing pressures. He says the talks, which involve servicers and investors covering 85% of the market, will give rise to a far speedier and standardized method both for processing such workouts and determining who might be eligible.
Those who can readily pay after their resets won't qualify, of course. Yet neither will those who don't have the financial means to own a home even after refinancing. "We're focusing on the middle bucket," says Paulson. "We'll have broad agreement on criteria that will make it easier to modify mortgages in the volumes we need."
ARM Wrestling
Some sort of breakthrough would be welcome. With market conditions deteriorating and Wall Street fearful that recession risks are rising, critics are asking whether the Administration needs to get far more aggressive in its approach. The U.S. stock market has been in manic-depressive mode for weeks on recession worries, and credit conditions have tightened.
Next year, without a better mechanism for home loan workouts, the mortgage industry turmoil could enter a dangerous new phase. Through September, roughly $45 billion in subprime ARMs were reset each quarter this year, according to Banc of America Securities (BAC). Starting in December, and through all of next year, that will jump to an average of $90 billion a quarter.
Paulson's efforts, if successful, would build on a similar push by Sheila C. Bair, head of the Federal Deposit Insurance Corp. In late October, she argued that mortgage servicers and lenders should simply freeze interest rates on resetting ARMs at the initial teaser rate, often around 7% to 9%. That's already above the mortgage rates borrowers with good credit pay. To qualify, borrowers would have to live in the homes—speculators need not apply—and be current on their payments.
So far, she has found one taker: On Nov. 20, California Governor Arnold Schwarzenegger announced a deal with four of the largest mortgage lenders in the state to streamline the loan-workout process and extend for at least several years the initial mortgage rates for struggling subprime borrowers. With some 500,000 loans scheduled to reset in the state over the next two years, California officials say the changes could help some 100,000 homeowners.
A Housing Market Emergency
Some complain the feds haven't done as much as they could. Yale University economist Robert J. Shiller and Clinton-era Treasury Secretary Lawrence H. Summers, who both warn that the U.S. housing market could face price declines of 25% to 30% in the next several years, have recently criticized what they see as a too-timid response to the crisis. Shiller says: "When someone's in the emergency room, you've got to give them care right away."
Shiller thinks personal bankruptcy laws should be modified to make it easier for troubled borrowers to stay in their homes. Summers argues that more is needed to keep money flowing to creditworthy home buyers, using the Federal Housing Administration, Freddie Mac (FRE), and Fannie Mae (FNM)—huge government-chartered entities that buy mortgages and package them into securities. He suggests that the government may even need to provide loans directly, or extend tax breaks to stretched families.
Paulson says his team is anything but timid. "We are examining all public policy ideas," he says. "We are being aggressive, and our thinking continues to evolve as we learn more."
Realistic Values
Shiller and others believe more could be done through the FHA. Already, the Bush Administration has backed a program to let the agency expand its loan guarantees to some subprime buyers able to refinance their loans. But Alex J. Pollock, formerly head of the Federal Home Loan Bank of Chicago and now at the conservative American Enterprise Institute (AEI), says the FHA could take on a larger role in helping to ease pressures on subprime buyers whose homes are now worth less than their mortgages.
Pollock argues that the FHA should insure the refinancing of such mortgages at more realistic new prices, with Fannie or Freddie then buying the new loans from the mortgage lender. "What you want is a place where the borrower comes out ahead based on the current value of the home, and the lender comes out ahead compared with foreclosure," he says. This will "prevent the bust from going into a self-reinforcing downward cycle."
A severe housing bust is a scenario unacceptable to Paulson and the Bush Administration, though there is deep aversion among some free-market purists for anything that smells like a bailout. "This is what happens when people make imprudent decisions," says Peter J. Wallison, a Reagan-era Treasury official now at the AEI. He doesn't think the government can do much more to head off a housing-led recession than continue to cut interest rates. But in the face of worsening economic conditions, that is a view Paulson doesn't embrace.
~ By Jane Sasseen, with Dawn Kopecki and Christopher Palmeri.
Thursday, November 29, 2007
The panic about the dollar
Nov 29th 2007From The Economist print edition
A full-blown dollar collapse would be disastrous. Thankfully, it need not happen.
THE weather may be cold and wet, but in the rich world's financial markets it is beginning to feel like August all over again. Credit spreads have widened and shares are pitching from gloom to elation as investors look to the Federal Reserve for solace. The anxiety is unmistakable. But this time the scare is about more than bad mortgage loans and their baleful effect on the credit markets. America may be falling into recession. And a new fear now stalks the markets: that the dollar's slide could spin out of control.
A full-blown dollar crisis on top of a credit crunch and a weakening economy would be frightening. It would send financial markets reeling and tie the hands of the Fed, perhaps forcing it to raise interest rates even as recession looms. The sky-high euro would soar further, choking off Europe's growth. Political tensions would also rise. Already Airbus has called the dollar's decline “life-threatening” and France's president, Nicolas Sarkozy, has given warning of “economic war”.
At worst, the shadows could darken further. For half a century the dollar has been the hegemonic currency. A large slice of global trade is counted in dollars. Central banks hold most of their foreign-exchange reserves in dollars, a boon for America that has allowed it to issue debt more cheaply. That dominance has survived dollar slides before, as in the late 1970s and mid-1980s. But now, with the euro as an alternative, the fear is of a sudden shift in the global monetary system, with investors switching quickly from one currency to the other.
So far, this remains only a fear. Although the dollar has been falling at quite a lick—down 6% against a trade-weighted basket of currencies since August—it has seen no chaotic slump, but a slide interspersed, as this week, with brief rallies. Americans' expectations of future inflation have not yet risen much. Yields on government bonds have fallen: clearly, investors do not yet expect higher premiums for safe American assets. Whether disaster strikes depends on what exactly is driving the dollar down and on how policymakers react.
