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.
Friday, November 30, 2007
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
Thursday, November 15, 2007
On the frontier of finance
From: The Economist Print Edition, Thursday, Nov 15th 2007 ABUJA, JOHANNESBURG AND NAIROBI
Taking advantage of more stable economies, banks are venturing deep into sub-Saharan Africa
NOT so long ago, a cruel joke among international bankers was that sub-Saharan Africa was less an emerging market than a submerging one. Local bankers had no reason to change that impression; for all the political and economic turmoil, tiny and informal markets, and shabby infrastructure, they mostly made good money doing very little. Using low-cost deposits to buy high-yielding government bonds, they harvested some of the best net-income margins in the world. The corollary, of course, was that most Africans had no access to financial services.
Nowadays, the thinking is shifting. According to the IMF, Africa is enjoying its best period of sustained economic expansion since independence. Real GDP growth is expected to rise from 5.7% in 2006 to 6.1% this year and 6.8% in 2008. This good performance is partly driven by high commodity and oil prices. Foreign aid has also helped. But it is also due to better economic management, more openness and more stable politics. Such policies mean banks have to work harder to make a profit, but also help them to grow. That is encouraging them to reach out to new customers—and so they should. A report from the World Bank on November 13th argues that promoting access to financial services in Africa should be a priority, as it boosts growth and helps reduce the income gap between rich and poor.
Still, only 20% of families in Africa have bank accounts. Small and medium-sized firms struggle to borrow; private credit accounts for 18% of GDP in Africa—and less than 5% in Angola, Chad, Congo, Guinea Bissau and Sierra Leone—compared with 30% in South Asia. Ethiopia, Uganda and Tanzania have less than one bank branch per 100,000 people. Opening an account in Cameroon requires $700—more than many of its people earn in a year. In Swaziland, a woman needs the consent of her father, husband or brother to open an account or take a loan, and 75% of adults do not have a verifiable address. Even in South Africa, where the financial sector is far more sophisticated, almost half of adults do not have bank accounts.
Millions of Africans stash money under their mattresses or keep their savings as cattle.
In countries such as South Africa, Kenya and Uganda, many turn to informal services, such as burial societies or savings clubs. Microfinance outfits have filled some of the gap. But they are small, and banks are usually much better equipped to provide financial services on a large scale.
In many countries, not only are better and more predictable monetary policies improving the environment for banking; privatisation of state-owned banks has also created opportunities, and better regulation has helped too. In 2004, Nigeria's central bank raised the minimum capital requirement for banks from 2 billion nairas ($15m) to 25 billion, and it limited government ownership in banks to 10%. The number of banks has shrunk from 89 in 2004 to 25 today, but the number of branches has increased by over 600. So far, experts say, placements on the red-hot stock exchange have provided most of the increased capital. Some banks' returns on equity are believed to be shrinking. But ATMs have become so much a part of life in Nigeria's big cities that lines sometimes stretch down the street. There are also welcome signs of prudence: one Nigerian bank, United Bank of Africa, promises no “wahala” loans. All Nigerians know wahala means “trouble”.
The improving climate has caught the attention of foreigners.
The Industrial and Commercial Bank of China, in the largest ever single investment in Africa, has offered $5.6 billion for a 20% stake in Standard Bank, of South Africa, which has operations in 18 African countries. In 2005 Barclays, a British bank that has been working in Africa for over a century, bought a majority interest in ABSA, another South African bank. Its ambitions stretch across the continent, and it believes its sponsorship of the English Premier League, something of a religion in football-mad African countries, has given it recognition (so, less happily, has its colonial pedigree). “Africa is going from unbanked to banked,” says Frits Seegers, a Barclays executive. Hitherto, the bank has served what it calls the top of the pyramid in Africa; now, spurred by competition from local African banks and by its experience in emerging Asian markets, it is targeting the middle and lower end.
South Africa serves as the Petri dish for the trans-African experiment (although its economy is so much larger than its neighbours' that results may not be perfectly replicable elsewhere). In the post-apartheid era, the government has nudged banks into creating simpler and cheaper products. They have taken branches to the unbanked, either in prefabricated form, or in vans that make regular visits to under-served areas. Other countries are doing the same. In remote areas where delivering cash is hard, mini-machines have been installed in corner shops where customers print out a slip confirming they are in the black and present it to the shopkeeper, who provides the cash. Some rural branches and ATMs rely on solar energy and satellite phone connections.
New technology also helps.
Few Africans have a bank account, but many have mobile phones: in Kenya and Botswana, for example, 17% of those who are unbanked own a mobile phone, according to the FinMark Trust, a research group seeking to make financial services more accessible. In South Africa, Congo and Kenya, financial services are offered over mobile phones—though it is not always clear whether they can be called banks or not. Subscribers can open accounts, check their balances, pay their bills or transfer money by typing a few commands on their mobile phones. In Kenya, where 3m people have bank accounts, as many as 1m use M-PESA, a mobile-payment scheme.
Splashing out
South African banks, having learned lessons in their home market, are pioneering innovations elsewhere in the region. Standard Bank supplies an isolated branch on an island in Uganda's Lake Victoria by having planes drop bags of cash from the air. The bank credits its mobile sales force and its rapid roll-out of ATMs in Uganda—an extra 128 since it bought a local bank in 2002—to its success there. In a country of 30m people, it has opened close to 700,000 new accounts in five years, and controls 40% of the market. When its shares were listed on the minuscule local stock exchange this year, they were over-subscribed by 200%, and more shares were traded in one day than in the exchange's entire history. ABSA, meanwhile, is developing modern credit-scoring techniques for customers who have never been granted loans before. By keeping costs down and building up scale, it reckons micro lending is at least as profitable as its other services.
But competition among banks is growing.
In Ghana, Barclays works with susu collectors, who gather money from small-scale market traders and keep it safe for them for a fee. The collectors' clients are typically too small for high-street banks, but Barclays reckons that they collectively represent a market worth £75m ($154m). The bank offers savings accounts, loans and training to the susu collectors, and says they have helped it reach 200,000 market traders. In two years, there have been no defaults.
For all the progress, much remains to be done.
In spite of innovations to bring in new customers, banks still have to build up necessary scale, cut costs and manage risks better. Sub-Saharan African economies are growing, but except for a handful, they remain very small: South Africa's GDP alone makes up almost 40% of the whole. Relative poverty is declining, but four out of ten Africans still have to survive on less than a dollar a day. According to the World Bank, in 40 out of 48 countries in the region, it still takes over a year—and a long list of procedures—to enforce a contract. In Congo, Malawi, Mozambique and Sierra Leone, procedures to recover a debt cost more than the value of the debt itself.
Africa also remains far more vulnerable than other regions to the vagaries of weather, unpredictable aid flows, and volatile commodity prices. With the exception of places like South Africa, most economies are not diversified and therefore are highly vulnerable to shocks. Countries such as Zimbabwe and Sudan also show that political stability cannot be taken for granted. This residual uncertainty and the lack of confidence in local banks help explain why those who can often prefer to keep their money abroad and why most private finance in Africa is short-term.
Many African countries still have to develop and enforce policies and laws allowing banks to compete and operate more easily, while making sure they are financially solid—and customers are protected. In time, regional integration may help ease the problem of scale. Meanwhile, millions of people are still waiting to take their cash from under the mattress.
Taking advantage of more stable economies, banks are venturing deep into sub-Saharan Africa
NOT so long ago, a cruel joke among international bankers was that sub-Saharan Africa was less an emerging market than a submerging one. Local bankers had no reason to change that impression; for all the political and economic turmoil, tiny and informal markets, and shabby infrastructure, they mostly made good money doing very little. Using low-cost deposits to buy high-yielding government bonds, they harvested some of the best net-income margins in the world. The corollary, of course, was that most Africans had no access to financial services.
Nowadays, the thinking is shifting. According to the IMF, Africa is enjoying its best period of sustained economic expansion since independence. Real GDP growth is expected to rise from 5.7% in 2006 to 6.1% this year and 6.8% in 2008. This good performance is partly driven by high commodity and oil prices. Foreign aid has also helped. But it is also due to better economic management, more openness and more stable politics. Such policies mean banks have to work harder to make a profit, but also help them to grow. That is encouraging them to reach out to new customers—and so they should. A report from the World Bank on November 13th argues that promoting access to financial services in Africa should be a priority, as it boosts growth and helps reduce the income gap between rich and poor.
Still, only 20% of families in Africa have bank accounts. Small and medium-sized firms struggle to borrow; private credit accounts for 18% of GDP in Africa—and less than 5% in Angola, Chad, Congo, Guinea Bissau and Sierra Leone—compared with 30% in South Asia. Ethiopia, Uganda and Tanzania have less than one bank branch per 100,000 people. Opening an account in Cameroon requires $700—more than many of its people earn in a year. In Swaziland, a woman needs the consent of her father, husband or brother to open an account or take a loan, and 75% of adults do not have a verifiable address. Even in South Africa, where the financial sector is far more sophisticated, almost half of adults do not have bank accounts.
Millions of Africans stash money under their mattresses or keep their savings as cattle.
In countries such as South Africa, Kenya and Uganda, many turn to informal services, such as burial societies or savings clubs. Microfinance outfits have filled some of the gap. But they are small, and banks are usually much better equipped to provide financial services on a large scale.
In many countries, not only are better and more predictable monetary policies improving the environment for banking; privatisation of state-owned banks has also created opportunities, and better regulation has helped too. In 2004, Nigeria's central bank raised the minimum capital requirement for banks from 2 billion nairas ($15m) to 25 billion, and it limited government ownership in banks to 10%. The number of banks has shrunk from 89 in 2004 to 25 today, but the number of branches has increased by over 600. So far, experts say, placements on the red-hot stock exchange have provided most of the increased capital. Some banks' returns on equity are believed to be shrinking. But ATMs have become so much a part of life in Nigeria's big cities that lines sometimes stretch down the street. There are also welcome signs of prudence: one Nigerian bank, United Bank of Africa, promises no “wahala” loans. All Nigerians know wahala means “trouble”.
The improving climate has caught the attention of foreigners.
The Industrial and Commercial Bank of China, in the largest ever single investment in Africa, has offered $5.6 billion for a 20% stake in Standard Bank, of South Africa, which has operations in 18 African countries. In 2005 Barclays, a British bank that has been working in Africa for over a century, bought a majority interest in ABSA, another South African bank. Its ambitions stretch across the continent, and it believes its sponsorship of the English Premier League, something of a religion in football-mad African countries, has given it recognition (so, less happily, has its colonial pedigree). “Africa is going from unbanked to banked,” says Frits Seegers, a Barclays executive. Hitherto, the bank has served what it calls the top of the pyramid in Africa; now, spurred by competition from local African banks and by its experience in emerging Asian markets, it is targeting the middle and lower end.
South Africa serves as the Petri dish for the trans-African experiment (although its economy is so much larger than its neighbours' that results may not be perfectly replicable elsewhere). In the post-apartheid era, the government has nudged banks into creating simpler and cheaper products. They have taken branches to the unbanked, either in prefabricated form, or in vans that make regular visits to under-served areas. Other countries are doing the same. In remote areas where delivering cash is hard, mini-machines have been installed in corner shops where customers print out a slip confirming they are in the black and present it to the shopkeeper, who provides the cash. Some rural branches and ATMs rely on solar energy and satellite phone connections.
New technology also helps.
Few Africans have a bank account, but many have mobile phones: in Kenya and Botswana, for example, 17% of those who are unbanked own a mobile phone, according to the FinMark Trust, a research group seeking to make financial services more accessible. In South Africa, Congo and Kenya, financial services are offered over mobile phones—though it is not always clear whether they can be called banks or not. Subscribers can open accounts, check their balances, pay their bills or transfer money by typing a few commands on their mobile phones. In Kenya, where 3m people have bank accounts, as many as 1m use M-PESA, a mobile-payment scheme.
Splashing out
South African banks, having learned lessons in their home market, are pioneering innovations elsewhere in the region. Standard Bank supplies an isolated branch on an island in Uganda's Lake Victoria by having planes drop bags of cash from the air. The bank credits its mobile sales force and its rapid roll-out of ATMs in Uganda—an extra 128 since it bought a local bank in 2002—to its success there. In a country of 30m people, it has opened close to 700,000 new accounts in five years, and controls 40% of the market. When its shares were listed on the minuscule local stock exchange this year, they were over-subscribed by 200%, and more shares were traded in one day than in the exchange's entire history. ABSA, meanwhile, is developing modern credit-scoring techniques for customers who have never been granted loans before. By keeping costs down and building up scale, it reckons micro lending is at least as profitable as its other services.
But competition among banks is growing.
In Ghana, Barclays works with susu collectors, who gather money from small-scale market traders and keep it safe for them for a fee. The collectors' clients are typically too small for high-street banks, but Barclays reckons that they collectively represent a market worth £75m ($154m). The bank offers savings accounts, loans and training to the susu collectors, and says they have helped it reach 200,000 market traders. In two years, there have been no defaults.
For all the progress, much remains to be done.