Headwinds and tailwinds
Much of the dollar's weakness is driven by economic fundamentals. Since peaking in 2002, it has fallen by 24% against a trade-weighted basket of currencies. Given America's need to borrow from abroad to finance its consumption, that is neither surprising nor sinister. By inducing Americans to import less and export more, a weaker dollar helps cut the current-account deficit. For America, the medicine has been working—the deficit is down to 5.5% of GDP from a peak of almost 7%.
If the dollar's decline has accelerated of late, that is largely because of the cyclical divergence between America's economy and the rest of the world. America fears recession; the Fed has already cut interest rates by 0.75 percentage points and financial markets are convinced that it will cut another quarter point on December 11th, when it next meets. When America's growth prospects and interest rates fall relative to those elsewhere, a cheaper currency is inevitable.
But economic fundamentals are not all that is hurting the dollar. The currency is also suffering because the credit mess is concentrated in dollar assets. Investors' conviction that transparent markets and vigilant regulators make America a safe place to store money has taken a battering from the revelations of recent weeks. Net private capital inflows into America seem to have evaporated since the credit turmoil began. The subprime crisis has tarred the dollar as a subprime currency.
In recent years a fall in private inflows has usually been offset by central banks in emerging economies that link their currencies to the dollar. This system (often known as Bretton Woods II) has thus propped up the dollar. But this time these central banks have been less willing to take up the slack. Right on cue, the cracks in Bretton Woods are becoming clear. China is routinely attacked in America and Europe for linking its currency to the dollar. Squeezed between rising oil prices and the falling dollar, the Gulf states face rising inflation: speculation is rife that one or more of them will modify their currency pegs at a regional meeting on December 3rd.
Handle with care
There you have it: the ingredients of a nasty crash. But self-interest and sensible policy can cut the odds of trouble. The first step is for American policymakers to pay more heed to their currency. For all their talk about a strong dollar, American officials have behaved as if they cared little about its worth. A reserve currency is supposed to be a store of value; by running a huge current-account deficit America has left the dollar vulnerable. At such a tricky time, benign neglect will no longer do. For the moment, this need mean little more than some carefully chosen words. If the slide becomes chaotic, it could demand currency-market intervention and a willingness to hold back interest-rate cuts for the sake of the dollar.
The other part of the solution lies elsewhere, particularly with those countries with dollar-pegging currencies. These economies need to allow their currencies to rise, both to curb inflation and encourage the rebalancing of the global economy. Appreciation would mean that these countries accumulated new dollar reserves at a slower pace. That in turn would lead to a loss of the dollar's pre-eminence and the emergence of other reserve currencies: there is no rule to say you can have only one reserve currency. But this need not—and in today's febrile environment must not—mean dumping existing dollar reserves. That would impose a far higher cost on everyone, including the dumpers.
The history of international co-operation on currencies is patchy. But China and the oil-rich Gulf states have ample reason to play their part in an orderly decline of the dollar's dominance. Despite the opprobrium heaped on them, the Chinese do not want to see the Fed's hands tied by a dollar crisis; nor do they want to see the euro zone, one of their best markets, slow sharply; and they have little interest in the external value of their existing dollar reserves plunging. Beyond all that, China's leaders want to be taken seriously as responsible actors in the international system. Now is their chance.
A full-blown dollar collapse would be disastrous. Thankfully, it need not happen.
THE weather may be cold and wet, but in the rich world's financial markets it is beginning to feel like August all over again. Credit spreads have widened and shares are pitching from gloom to elation as investors look to the Federal Reserve for solace. The anxiety is unmistakable. But this time the scare is about more than bad mortgage loans and their baleful effect on the credit markets. America may be falling into recession. And a new fear now stalks the markets: that the dollar's slide could spin out of control.
A full-blown dollar crisis on top of a credit crunch and a weakening economy would be frightening. It would send financial markets reeling and tie the hands of the Fed, perhaps forcing it to raise interest rates even as recession looms. The sky-high euro would soar further, choking off Europe's growth. Political tensions would also rise. Already Airbus has called the dollar's decline “life-threatening” and France's president, Nicolas Sarkozy, has given warning of “economic war”.
At worst, the shadows could darken further. For half a century the dollar has been the hegemonic currency. A large slice of global trade is counted in dollars. Central banks hold most of their foreign-exchange reserves in dollars, a boon for America that has allowed it to issue debt more cheaply. That dominance has survived dollar slides before, as in the late 1970s and mid-1980s. But now, with the euro as an alternative, the fear is of a sudden shift in the global monetary system, with investors switching quickly from one currency to the other.
So far, this remains only a fear. Although the dollar has been falling at quite a lick—down 6% against a trade-weighted basket of currencies since August—it has seen no chaotic slump, but a slide interspersed, as this week, with brief rallies. Americans' expectations of future inflation have not yet risen much. Yields on government bonds have fallen: clearly, investors do not yet expect higher premiums for safe American assets. Whether disaster strikes depends on what exactly is driving the dollar down and on how policymakers react.
Headwinds and tailwinds
Much of the dollar's weakness is driven by economic fundamentals. Since peaking in 2002, it has fallen by 24% against a trade-weighted basket of currencies. Given America's need to borrow from abroad to finance its consumption, that is neither surprising nor sinister. By inducing Americans to import less and export more, a weaker dollar helps cut the current-account deficit. For America, the medicine has been working—the deficit is down to 5.5% of GDP from a peak of almost 7%.