In spite of innovations to bring in new customers, banks still have to build up necessary scale, cut costs and manage risks better. Sub-Saharan African economies are growing, but except for a handful, they remain very small: South Africa's GDP alone makes up almost 40% of the whole. Relative poverty is declining, but four out of ten Africans still have to survive on less than a dollar a day. According to the World Bank, in 40 out of 48 countries in the region, it still takes over a year—and a long list of procedures—to enforce a contract. In Congo, Malawi, Mozambique and Sierra Leone, procedures to recover a debt cost more than the value of the debt itself.
Africa also remains far more vulnerable than other regions to the vagaries of weather, unpredictable aid flows, and volatile commodity prices. With the exception of places like South Africa, most economies are not diversified and therefore are highly vulnerable to shocks. Countries such as Zimbabwe and Sudan also show that political stability cannot be taken for granted. This residual uncertainty and the lack of confidence in local banks help explain why those who can often prefer to keep their money abroad and why most private finance in Africa is short-term.
Many African countries still have to develop and enforce policies and laws allowing banks to compete and operate more easily, while making sure they are financially solid—and customers are protected. In time, regional integration may help ease the problem of scale. Meanwhile, millions of people are still waiting to take their cash from under the mattress.
Wednesday, November 14, 2007
Wednesday's U.S. Market Recap
From Schaeffer's Market Recap, Wednesday, November 14, 2007
The morning started with news that the producer price index inched higher and retail sales advanced during October. This data was considered benign, leaving investors to take a break from the recent rash of volatility. Investors also turned to speculation over Fed rate cuts, with the Fed fund futures dropping by 10%, putting today's odds of a December rate cut to 4.25% at 70% odds. After spending a majority of the day on the shelf and allowing the market to bounce between no gain and a 40-point gain, volatility emerged in the final half-hour and the Dow walked off the veritable cliff, plummeting to a triple-digit loss.
When all was said and done, the Dow Jones Industrial Average (DJIA 13,223.9) shed nearly 90 points. All but 7 of the Dow's 30 components slipped into negative territory, with Wal-Mart Stores and Coca-Cola leading the advancers. On the down side, IBM, Disney, Boeing, Caterpillar and 3M Company all dropped heavily. Technically, today's rally met its demise in the form of the Dow's steeply declining 10-day moving average.
Yesterday's sharp sell-off in crude seems to be just that - yesterday's news. Crude futures rebounded today, bringing an end to the 2-day sell-off. Today's advance was brought forth thanks to forecasts showing U.S. crude inventories may decline for a fourth week. Tomorrow's holiday-delayed crude inventories reports are expected to show a 700,000-barrel drop in crude prices, sentiment that some analysts believe is supporting the market for black gold. The front-month oil contract reclaimed $2.92 (or 3.2%) to close at $94.09 per barrel. The contract set an intraday high of $94.30.
Gold futures rallied today, bringing their own 2-day losing streak to a stop. December-dated gold added $15.70 (2%) to close at $814.70 an ounce. While the dollar gained ground on the yen, it slipped versus the euro as risk aversion continued to fade. The dollar index slipped lower as well. Other metals followed suit, with copper advancing 6% (in the wake of an earthquake in Chile, the world's largest copper producer) and silver tacking on 3%.
The morning started with news that the producer price index inched higher and retail sales advanced during October. This data was considered benign, leaving investors to take a break from the recent rash of volatility. Investors also turned to speculation over Fed rate cuts, with the Fed fund futures dropping by 10%, putting today's odds of a December rate cut to 4.25% at 70% odds. After spending a majority of the day on the shelf and allowing the market to bounce between no gain and a 40-point gain, volatility emerged in the final half-hour and the Dow walked off the veritable cliff, plummeting to a triple-digit loss.
When all was said and done, the Dow Jones Industrial Average (DJIA 13,223.9) shed nearly 90 points. All but 7 of the Dow's 30 components slipped into negative territory, with Wal-Mart Stores and Coca-Cola leading the advancers. On the down side, IBM, Disney, Boeing, Caterpillar and 3M Company all dropped heavily. Technically, today's rally met its demise in the form of the Dow's steeply declining 10-day moving average.
Yesterday's sharp sell-off in crude seems to be just that - yesterday's news. Crude futures rebounded today, bringing an end to the 2-day sell-off. Today's advance was brought forth thanks to forecasts showing U.S. crude inventories may decline for a fourth week. Tomorrow's holiday-delayed crude inventories reports are expected to show a 700,000-barrel drop in crude prices, sentiment that some analysts believe is supporting the market for black gold. The front-month oil contract reclaimed $2.92 (or 3.2%) to close at $94.09 per barrel. The contract set an intraday high of $94.30.
Gold futures rallied today, bringing their own 2-day losing streak to a stop. December-dated gold added $15.70 (2%) to close at $814.70 an ounce. While the dollar gained ground on the yen, it slipped versus the euro as risk aversion continued to fade. The dollar index slipped lower as well. Other metals followed suit, with copper advancing 6% (in the wake of an earthquake in Chile, the world's largest copper producer) and silver tacking on 3%.
EURUSD: Closes Higher, Looks To Recapture The 1.4751 Level
From FXStreet.com, Wed, Nov 14 2007, 17:57 GMT
EURUSD- EUR followed through to the upside in early morning trading today on its Tuesday gains started off its nearer term corrective swing low at 1.4520 yesterday. Although daily Stochastics remains negative and pointing lower, current price action suggests a climb back towards a retest of its recent high at 1.4751 may be shaping up.
Above here puts the next two upside objectives at the 1.4800 level, which represents its psycho level and the 1.4918 level, the location of its 1.618 Fib Ext (monthly chart) with a clean penetration of there turning attention to the 1.5000 level, marking its big psycho level. Its medium and longer term outlook remain supportive of this view.
However, failure to decisively break above 1.4751 level will suggest a turn lower towards its psycho level at 1.4600 ahead of the 1.4513/35 zone, its broken rising channel top/Mar’1995 high and then its .382 Ret (1.4014-1.4751 rally) at 1.4470.
The daily studies remain negative supporting more weakness. On the whole, while a recovery of the pair’s decline is now in place, a clean break and close above the 1.4751 level must occur to keep threats to the downside out of the way and further higher prices.
by Mohammed Isah
EURUSD- EUR followed through to the upside in early morning trading today on its Tuesday gains started off its nearer term corrective swing low at 1.4520 yesterday. Although daily Stochastics remains negative and pointing lower, current price action suggests a climb back towards a retest of its recent high at 1.4751 may be shaping up.
Above here puts the next two upside objectives at the 1.4800 level, which represents its psycho level and the 1.4918 level, the location of its 1.618 Fib Ext (monthly chart) with a clean penetration of there turning attention to the 1.5000 level, marking its big psycho level. Its medium and longer term outlook remain supportive of this view.
However, failure to decisively break above 1.4751 level will suggest a turn lower towards its psycho level at 1.4600 ahead of the 1.4513/35 zone, its broken rising channel top/Mar’1995 high and then its .382 Ret (1.4014-1.4751 rally) at 1.4470.
The daily studies remain negative supporting more weakness. On the whole, while a recovery of the pair’s decline is now in place, a clean break and close above the 1.4751 level must occur to keep threats to the downside out of the way and further higher prices.
by Mohammed Isah
Yen slips after the Bank of Japan holds steady on interest rates
Bloomberg News, Published: November 14, 2007
NEW YORK: The yen fell Tuesday against the 16 most-actively traded currencies as the governor of the Bank of Japan, Toshihiko Fukui, gave no indication of when the central bank would increase interest rates following a policy meeting.
The drop started after Prime Minister Yasuo Fukuda warned about the pace of the yen's advance during an interview published by The Financial Times newspaper and accelerated Tuesday after the central bank held its overnight lending rate at 0.5 percent, the lowest rate among major economies.
"It is very hard for the BOJ to raise interest rates," said Samarjit Shankar, director of global strategy for the global markets group in Boston at Bank of New York Mellon. "If they raise rates, it will further encourage yen buying, which may hurt exporters and growth."
The euro is likely to rise as high as $1.50 and the dollar to fall to ¥105 before the end of the year, according to Shankar.
The dollar rose Tuesday to ¥110.925 from ¥109.645 on Monday. The euro rose to $1.4603 from $1.4538. The pound rose to $2.0701 from $2.0560. The dollar fell to 1.1272 Swiss francs from 1.1291 francs.
The dollar has weakened 4.2 percent against the euro and 4.8 percent versus the yen after the Federal Reserve cut interest rates for the first time since 2003 on Sept. 18.
The Federal Reserve further reduced its target overnight lending rate between banks to 4.5 percent on Oct. 31.
Interest-rate futures traded on the Chicago Board of Trade show 86 percent odds that the U.S. central bank will cut again in December.
The European Central Bank's rate is 4 percent.
U.S. stocks traded sharply higher Tuesday, suggesting a decline in risk aversion as investors returned to higher-yielding assets.
"You are going to see a continuation of a swing in the markets until we get a clear idea about the subprime issues," said Brian Taylor, chief currency trader at Manufacturers & Traders Trust in Buffalo, New York. "When risk aversion subsides a bit, people get back to sell yen and buy higher yielders. When risk aversion rises again, the move will quickly reverse."
The pound rose after the British inflation rate accelerated to an annual 2.1 percent rate in October, above the Bank of England's 2 percent target, reducing speculation of an interest-rate cut from the current level of 5.75 percent.
The euro is expected to trade at $1.44 by year-end, according to the median forecast of 41 analysts and brokerage houses surveyed by Bloomberg News.
Kim-Mai Cutler reported from London.
NEW YORK: The yen fell Tuesday against the 16 most-actively traded currencies as the governor of the Bank of Japan, Toshihiko Fukui, gave no indication of when the central bank would increase interest rates following a policy meeting.
The drop started after Prime Minister Yasuo Fukuda warned about the pace of the yen's advance during an interview published by The Financial Times newspaper and accelerated Tuesday after the central bank held its overnight lending rate at 0.5 percent, the lowest rate among major economies.
"It is very hard for the BOJ to raise interest rates," said Samarjit Shankar, director of global strategy for the global markets group in Boston at Bank of New York Mellon. "If they raise rates, it will further encourage yen buying, which may hurt exporters and growth."
The euro is likely to rise as high as $1.50 and the dollar to fall to ¥105 before the end of the year, according to Shankar.
The dollar rose Tuesday to ¥110.925 from ¥109.645 on Monday. The euro rose to $1.4603 from $1.4538. The pound rose to $2.0701 from $2.0560. The dollar fell to 1.1272 Swiss francs from 1.1291 francs.
The dollar has weakened 4.2 percent against the euro and 4.8 percent versus the yen after the Federal Reserve cut interest rates for the first time since 2003 on Sept. 18.
The Federal Reserve further reduced its target overnight lending rate between banks to 4.5 percent on Oct. 31.
Interest-rate futures traded on the Chicago Board of Trade show 86 percent odds that the U.S. central bank will cut again in December.
The European Central Bank's rate is 4 percent.
U.S. stocks traded sharply higher Tuesday, suggesting a decline in risk aversion as investors returned to higher-yielding assets.
"You are going to see a continuation of a swing in the markets until we get a clear idea about the subprime issues," said Brian Taylor, chief currency trader at Manufacturers & Traders Trust in Buffalo, New York. "When risk aversion subsides a bit, people get back to sell yen and buy higher yielders. When risk aversion rises again, the move will quickly reverse."
The pound rose after the British inflation rate accelerated to an annual 2.1 percent rate in October, above the Bank of England's 2 percent target, reducing speculation of an interest-rate cut from the current level of 5.75 percent.
The euro is expected to trade at $1.44 by year-end, according to the median forecast of 41 analysts and brokerage houses surveyed by Bloomberg News.
Kim-Mai Cutler reported from London.
Bank of England set for interest-rate cuts after inflation outlook
LONDON (AFP) — The Bank of England would have to embark on a period of monetary easing to keep the annual inflation rate at the government's set target of 2.0 percent, the central bank said on Wednesday.
In its latest quarterly inflation forecast, the BoE said inflation would be at the central bank's 2.0-percent target in two years only if interest rates fell by 0.5 percent.
"November's BoE Inflation Report gives a clear signal that a series of interest rate cuts lies ahead," Capital Economics analyst Vicky Redwood said.
Britain's 12-month inflation rate increased to 2.1 percent in October from 1.8 percent in September on the back of soaring road fuel prices, official data showed on Tuesday.
It meant that the annual inflation rate was above the Bank of England's 2.0-percent target for the first time since June, according to the data from the Office for National Statistics.
The BoE had last week decided to keep its key interest rate at 5.75 percent for a fourth month running, as expected, as policymakers sat tight amid rising concerns over the global credit squeeze.
Interest rates were increased on five occasions between August 2006 and July 2007, each time by a quarter-point, to tackle high inflation.
As a result, the country's consumer price index fell dramatically to stand at an annual rate of 1.8 percent in September, after spiking to a decade-high 3.1 percent in March.
In its latest quarterly inflation forecast, the BoE said inflation would be at the central bank's 2.0-percent target in two years only if interest rates fell by 0.5 percent.
"November's BoE Inflation Report gives a clear signal that a series of interest rate cuts lies ahead," Capital Economics analyst Vicky Redwood said.
Britain's 12-month inflation rate increased to 2.1 percent in October from 1.8 percent in September on the back of soaring road fuel prices, official data showed on Tuesday.
It meant that the annual inflation rate was above the Bank of England's 2.0-percent target for the first time since June, according to the data from the Office for National Statistics.