If the dollar's decline has accelerated of late, that is largely because of the cyclical divergence between America's economy and the rest of the world. America fears recession; the Fed has already cut interest rates by 0.75 percentage points and financial markets are convinced that it will cut another quarter point on December 11th, when it next meets. When America's growth prospects and interest rates fall relative to those elsewhere, a cheaper currency is inevitable.
But economic fundamentals are not all that is hurting the dollar. The currency is also suffering because the credit mess is concentrated in dollar assets. Investors' conviction that transparent markets and vigilant regulators make America a safe place to store money has taken a battering from the revelations of recent weeks. Net private capital inflows into America seem to have evaporated since the credit turmoil began. The subprime crisis has tarred the dollar as a subprime currency.
In recent years a fall in private inflows has usually been offset by central banks in emerging economies that link their currencies to the dollar. This system (often known as Bretton Woods II) has thus propped up the dollar. But this time these central banks have been less willing to take up the slack. Right on cue, the cracks in Bretton Woods are becoming clear. China is routinely attacked in America and Europe for linking its currency to the dollar. Squeezed between rising oil prices and the falling dollar, the Gulf states face rising inflation: speculation is rife that one or more of them will modify their currency pegs at a regional meeting on December 3rd.
Handle with care
There you have it: the ingredients of a nasty crash. But self-interest and sensible policy can cut the odds of trouble. The first step is for American policymakers to pay more heed to their currency. For all their talk about a strong dollar, American officials have behaved as if they cared little about its worth. A reserve currency is supposed to be a store of value; by running a huge current-account deficit America has left the dollar vulnerable. At such a tricky time, benign neglect will no longer do. For the moment, this need mean little more than some carefully chosen words. If the slide becomes chaotic, it could demand currency-market intervention and a willingness to hold back interest-rate cuts for the sake of the dollar.
The other part of the solution lies elsewhere, particularly with those countries with dollar-pegging currencies. These economies need to allow their currencies to rise, both to curb inflation and encourage the rebalancing of the global economy. Appreciation would mean that these countries accumulated new dollar reserves at a slower pace. That in turn would lead to a loss of the dollar's pre-eminence and the emergence of other reserve currencies: there is no rule to say you can have only one reserve currency. But this need not—and in today's febrile environment must not—mean dumping existing dollar reserves. That would impose a far higher cost on everyone, including the dumpers.
The history of international co-operation on currencies is patchy. But China and the oil-rich Gulf states have ample reason to play their part in an orderly decline of the dollar's dominance. Despite the opprobrium heaped on them, the Chinese do not want to see the Fed's hands tied by a dollar crisis; nor do they want to see the euro zone, one of their best markets, slow sharply; and they have little interest in the external value of their existing dollar reserves plunging. Beyond all that, China's leaders want to be taken seriously as responsible actors in the international system. Now is their chance.
Tuesday, November 27, 2007
How to Take the Sting Out of Falling Property Values
From Realtor Magazine Online, Daily Real Estate News November 27, 2007
If you own a residential property that is declining in value, here are some ways to make the losses less depressing.
- Trim property taxes. If a house has lost value, have it reappraised by the municipal assessor. Consider petitioning — or even suing — to get back taxes overpaid in the last few months.
- Deduct a home office. Some people avoid the home office deduction because it requires deducting depreciation, but if the property has lost value, this isn’t an issue.
- Sale-leaseback with a relative. If you're convinced your property is due for a big price correction and you have equity in the home, then sell now. For example, if you have a $1 million home that has been appraised at $1.8 million, you can sell it and take home $500,000 of the $800,000 gain tax free — due to an exemption on profits from the sale of personal residences. Sell the property to a trusted friend or wealthy relative and then become a tenant and pay the buyer rent at market rates — a much more attractive amount than Treasury bonds are paying now. When the housing market corrects, buy the property back.
- Invest in housing futures. The Chicago Mercantile Exchange sells investment instruments that trade based on house price indexes for each of the 10 largest U.S. cities. You can sell futures, buy puts, or sell calls on this market to hedge losses in the value of your home.Source:
~ Forbes, Stephanie Fitch (12/10/07)
If you own a residential property that is declining in value, here are some ways to make the losses less depressing.
- Trim property taxes. If a house has lost value, have it reappraised by the municipal assessor. Consider petitioning — or even suing — to get back taxes overpaid in the last few months.
- Deduct a home office. Some people avoid the home office deduction because it requires deducting depreciation, but if the property has lost value, this isn’t an issue.
- Sale-leaseback with a relative. If you're convinced your property is due for a big price correction and you have equity in the home, then sell now. For example, if you have a $1 million home that has been appraised at $1.8 million, you can sell it and take home $500,000 of the $800,000 gain tax free — due to an exemption on profits from the sale of personal residences. Sell the property to a trusted friend or wealthy relative and then become a tenant and pay the buyer rent at market rates — a much more attractive amount than Treasury bonds are paying now. When the housing market corrects, buy the property back.
- Invest in housing futures. The Chicago Mercantile Exchange sells investment instruments that trade based on house price indexes for each of the 10 largest U.S. cities. You can sell futures, buy puts, or sell calls on this market to hedge losses in the value of your home.Source:
~ Forbes, Stephanie Fitch (12/10/07)
Commercial Real Estate Still Profitable Investment
From Realtor Magazine Online, Daily Real Estate News November 27, 2007
So far, the softening in the real estate market hasn't been felt in commercial property. There appears to be only a slight decline in 2007 vs. 2006.