The BoE had last week decided to keep its key interest rate at 5.75 percent for a fourth month running, as expected, as policymakers sat tight amid rising concerns over the global credit squeeze.
Interest rates were increased on five occasions between August 2006 and July 2007, each time by a quarter-point, to tackle high inflation.
As a result, the country's consumer price index fell dramatically to stand at an annual rate of 1.8 percent in September, after spiking to a decade-high 3.1 percent in March.
Bank of England signals it will cut interest rates
Reuters, London, Wednesday, November 14, 2007
British interest rates will need to fall in the next few months, the Bank of England signaled Wednesday, as it predicted a worsening outlook for both economic growth and inflation.
In the quarterly Inflation Report, the central bank's first formal look at the economic impact of the credit crunch, it said growth would slow sharply to just over 2 percent next year even if its main rate fell from 5.75 percent.
Price pressures were stronger because of soaring energy prices and a falling pound against the euro, putting inflation above the 2 percent target for most of next year before settling back in the middle of 2009.
"The near-term outlook is less benign for both inflation and growth," the bank's governor, Mervyn King, told a news conference, warning that more disruption in financial markets posed the biggest risk and stock markets around the world could still fall.
Experts took this as a sure sign the Bank of England would soon follow the U.S. Federal Reserve in lowering interest rates because of the credit squeeze this summer, as its forecasts assumed a rate cut to 5.5 percent early next year and another later in 2008.
"Crucially, the BoE has validated expectations that we are going to see two or three interest rate cuts in 2008," said Alan Clarke, economist at BNP Paribas.
The pound fell to a four-year low against the euro and interest rate futures rocketed higher as dealers ratcheted up bets of monetary easing in the months ahead.
King said everything now would depend on the data. The Monetary Policy Committee had left interest rates at 5.75 percent last week because inflation was rising and it was still unsure whether the economy was set to slow more than it had envisaged in August, he said.
King refused to take specific questions on Northern Rock, the mortgage lender that suffered Britain's first bank run in more than a 100 years in September, and said he had never considered resigning because of the crisis.
But people wondering whether he will win a second term as governor when his term expires in June 2008 will have to wait until next year, as King said he had concentrated on much more important things.
King warned that financial market disruption probably had several more months to run. But most British banks should easily be able to withstand losses arising from investments in the subprime U.S. mortgage market, he said.
"I would urge everyone to see the losses in the context of past profits and the capital cushion of the banks," King said. He added that "the big five banks" have made about £100 billion, or $205 billion in profits, "over the past few years."
Just what would happen to the global economy remained a big uncertainty though, particularly if stock prices fell. King warned that they were still soaring, seemingly ignoring the repricing of risk in many other markets. "There must be some downside risks there," he said.
Surging oil prices posed an upside risk to inflation but King showed little concern that the dollar was trading at 26-year lows against the pound and at record lows versus the euro.
This was part of a rebalancing of the global economy, he said, noting that the pound had been falling against currencies other than the dollar, which could eventually help Britain's trade performance. Still, global tensions over currencies were rising, he said, and would be a subject of discussion at the meeting this weekend of G20 policy makers in South Africa.
Euro-zone growth surprising
Euro-zone growth rebounded more strongly than expected in the third quarter thanks to its three biggest economies, data showed Wednesday, Reuters reported from Brussels. But economists said a looming slowdown would help keep European Central Bank interest rates on hold.
The European Union statistics office said gross domestic product in the 13 countries using the euro rose 0.7 percent in the July-September period from a year earlier, compared with a 0.3 percent increase in the previous three months.
"This is backwards-looking data," said Ken Wattret, economist at BNP Paribas. "Forward-looking indicators tell us that the economy will look in a much worse condition from Q4 onwards."
British interest rates will need to fall in the next few months, the Bank of England signaled Wednesday, as it predicted a worsening outlook for both economic growth and inflation.
In the quarterly Inflation Report, the central bank's first formal look at the economic impact of the credit crunch, it said growth would slow sharply to just over 2 percent next year even if its main rate fell from 5.75 percent.
Price pressures were stronger because of soaring energy prices and a falling pound against the euro, putting inflation above the 2 percent target for most of next year before settling back in the middle of 2009.
"The near-term outlook is less benign for both inflation and growth," the bank's governor, Mervyn King, told a news conference, warning that more disruption in financial markets posed the biggest risk and stock markets around the world could still fall.
Experts took this as a sure sign the Bank of England would soon follow the U.S. Federal Reserve in lowering interest rates because of the credit squeeze this summer, as its forecasts assumed a rate cut to 5.5 percent early next year and another later in 2008.
"Crucially, the BoE has validated expectations that we are going to see two or three interest rate cuts in 2008," said Alan Clarke, economist at BNP Paribas.
The pound fell to a four-year low against the euro and interest rate futures rocketed higher as dealers ratcheted up bets of monetary easing in the months ahead.
King said everything now would depend on the data. The Monetary Policy Committee had left interest rates at 5.75 percent last week because inflation was rising and it was still unsure whether the economy was set to slow more than it had envisaged in August, he said.
King refused to take specific questions on Northern Rock, the mortgage lender that suffered Britain's first bank run in more than a 100 years in September, and said he had never considered resigning because of the crisis.
But people wondering whether he will win a second term as governor when his term expires in June 2008 will have to wait until next year, as King said he had concentrated on much more important things.
King warned that financial market disruption probably had several more months to run. But most British banks should easily be able to withstand losses arising from investments in the subprime U.S. mortgage market, he said.
"I would urge everyone to see the losses in the context of past profits and the capital cushion of the banks," King said. He added that "the big five banks" have made about £100 billion, or $205 billion in profits, "over the past few years."
Just what would happen to the global economy remained a big uncertainty though, particularly if stock prices fell. King warned that they were still soaring, seemingly ignoring the repricing of risk in many other markets. "There must be some downside risks there," he said.
Surging oil prices posed an upside risk to inflation but King showed little concern that the dollar was trading at 26-year lows against the pound and at record lows versus the euro.
This was part of a rebalancing of the global economy, he said, noting that the pound had been falling against currencies other than the dollar, which could eventually help Britain's trade performance. Still, global tensions over currencies were rising, he said, and would be a subject of discussion at the meeting this weekend of G20 policy makers in South Africa.
Euro-zone growth surprising
Euro-zone growth rebounded more strongly than expected in the third quarter thanks to its three biggest economies, data showed Wednesday, Reuters reported from Brussels. But economists said a looming slowdown would help keep European Central Bank interest rates on hold.
The European Union statistics office said gross domestic product in the 13 countries using the euro rose 0.7 percent in the July-September period from a year earlier, compared with a 0.3 percent increase in the previous three months.
"This is backwards-looking data," said Ken Wattret, economist at BNP Paribas. "Forward-looking indicators tell us that the economy will look in a much worse condition from Q4 onwards."
U.S. Home prices vs. U.K. Home prices vs. gold
We read in today's paper that houses in the United Kingdom are down for the second month in a row. During the housing bubble, British housing rose even more than did those in the United States. And those in the U.K. probably have a lot further to go down.
And consider this:
Measured in gold, housing in the U.K. has been going down for the last three years!
If you measured U.S. housing in gold, the average house cost about 650 ounces in 1997. Now, that same American house costs only about 500 ounces of gold.
And when measured in euros, the average U.S. house cost about 250,000 in 1998. Now, however, even after doubling in U.S. dollar terms, that same U.S. house still costs only about 275,000 euros.
What's the takeaway? Simple. NOW is the time for holders of British pounds, euros, Canadian dollars and other foreign currencies that have made great advances against the U.S. dollar over the past couple of years to capitalize on their "Currency Advantage" and to invest in American real estate.
And where is the perennial best place to invest? Southern California, of course!
So be sure to contact us, Jeff and Tim James. We have a global perspective, and local expertise. Go back to http://www.invest-in-california-property.com/ and click on "MLS Search" to access over 100,000 properties currently listed in the Multiple Listing Services. Shop around. And when you find a home, condo, income property, a working ranch or vineyard, or vacant land to develop contact us through the site's "Schedule A Consultation" page. We look forward to hearing from you.
Cheers!
~ Jeff and Tim James
And consider this:
Measured in gold, housing in the U.K. has been going down for the last three years!
If you measured U.S. housing in gold, the average house cost about 650 ounces in 1997. Now, that same American house costs only about 500 ounces of gold.
And when measured in euros, the average U.S. house cost about 250,000 in 1998. Now, however, even after doubling in U.S. dollar terms, that same U.S. house still costs only about 275,000 euros.
What's the takeaway? Simple. NOW is the time for holders of British pounds, euros, Canadian dollars and other foreign currencies that have made great advances against the U.S. dollar over the past couple of years to capitalize on their "Currency Advantage" and to invest in American real estate.
And where is the perennial best place to invest? Southern California, of course!
So be sure to contact us, Jeff and Tim James. We have a global perspective, and local expertise. Go back to http://www.invest-in-california-property.com/ and click on "MLS Search" to access over 100,000 properties currently listed in the Multiple Listing Services. Shop around. And when you find a home, condo, income property, a working ranch or vineyard, or vacant land to develop contact us through the site's "Schedule A Consultation" page. We look forward to hearing from you.
Cheers!
~ Jeff and Tim James
U.S. Ranks Third in UN Survey on Global FDI Destinations
From N.A.R., International Real Estate Report, Wednesday November 14, 2007
Foreign direct investment (FDI) flows are expected to increase over the next three years despite concerns about global financial instability and protectionism in some countries, according to the World Investment Prospects Survey 2007-2009, conducted by the United Nations Conference on Trade and Development (UNCTAD) . Survey results are based on respondents from the world's largest transnational corporations. More than two-thirds of the respondent companies plan to increase their FDI expenditures in each of the years 2007 through 2009. FDI is expected to increase across nearly all sectors due to continued world economic growth, high profitability, and the availability of finance. Greenfield investments (the new establishment of affiliates in foreign countries) will be more commonly used as an entry mode into developing economies, while investment in developed countries will more frequently be in the form of mergers and acquisitions. Access to large and growing markets was the key driver of FDI, as well as access to resources and skilled and/or low-cost labor. On the flip side, geopolitical and financial instability were mentioned as major uncertainties that could hinder their FDI expansion, as well as a possible increase in protectionism. China and India topped of the list of most attractive FDI destinations for 2007 - 2009, with the U.S. ranking third. Following, in order of rank, was Russia, Brazil, Vietnam, United Kingdom, Australia, Mexico and, tieing for 10th place, Poland and Germany.
Foreign direct investment (FDI) flows are expected to increase over the next three years despite concerns about global financial instability and protectionism in some countries, according to the World Investment Prospects Survey 2007-2009, conducted by the United Nations Conference on Trade and Development (UNCTAD) . Survey results are based on respondents from the world's largest transnational corporations. More than two-thirds of the respondent companies plan to increase their FDI expenditures in each of the years 2007 through 2009. FDI is expected to increase across nearly all sectors due to continued world economic growth, high profitability, and the availability of finance. Greenfield investments (the new establishment of affiliates in foreign countries) will be more commonly used as an entry mode into developing economies, while investment in developed countries will more frequently be in the form of mergers and acquisitions. Access to large and growing markets was the key driver of FDI, as well as access to resources and skilled and/or low-cost labor. On the flip side, geopolitical and financial instability were mentioned as major uncertainties that could hinder their FDI expansion, as well as a possible increase in protectionism. China and India topped of the list of most attractive FDI destinations for 2007 - 2009, with the U.S. ranking third. Following, in order of rank, was Russia, Brazil, Vietnam, United Kingdom, Australia, Mexico and, tieing for 10th place, Poland and Germany.
Monday, November 12, 2007
Declining Dollar Draws Foreign Real Estate Investors
From: Realtor Magazine Online, Daily Real Estate News, November 12, 2007
The weak dollar may be a bad thing for Americans who want to travel abroad, but there is a silver lining: More foreign buyers are making the most of their currencies by investing in the U.S. real estate. Dan Green, a certified mortgage planning specialist and author of TheMortgageReports.com, estimates that the number of inquiries he's received from outside the U.S. is probably five to 10 times larger than it was a year ago.Foreign investors are increasingly supporting real estate markets in Miami and San Francisco, says Susan Wachter, a professor of real estate at the Wharton School at the University of Pennsylvania.New York, Chicago, and other parts of Florida are also attractive to foreign investors." [The U.S. is] an enticing investment," says Phillip Hegarty, the sales director for Castleroc Estates, a Dublin, Ireland-based firm that works with Irish investors to buy residential and commercial real estate in the United States.
Source: The Associated Press, Stephen Bernard (11/09/2007)
The weak dollar may be a bad thing for Americans who want to travel abroad, but there is a silver lining: More foreign buyers are making the most of their currencies by investing in the U.S. real estate. Dan Green, a certified mortgage planning specialist and author of TheMortgageReports.com, estimates that the number of inquiries he's received from outside the U.S. is probably five to 10 times larger than it was a year ago.Foreign investors are increasingly supporting real estate markets in Miami and San Francisco, says Susan Wachter, a professor of real estate at the Wharton School at the University of Pennsylvania.New York, Chicago, and other parts of Florida are also attractive to foreign investors." [The U.S. is] an enticing investment," says Phillip Hegarty, the sales director for Castleroc Estates, a Dublin, Ireland-based firm that works with Irish investors to buy residential and commercial real estate in the United States.