Apartments have benefited from the still-high home prices and tightened mortgage-lending standards, although the increases have slackened slightly from 5 percent to 4 percent. Office properties are up 1 percentage point to 10 percent. Shopping centers are down 0.5 percent. Warehouses are up 4 percent and still in demand.
Over the past 12 months commercial real estate has returned an average 13 percent (property appreciation plus rental income), says commercial brokerage house Marcus & Millichap. That tops the 8.4 percent total return from the S&P 500 and the approximately 3 percent return from single-family homes.
Forbes magazine suggests that anyone interested in becoming a commercial landlord should ask the following questions before deciding how to go about it:
- Do you want to invest on your own or in a group?
- How much work do you want to put into your property?
- Is a 1031 exchange worthwhile, or will fees eat up the delayed tax benefits?
- Would you make more money buying a publicly traded REIT?
~ Source: Forbes, Dorothy Pomerantz (12/10/07)
So far, the softening in the real estate market hasn't been felt in commercial property. There appears to be only a slight decline in 2007 vs. 2006.
Apartments have benefited from the still-high home prices and tightened mortgage-lending standards, although the increases have slackened slightly from 5 percent to 4 percent. Office properties are up 1 percentage point to 10 percent. Shopping centers are down 0.5 percent. Warehouses are up 4 percent and still in demand.
Over the past 12 months commercial real estate has returned an average 13 percent (property appreciation plus rental income), says commercial brokerage house Marcus & Millichap. That tops the 8.4 percent total return from the S&P 500 and the approximately 3 percent return from single-family homes.
Forbes magazine suggests that anyone interested in becoming a commercial landlord should ask the following questions before deciding how to go about it:
- Do you want to invest on your own or in a group?
- How much work do you want to put into your property?
- Is a 1031 exchange worthwhile, or will fees eat up the delayed tax benefits?
- Would you make more money buying a publicly traded REIT?
~ Source: Forbes, Dorothy Pomerantz (12/10/07)
Monday, November 26, 2007
Mortgage News Commentary
Summary provided by Greg Parker of First Capital, Cell: +1 (858) 353-0449
Bonds are trading at their highest levels for the year, affecting a downward trend in mortgage pricing. Negative news from Citigroup and news that HSBC is bailing out two of its investment funds have kept the shaky state of the credit market in focus. But word of strong, early-holiday, retail sales is providing some support for the stock market.
This week's events calendar is relatively heavy. On Wednesday afternoon, the Federal Reserve will release its latest edition of its Beige Book, a summary of economic conditions in the 12 Fed regions which the monetary policy committee uses during policy deliberations. The next committee meeting is December 11.
Thursday brings the report on new home sales for last month. The Commerce Dept. reported that the seasonally adjusted, annualized pace of new home sales rose in Sept. by 4.8% to 770,000. The average new home price fell in September by $9,000 to $288,000. This was 2.8% lower than a year earlier. The median home price rose by $5,900 to $238,000 and was up by 5.0% from the year-ago price.
Rates are: Moving Lower; Rate Volatility: Low
Long Term (4-6 weeks): Flat; Short Term (1-2 weeks): Flat
Conforming Loans (Max. $417,000):
30 Year Fixed = 5.875% Rate, 6.082% APR
15 Year Fixed = 5.25% Rate, 5.592% APR
Jumbo Loans (Over $417,000):
30 Year Fixed = 6.75% Rate, 6.96% APR
15 Year Fixed = 6.625% Rate, 6.967% APR
Current Indices:
Prime Rate = 7.50%
1-Year Treasury = 3.995%
6-Month LIBOR = 4.894%
11th District Cost of Funds = 4.38%
Treasury Average = 4.909%
Bonds are trading at their highest levels for the year, affecting a downward trend in mortgage pricing. Negative news from Citigroup and news that HSBC is bailing out two of its investment funds have kept the shaky state of the credit market in focus. But word of strong, early-holiday, retail sales is providing some support for the stock market.
This week's events calendar is relatively heavy. On Wednesday afternoon, the Federal Reserve will release its latest edition of its Beige Book, a summary of economic conditions in the 12 Fed regions which the monetary policy committee uses during policy deliberations. The next committee meeting is December 11.
Thursday brings the report on new home sales for last month. The Commerce Dept. reported that the seasonally adjusted, annualized pace of new home sales rose in Sept. by 4.8% to 770,000. The average new home price fell in September by $9,000 to $288,000. This was 2.8% lower than a year earlier. The median home price rose by $5,900 to $238,000 and was up by 5.0% from the year-ago price.
Rates are: Moving Lower; Rate Volatility: Low
Long Term (4-6 weeks): Flat; Short Term (1-2 weeks): Flat
Conforming Loans (Max. $417,000):
30 Year Fixed = 5.875% Rate, 6.082% APR
15 Year Fixed = 5.25% Rate, 5.592% APR
Jumbo Loans (Over $417,000):
30 Year Fixed = 6.75% Rate, 6.96% APR
15 Year Fixed = 6.625% Rate, 6.967% APR
Current Indices:
Prime Rate = 7.50%
1-Year Treasury = 3.995%
6-Month LIBOR = 4.894%
11th District Cost of Funds = 4.38%
Treasury Average = 4.909%
Wednesday, November 21, 2007
Yes, Clouds DO Have Silver Linings
From Real Estate Insights, The Forecast
NAR’s latest pending home sales index point toward soft sales conditions for the remainder of the year. Of course, there are large local variations, but for the nation as a whole, closed transactions in the fourth quarter will be their weakest in seven years. The subprime loan bust, the still not-back-to-normal jumbo loan market and the usual lag time effect will account for the current quarter soft figures.
It's Not All Bad
But there is good news. FHA loan applications and approvals have been rising strongly. HUD’s endorsement of FHA loans for home purchases rose by 58 percent and that for refinances rose by 23 percent compared to a year ago. NAR has been lobbying heavily in the past year for a major FHA reform for greater flexibility and a higher loan limit. Those reforms could greatly increase the use of the FHA program, and there is a strong possibility of that occurring by early next year. Therefore, many potential first-time home buyers who in the recent past may have relied on subprime loans will be able enter the market with a safer and lower interest rate mortgage product. The increase in FHA loan usage will further accelerate in 2008.
There is also some discussion of raising the loan limit of Fannie/Freddie repurchased loans, which would measurably lower home buying costs in high-cost regions from California and Seattle in the West to the Boston, New York, D.C. corridor and parts of south Florida in the East. Such a change will lower jumbo rates by more than 50 basis points. On a loan of $600,000 – not an uncommon amount in high cost regions – the lower rates translate into savings of $4,000 per year for home buyers.
More Good News
Other positive factors. Currently, mortgage rates are generally lower. The average mortgage rate was approaching 6 percent in mid-November, down from 6.5 to 6.8 percent that we saw this summer. And while sales have been declining, the pent-up demand from steady job gainscontinues to climb. Since the home sales peak in August 2005, 5.4 million jobs have beenadded to the economy.
And good news about the economy continues. The economy was surprisingly strong in the third quarter of this year – and last two quarters posted near 4 percent GDP growth. Exports were dominant with a 16 percent increase. The prolonged dollar decline has actually helped U.S.-made products be competitive overseas. The usual negatives accompanying a weak currency – higher inflation and higher interest rates – have not appeared.
The weak dollar will also help in foreign purchases of American properties. The latest NAR survey on international buying trends – buyers from foreign countries purchasing U.S. homes – shows that more REALTORS® experienced increased activity from foreign buyers than decreased activity by more than a two-to-one margin. Mexico, Britain, and Canada were the top three countries of origin for those foreigners buying second homes in the U.S.
Some Concerns Down the Road
There are some concerns. The economy looks to show a very weak fourth quarter. Recent data on retail sales along with continuing large cutbacks in home building will hold back economic growth to about only 1 percent. But going forward into 2008, GDP should improve. Exports look to be strong, particularly if oil prices were to drift lower as the futures market indicates. Consumer spending will move ahead, albeit at a slower pace in 2008 – income gains from job gains will offset falling housing wealth spending impact. Any positive consumer spending growth virtually assures that the chances the economy will drift into recession are low given solid performance in exports and business spending. The odds of a recession in 2008, in my view, are 10 percent.
Housing
Consumers do need to contend with modestly lower housing wealth. NAR forecasts that prices will post a national price decline of 2.5 percent in the fourth quarter of this year. By the first quarter of 2008 though, price declines will be minimal as current widely available mortgage products filter through the system. Keep in mind that roughly 2/3 of local markets will haverecorded a positive price growth for 2007, and as we have often said all real estate is local. In 2008, many markets in the middle part of America, spanning from the Appalachian Mountains to the Rocky Mountains, could see decent price gains. These markets show “undervalued”conditions currently when viewed in relation to their historic local mortgage obligation-to-income ratio.
Housing Indexes
NAR relies on timely MLS data that provides the earliest signals about price trends. Other price forecasts rely on other sources. The Case-Shiller price index, for example, relies on data collected with a lag time using mortgage securities and county record data. That lag time can besignificant: people close on a home and only after several months do mortgage securities and county recording offices pick up the information. Consequently, the Case-Shiller price index will show the underlying NAR trend with about a 3 to 6 month lag time. Furthermore, the index’s data is subject to constant revisions because its methodology demands it. What is reported currently may be way off after one or two years and so the index is constantly revised.
In addition, the Case-Shiller index is price weighted. It was created with hedge funds in mind – where a $1 million mortgage loss is ten times greater than $100,000 mortgage loss, so this index gives greater weight to larger priced homes. In contrast, NAR’s price series treats all homesequally and reports the middle (median) home price. Most consumers appreciate equal treatment and timely information. NAR also covers nearly 150 markets while Case-Shiller covers only 20 – and those 20 happen to be weak markets currently.
The labeling of the Case-Shiller index is also misleading. Though it is called a monthly index, it is actually a prior rolling 3-month average. Because its data coverage is thin (compared to NAR’s as well as others) this 3-month averaging is necessary (although it seems to have been able to fool some in the media). And while I’m not suggesting that it be ignored, the Case-Shiller index should be read with caution.
Mind-set
There is more uncertainty related to our home sales forecast due to the greater psychologicalimpact on potential home buyers. The forecast for home sales is for only a 0.4 percent rise nationally. (All real estate is local so markets like Wichita could see a big jump in sales from strong rise in local employment.) If buyer confidence returns, home sales could turn out to be measurably higher.
- by Lawrence Yun, NAR Chief Economist
NAR’s latest pending home sales index point toward soft sales conditions for the remainder of the year. Of course, there are large local variations, but for the nation as a whole, closed transactions in the fourth quarter will be their weakest in seven years. The subprime loan bust, the still not-back-to-normal jumbo loan market and the usual lag time effect will account for the current quarter soft figures.
It's Not All Bad
But there is good news. FHA loan applications and approvals have been rising strongly. HUD’s endorsement of FHA loans for home purchases rose by 58 percent and that for refinances rose by 23 percent compared to a year ago. NAR has been lobbying heavily in the past year for a major FHA reform for greater flexibility and a higher loan limit. Those reforms could greatly increase the use of the FHA program, and there is a strong possibility of that occurring by early next year. Therefore, many potential first-time home buyers who in the recent past may have relied on subprime loans will be able enter the market with a safer and lower interest rate mortgage product. The increase in FHA loan usage will further accelerate in 2008.