Source: The Associated Press, Stephen Bernard (11/09/2007)
Prudential Real Estate Adds 18 Offices in Third Quarter
Press Release
PRUDENTIAL REAL ESTATE AFFILIATES, INC., ANNOUNCES 18 ADDITIONAL OFFICES OPENED IN THIRD QUARTER
IRVINE, Calif. – Prudential Real Estate Affiliates, Inc., a Prudential Financial [NYSE: PRU] company, announced third-quarter growth activity resulting in eight newly affiliated companies and numerous mergers or acquisitions with existing companies. This added 18 additional offices to the Prudential Real Estate Network.
"This past quarter, we continued to grow and expand our network coverage," said Laurie Keenan, president, Prudential Real Estate Affiliates, Inc. "The companies that have joined our network embody the core values of Prudential Real Estate and are a welcome addition."
Among the transactions, the franchise agreement with Prudential California Realty, based in Pleasanton, Calif., was renewed, which keeps 51 Northern California offices in the Prudential Real Estate network.
"We are excited about the renewal and the co-alignment of our relationship with Prudential California Realty," Keenan said. "This will help bolster our growth in this key geographic area."
Prudential Real Estate and Relocation Services is Prudential’s integrated real estate brokerage franchise and relocation services business. Prudential Real Estate franchises are independently owned and operated. Companies are selected based upon outstanding performance records, high levels of customer service and shared business values with those of Prudential. Prudential Real Estate provides franchises with business strategies using Operation Reviews as well as numerous benefits, including an exclusive marketing relationship with Yahoo! Real Estate, access to Prudential’s Online Seller Advantage program designed to provide real-time information to sellers with the touch of a keystroke, as well as Prudential’s Military AdvantageSM Program catering to both active and retired military personnel with specialized marketing tools to fit the needs of military families on the move. Prudential Real Estate is one of the largest real estate brokerage franchise networks in North America, with nearly 2,100 franchise offices and approximately 68,000 sales professionals in the franchise Network as of December 31, 2006.
Prudential Financial, Inc. (NYSE: PRU), a financial services leader with approximately $637 billion of assets under management as of September 30, 2007, has operations in the United States, Asia, Europe, and Latin America. Leveraging its heritage of life insurance and asset management expertise, Prudential is focused on helping individual and institutional customers grow and protect their wealth. The company’ s well-known Rock symbol is an icon of strength, stability, expertise and innovation that has stood the test of time. Prudential's businesses offer a variety of products and services, including life insurance, annuities, retirement-related services, mutual funds, investment management, and real estate services. For more information, please visit www.prudential.com.
Contact: Barbra Dunning, (949) 794-7943, barbra.dunning@prudential.com
PRUDENTIAL REAL ESTATE AFFILIATES, INC., ANNOUNCES 18 ADDITIONAL OFFICES OPENED IN THIRD QUARTER
IRVINE, Calif. – Prudential Real Estate Affiliates, Inc., a Prudential Financial [NYSE: PRU] company, announced third-quarter growth activity resulting in eight newly affiliated companies and numerous mergers or acquisitions with existing companies. This added 18 additional offices to the Prudential Real Estate Network.
"This past quarter, we continued to grow and expand our network coverage," said Laurie Keenan, president, Prudential Real Estate Affiliates, Inc. "The companies that have joined our network embody the core values of Prudential Real Estate and are a welcome addition."
Among the transactions, the franchise agreement with Prudential California Realty, based in Pleasanton, Calif., was renewed, which keeps 51 Northern California offices in the Prudential Real Estate network.
"We are excited about the renewal and the co-alignment of our relationship with Prudential California Realty," Keenan said. "This will help bolster our growth in this key geographic area."
Prudential Real Estate and Relocation Services is Prudential’s integrated real estate brokerage franchise and relocation services business. Prudential Real Estate franchises are independently owned and operated. Companies are selected based upon outstanding performance records, high levels of customer service and shared business values with those of Prudential. Prudential Real Estate provides franchises with business strategies using Operation Reviews as well as numerous benefits, including an exclusive marketing relationship with Yahoo! Real Estate, access to Prudential’s Online Seller Advantage program designed to provide real-time information to sellers with the touch of a keystroke, as well as Prudential’s Military AdvantageSM Program catering to both active and retired military personnel with specialized marketing tools to fit the needs of military families on the move. Prudential Real Estate is one of the largest real estate brokerage franchise networks in North America, with nearly 2,100 franchise offices and approximately 68,000 sales professionals in the franchise Network as of December 31, 2006.
Prudential Financial, Inc. (NYSE: PRU), a financial services leader with approximately $637 billion of assets under management as of September 30, 2007, has operations in the United States, Asia, Europe, and Latin America. Leveraging its heritage of life insurance and asset management expertise, Prudential is focused on helping individual and institutional customers grow and protect their wealth. The company’ s well-known Rock symbol is an icon of strength, stability, expertise and innovation that has stood the test of time. Prudential's businesses offer a variety of products and services, including life insurance, annuities, retirement-related services, mutual funds, investment management, and real estate services. For more information, please visit www.prudential.com.
Contact: Barbra Dunning, (949) 794-7943, barbra.dunning@prudential.com
Sunday, November 11, 2007
Euro – Will Sour Sentiment or Hot CPI Drive Direction?
From: DailyFX, Monday, 12 November 2007 04:35:51 GMT
There was little doubt that the European Central Bank would leave rates steady at 4.00 percent last week, but ECB President Jean-Claude Trichet's hawkish tone during his monthly press conference helped keep EUR/USD bid. In Trichet's commentary, he indicated that the central bank was very worried about inflation, but stopped short of using the phrase "strong vigilance," which is his key term to suggest an impending rate hike the following month. At the same time, Trichet said that oil and commodity prices could weigh on growth, and that uncertainty surrounding the ongoing reappraisal of risk in the financial markets prevents them from making policy adjustments at this time. As a result, it has been made clear that the ECB wants to wait to gauge the status of the financial markets before deciding what to do next with interest rates, so traders are not expecting a move in December. However, additional signs that CPI is accelerating much faster than the ECB's 2 percent target rate will keep Trichet & Co. on edge. Looking ahead to this week, price action in EUR/USD is unlikely to be determined primarily by economic data out of the Euro-zone as the pair remains the domain of dollar sentiment. Nevertheless, traders should watch European releases for indications that the ECB may change their stance going forward. The ZEW surveys for both the Euro-zone and Germany are expected to show that investor sentiment soured in November amidst instability in the financial markets and concerns that the ECB will eventually hike rates again. On Wednesday, third quarter GDP figures for the Euro-zone are forecasted to be revised up to 2.6 percent, reflecting a pick up from the 2.5 percent pace in the second quarter. On Thursday, CPI is likely to be released in line with the initial flash estimates at a pace of 2.6 percent, well past the ECB's 2.0 percent target. Overall, fundamental releases at the end of the week could support the case for additional EUR/USD gains, but the pair may find itself correcting lower first.