There is also some discussion of raising the loan limit of Fannie/Freddie repurchased loans, which would measurably lower home buying costs in high-cost regions from California and Seattle in the West to the Boston, New York, D.C. corridor and parts of south Florida in the East. Such a change will lower jumbo rates by more than 50 basis points. On a loan of $600,000 – not an uncommon amount in high cost regions – the lower rates translate into savings of $4,000 per year for home buyers.
More Good News
Other positive factors. Currently, mortgage rates are generally lower. The average mortgage rate was approaching 6 percent in mid-November, down from 6.5 to 6.8 percent that we saw this summer. And while sales have been declining, the pent-up demand from steady job gainscontinues to climb. Since the home sales peak in August 2005, 5.4 million jobs have beenadded to the economy.
And good news about the economy continues. The economy was surprisingly strong in the third quarter of this year – and last two quarters posted near 4 percent GDP growth. Exports were dominant with a 16 percent increase. The prolonged dollar decline has actually helped U.S.-made products be competitive overseas. The usual negatives accompanying a weak currency – higher inflation and higher interest rates – have not appeared.
The weak dollar will also help in foreign purchases of American properties. The latest NAR survey on international buying trends – buyers from foreign countries purchasing U.S. homes – shows that more REALTORS® experienced increased activity from foreign buyers than decreased activity by more than a two-to-one margin. Mexico, Britain, and Canada were the top three countries of origin for those foreigners buying second homes in the U.S.
Some Concerns Down the Road
There are some concerns. The economy looks to show a very weak fourth quarter. Recent data on retail sales along with continuing large cutbacks in home building will hold back economic growth to about only 1 percent. But going forward into 2008, GDP should improve. Exports look to be strong, particularly if oil prices were to drift lower as the futures market indicates. Consumer spending will move ahead, albeit at a slower pace in 2008 – income gains from job gains will offset falling housing wealth spending impact. Any positive consumer spending growth virtually assures that the chances the economy will drift into recession are low given solid performance in exports and business spending. The odds of a recession in 2008, in my view, are 10 percent.
Housing
Consumers do need to contend with modestly lower housing wealth. NAR forecasts that prices will post a national price decline of 2.5 percent in the fourth quarter of this year. By the first quarter of 2008 though, price declines will be minimal as current widely available mortgage products filter through the system. Keep in mind that roughly 2/3 of local markets will haverecorded a positive price growth for 2007, and as we have often said all real estate is local. In 2008, many markets in the middle part of America, spanning from the Appalachian Mountains to the Rocky Mountains, could see decent price gains. These markets show “undervalued”conditions currently when viewed in relation to their historic local mortgage obligation-to-income ratio.
Housing Indexes
NAR relies on timely MLS data that provides the earliest signals about price trends. Other price forecasts rely on other sources. The Case-Shiller price index, for example, relies on data collected with a lag time using mortgage securities and county record data. That lag time can besignificant: people close on a home and only after several months do mortgage securities and county recording offices pick up the information. Consequently, the Case-Shiller price index will show the underlying NAR trend with about a 3 to 6 month lag time. Furthermore, the index’s data is subject to constant revisions because its methodology demands it. What is reported currently may be way off after one or two years and so the index is constantly revised.
In addition, the Case-Shiller index is price weighted. It was created with hedge funds in mind – where a $1 million mortgage loss is ten times greater than $100,000 mortgage loss, so this index gives greater weight to larger priced homes. In contrast, NAR’s price series treats all homesequally and reports the middle (median) home price. Most consumers appreciate equal treatment and timely information. NAR also covers nearly 150 markets while Case-Shiller covers only 20 – and those 20 happen to be weak markets currently.
The labeling of the Case-Shiller index is also misleading. Though it is called a monthly index, it is actually a prior rolling 3-month average. Because its data coverage is thin (compared to NAR’s as well as others) this 3-month averaging is necessary (although it seems to have been able to fool some in the media). And while I’m not suggesting that it be ignored, the Case-Shiller index should be read with caution.
Mind-set
There is more uncertainty related to our home sales forecast due to the greater psychologicalimpact on potential home buyers. The forecast for home sales is for only a 0.4 percent rise nationally. (All real estate is local so markets like Wichita could see a big jump in sales from strong rise in local employment.) If buyer confidence returns, home sales could turn out to be measurably higher.
- by Lawrence Yun, NAR Chief Economist
Tuesday, November 20, 2007
Happy Thanksgiving!
Amidst the hustle and bustle of the holiday season it is easy to forget that Thanksgiving was intended to be a spiritual day. It was meant to be a day of reflection, set apart from all other days specifically to acknowledge, with humble hearts, God's loving provision.
Make this week a time of reflection, repentance, and new beginnings. Spend time in prayer and search out God's will in the scriptures. Encourage one another. Share your blessings with those in need. Most importantly, take the time to acknowledge with gratitude and praise the blessings given to us by Almighty God. "Make a joyful noise unto the LORD, all ye lands. Serve the LORD with gladness: come before his presence with singing. Know ye that the LORD he is God: it is he that hath made us, and not we ourselves; we are his people, and the sheep of his pasture. Enter into his gates with thanksgiving, and into his courts with praise: be thankful unto him, and bless his name. For the LORD is good; his mercy is everlasting; and his truth endures to all generations (Psalm 100)."
On behalf of all the Home, James! team, may God bless you and your family this Thanksgiving Day.
- Jeff and Tim James
Make this week a time of reflection, repentance, and new beginnings. Spend time in prayer and search out God's will in the scriptures. Encourage one another. Share your blessings with those in need. Most importantly, take the time to acknowledge with gratitude and praise the blessings given to us by Almighty God. "Make a joyful noise unto the LORD, all ye lands. Serve the LORD with gladness: come before his presence with singing. Know ye that the LORD he is God: it is he that hath made us, and not we ourselves; we are his people, and the sheep of his pasture. Enter into his gates with thanksgiving, and into his courts with praise: be thankful unto him, and bless his name. For the LORD is good; his mercy is everlasting; and his truth endures to all generations (Psalm 100)."
On behalf of all the Home, James! team, may God bless you and your family this Thanksgiving Day.
- Jeff and Tim James
Rate Cut Chatter, Housing Data Push Stocks Higher
From Foxnews.com, Tuesday, Nov. 20 2007
Slightly positive news on the embattled housing market and speculation that the Federal Reserve might cut rates in an emergency action pushed stocks higher Tuesday, helping them rebound from yesterday's 200 point loss. The Federal Reserve's Federal Open Market Committee releases the minutes from its Halloween meeting at 2 p.m. EST. The minutes will debut a new set of economic data that Fed Chairman Ben Bernanke highlighted last week on Capitol Hill, which will now take a three-year outlook on the economy instead of two. The minutes will also focus more on what's known as "headline" inflation, which takes into account food and energy prices when calculating the cost of goods.Rumors of a possible emergency interest rate cut by the Fed are running around Wall Street, according to reports by Dow Jones Newswires.
- Ken Sweet
FOXBusiness
Slightly positive news on the embattled housing market and speculation that the Federal Reserve might cut rates in an emergency action pushed stocks higher Tuesday, helping them rebound from yesterday's 200 point loss. The Federal Reserve's Federal Open Market Committee releases the minutes from its Halloween meeting at 2 p.m. EST. The minutes will debut a new set of economic data that Fed Chairman Ben Bernanke highlighted last week on Capitol Hill, which will now take a three-year outlook on the economy instead of two. The minutes will also focus more on what's known as "headline" inflation, which takes into account food and energy prices when calculating the cost of goods.Rumors of a possible emergency interest rate cut by the Fed are running around Wall Street, according to reports by Dow Jones Newswires.
- Ken Sweet
FOXBusiness
Dollar Under Pressure After Hitting New Euro Low; Up Vs. Yen
From Foxbusiness.com, Tuesday, Nov. 20 2007
SAN FRANCISCO - The dollar was lower almost across the board Tuesday, probing new lows against the euro but gaining on the yen as stronger equities vanquished risk aversion. Data released early in the session were mixed, showing a higher-than-expected rate of U.S. housing starts but a fall in building permits to their slowest pace in 14 years. The dollar was buying 110.16 yen, compared with 109.75 yen in late U.S. trading Monday. The dollar index, which measures the greenback against a basket of currencies, was at 75.360, down from 75.785 late Monday. The pound sterling was changing hands at $2.0627, compared with $2.501 Monday. The euro was at $1.4787, after earlier rising to a new record high $1.4813, compared with $1.4664 Monday.
- Lisa Twaronite
MarketWatch Pulse
SAN FRANCISCO - The dollar was lower almost across the board Tuesday, probing new lows against the euro but gaining on the yen as stronger equities vanquished risk aversion. Data released early in the session were mixed, showing a higher-than-expected rate of U.S. housing starts but a fall in building permits to their slowest pace in 14 years. The dollar was buying 110.16 yen, compared with 109.75 yen in late U.S. trading Monday. The dollar index, which measures the greenback against a basket of currencies, was at 75.360, down from 75.785 late Monday. The pound sterling was changing hands at $2.0627, compared with $2.501 Monday. The euro was at $1.4787, after earlier rising to a new record high $1.4813, compared with $1.4664 Monday.
- Lisa Twaronite
MarketWatch Pulse
Monday, November 19, 2007
Condo Buyers Should Do Their Research
Realtor Magazine Online, Daily Real Estate News November 19, 2007
Condominium buyers who fail to take a close look at the condo association's rules and finances can be in for some unhappy surprises.
These documents can contain everything from the operating hours of the laundry room to plans for major construction or pending lawsuits. If the potential condo buyer reads the document and doesn’t like what’s there, the law generally says he or she can walk away from the deal.
"These statutes are built to give purchasers the information they need to make an educated decision," said Pia Trigiani, a lawyer at Mercer Trigiani, a firm that specializes in real estate transactions.
Here are the some key questions a condo buyer should try to answer when reading through the association's documents:
Condominium buyers who fail to take a close look at the condo association's rules and finances can be in for some unhappy surprises.
These documents can contain everything from the operating hours of the laundry room to plans for major construction or pending lawsuits. If the potential condo buyer reads the document and doesn’t like what’s there, the law generally says he or she can walk away from the deal.
"These statutes are built to give purchasers the information they need to make an educated decision," said Pia Trigiani, a lawyer at Mercer Trigiani, a firm that specializes in real estate transactions.
Here are the some key questions a condo buyer should try to answer when reading through the association's documents:
- Is the association charging residents enough to pay expenses without going into debt?
- Is there a pattern of special assessments that may indicate poor financial management?
- Is there sufficient money or a plan to get more money to pay for the projects specified in the reserve study? Buyers should compare the budget provided in the resale package against the expenses predicted in the reserve study and see if there appears to be enough money.
- What do other residents and the management company think? Read the board minutes, which are maintained by the management company. Some companies charge a small fee for this service.
1031 Exchanges: It's a Tax Thing
Realtor Magazine Online, Daily Real Estate News November 19, 2007
1031 exchanges can be a powerful tool for investors who are either buying or selling, and a specialty in this area can give you a great pipeline of business in a tough market, Rochelle Stone of qualified intermediary Starker Services Inc., Los Gatos, Calif., said Friday at the 2007 REALTORS® Conference & Expo in Las Vegas.
“Exchanges aren’t just for sellers,” Stone said. "At a time when there are so many listings, investors may want to buy, but hesitate because of the taxes they will incur if they sell their current properties.”
She suggests that you approach owners and show them that by using a 1031 exchange they can buy a property that better suits their current investment goals without incurring current taxes.
And because of depreciation recapture provisions, which tax accumulated depreciation, an exchange may be a good option even if an investor isn’t realizing much of a gain on a sale, noted John Mangham, also of Starker Services. For example, an investor may think that if he is only realizing a $20,000 gain on a sale, it’s not worth doing an exchange to save $3,000 ($20,000 X 15% capital gains tax rate = $3,000).
However, if the investor has taken $50,000 of accumulated depreciation on the investment property, that amount would be recaptured as gain at the time of sale and generate a tax bill of $12,500 ($50,000 X 25% tax rate on depreciation = $12,500). “Without an exchange, you’re giving most of your profit to the government,” he said.
But exchanges work only if you know the rules. While Stone doesn’t advise trying to explain the details of a 1031 to clients (“Just say ‘it’s a tax thing I heard about and you should check it out,’” she suggested), you do need to know the basics.
Properties in an exchange must be used for business or trade or held as an investment. A primary residence or vacation home used primarily by the owner does not quality. Also note that just renting out a vacation home for a few months probably won’t be enough to quality for an exchange, warned Mangham.
Exchanges must be between like-kind properties. That doesn’t mean condo for condo, but one kind of real property — including land — for another. You can also by a fractional interest in a larger property through a TIC (tenant-in-common) investment, noted Mangham.
Speed is of the essence. For an exchange to meet Internal Revenue Service regulations, you must identify replacement properties within 45 days of relinquishing the sale property and close on a property within 180 days. (Also note that the 45 days and 180 days run concurrently.) “Meeting this timeframe is the toughest part of doing a 1031,” says Stone.
Shop for properties early and often, says Mangham. The possible replacement properties you identify must be either three properties of any fair market value or any number of properties valued at no more than 200 percent of the value of the relinquished property.
This doesn’t mean you have to buy all these properties; just that this is the maximum number you can identify under IRS rules. And don’t be afraid to make earnest money deposits to hold potential properties before you’ve sold what you own now, says Mangham. You can get a refund of the earnest money you put in when the transaction closes. “The future of real estate belongs to the flexible, and 1031s give a great deal more flexibility in helping investor clients own the best property for them,” concludes Stone.
— REALTOR® Magazine Online
1031 exchanges can be a powerful tool for investors who are either buying or selling, and a specialty in this area can give you a great pipeline of business in a tough market, Rochelle Stone of qualified intermediary Starker Services Inc., Los Gatos, Calif., said Friday at the 2007 REALTORS® Conference & Expo in Las Vegas.
“Exchanges aren’t just for sellers,” Stone said. "At a time when there are so many listings, investors may want to buy, but hesitate because of the taxes they will incur if they sell their current properties.”
She suggests that you approach owners and show them that by using a 1031 exchange they can buy a property that better suits their current investment goals without incurring current taxes.
And because of depreciation recapture provisions, which tax accumulated depreciation, an exchange may be a good option even if an investor isn’t realizing much of a gain on a sale, noted John Mangham, also of Starker Services. For example, an investor may think that if he is only realizing a $20,000 gain on a sale, it’s not worth doing an exchange to save $3,000 ($20,000 X 15% capital gains tax rate = $3,000).
However, if the investor has taken $50,000 of accumulated depreciation on the investment property, that amount would be recaptured as gain at the time of sale and generate a tax bill of $12,500 ($50,000 X 25% tax rate on depreciation = $12,500). “Without an exchange, you’re giving most of your profit to the government,” he said.
But exchanges work only if you know the rules. While Stone doesn’t advise trying to explain the details of a 1031 to clients (“Just say ‘it’s a tax thing I heard about and you should check it out,’” she suggested), you do need to know the basics.
Properties in an exchange must be used for business or trade or held as an investment. A primary residence or vacation home used primarily by the owner does not quality. Also note that just renting out a vacation home for a few months probably won’t be enough to quality for an exchange, warned Mangham.
Exchanges must be between like-kind properties. That doesn’t mean condo for condo, but one kind of real property — including land — for another. You can also by a fractional interest in a larger property through a TIC (tenant-in-common) investment, noted Mangham.
Speed is of the essence. For an exchange to meet Internal Revenue Service regulations, you must identify replacement properties within 45 days of relinquishing the sale property and close on a property within 180 days. (Also note that the 45 days and 180 days run concurrently.) “Meeting this timeframe is the toughest part of doing a 1031,” says Stone.
Shop for properties early and often, says Mangham. The possible replacement properties you identify must be either three properties of any fair market value or any number of properties valued at no more than 200 percent of the value of the relinquished property.
This doesn’t mean you have to buy all these properties; just that this is the maximum number you can identify under IRS rules. And don’t be afraid to make earnest money deposits to hold potential properties before you’ve sold what you own now, says Mangham. You can get a refund of the earnest money you put in when the transaction closes. “The future of real estate belongs to the flexible, and 1031s give a great deal more flexibility in helping investor clients own the best property for them,” concludes Stone.
— REALTOR® Magazine Online
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