There was little doubt that the European Central Bank would leave rates steady at 4.00 percent last week, but ECB President Jean-Claude Trichet's hawkish tone during his monthly press conference helped keep EUR/USD bid. In Trichet's commentary, he indicated that the central bank was very worried about inflation, but stopped short of using the phrase "strong vigilance," which is his key term to suggest an impending rate hike the following month. At the same time, Trichet said that oil and commodity prices could weigh on growth, and that uncertainty surrounding the ongoing reappraisal of risk in the financial markets prevents them from making policy adjustments at this time. As a result, it has been made clear that the ECB wants to wait to gauge the status of the financial markets before deciding what to do next with interest rates, so traders are not expecting a move in December. However, additional signs that CPI is accelerating much faster than the ECB's 2 percent target rate will keep Trichet & Co. on edge. Looking ahead to this week, price action in EUR/USD is unlikely to be determined primarily by economic data out of the Euro-zone as the pair remains the domain of dollar sentiment. Nevertheless, traders should watch European releases for indications that the ECB may change their stance going forward. The ZEW surveys for both the Euro-zone and Germany are expected to show that investor sentiment soured in November amidst instability in the financial markets and concerns that the ECB will eventually hike rates again. On Wednesday, third quarter GDP figures for the Euro-zone are forecasted to be revised up to 2.6 percent, reflecting a pick up from the 2.5 percent pace in the second quarter. On Thursday, CPI is likely to be released in line with the initial flash estimates at a pace of 2.6 percent, well past the ECB's 2.0 percent target. Overall, fundamental releases at the end of the week could support the case for additional EUR/USD gains, but the pair may find itself correcting lower first.
Dollar: 1.50 Inevitable?
From: DailyFX, Monday, 12 November 2007 04:35:51 GMT
Dollar dumping continued this week as EURUSD reached yet another record high of 1.4749 and talk on the dealing desks turned to the psychologically important 1.50 figure. Certainly the greenback has few friends these days, as markets remain convinced that the repercussions from the blow up in the subprime sector will continues to weigh on both the financial industry and the US consumer forcing the Fed to continue easing well into 2008 which in turn will make the dollar even less attractive to foreign investors.That theme was reinforced this week after Cheng Siwei, vice chairman of the National People's Congress stated that China should invest its nearly $1.5 Trillion of FX reserves in stronger currencies. The FX market instantly interpreted the remarks as a sign that the Chinese will begin diversifying their currency assets away from the greenback pushed the dollar to new lows. As we noted on Wednesday,” Although, Mr. Siwei has a history of making broad economic comments that often do not reflect actual policy, and although the National People’s Congress is not involved in directly setting currency targets, today reaction speaks volumes about the extent of anti-dollar sentiment present in the FX market right now.”Yet with the market fixated on the 1.5000 figure the EURUSD may necessarily reach its mark. Positioning in the pair is beginning to reach extremes on the IMM, although our own SSI index shows more room to go. Just as oil failed to hit $100/bbl, the EURUSD may do the same for no other reason than simply because everyone expects it to do so. Next week. US Retail Sales and the TIC data will be the pivotal releases on the docket. With markets so uniformly dour on both the US consumer and foreign inflows into the US, positive surprises in the two releases could finally trigger a rebound in the greenback. On the other hand, further negative data will only embolden dollar bears and a run at the 1.5000 level could become a distinct possibility regardless of skew in sentiment.
Written by Boris Schlossberg, Senior Currency Strategist and John Kicklighter, David Rodriguez and Terri Belkas, Currency Analysts
Dollar dumping continued this week as EURUSD reached yet another record high of 1.4749 and talk on the dealing desks turned to the psychologically important 1.50 figure. Certainly the greenback has few friends these days, as markets remain convinced that the repercussions from the blow up in the subprime sector will continues to weigh on both the financial industry and the US consumer forcing the Fed to continue easing well into 2008 which in turn will make the dollar even less attractive to foreign investors.That theme was reinforced this week after Cheng Siwei, vice chairman of the National People's Congress stated that China should invest its nearly $1.5 Trillion of FX reserves in stronger currencies. The FX market instantly interpreted the remarks as a sign that the Chinese will begin diversifying their currency assets away from the greenback pushed the dollar to new lows. As we noted on Wednesday,” Although, Mr. Siwei has a history of making broad economic comments that often do not reflect actual policy, and although the National People’s Congress is not involved in directly setting currency targets, today reaction speaks volumes about the extent of anti-dollar sentiment present in the FX market right now.”Yet with the market fixated on the 1.5000 figure the EURUSD may necessarily reach its mark. Positioning in the pair is beginning to reach extremes on the IMM, although our own SSI index shows more room to go. Just as oil failed to hit $100/bbl, the EURUSD may do the same for no other reason than simply because everyone expects it to do so. Next week. US Retail Sales and the TIC data will be the pivotal releases on the docket. With markets so uniformly dour on both the US consumer and foreign inflows into the US, positive surprises in the two releases could finally trigger a rebound in the greenback. On the other hand, further negative data will only embolden dollar bears and a run at the 1.5000 level could become a distinct possibility regardless of skew in sentiment.
Written by Boris Schlossberg, Senior Currency Strategist and John Kicklighter, David Rodriguez and Terri Belkas, Currency Analysts
Friday, November 2, 2007
NFP Beat Expectations But Will It Be Enough to Save The Dollar?
From DailyFX.com, Friday, 02 November 2007 12:48:20 GMT
Non Farm payrolls for October printed much better than expected at 166,000 jobs versus 85,000 forecast, confirming earlier reports in the week that pointed to a rebound in the US labor markets. The unemployment rate remained the same at 4.7% as did the average weekly hours at 33.8. However, the one dark cloud in the report was the weaker than expected rise in average hourly earnings which increased only 3.8% versus 4.0% projected.
The news confirms the thesis that US economy remains remarkably resilient despite the woes in the housing and financial sectors and casts doubt on any additional easing by the Federal Reserve for the rest of the year. The dollar however, saw only a fleeting moment of strength as the currency market continues to be dominated by dollar bears skeptical of any positive US economic news.
As we noted in our morning piece, " We continue to believe that the EUR/USD is near the end of its current rally and while it may make another run at the 1.45 figure, any additional gains going forward are likely to be small and slow." At this point the EUR/USD is trading on pure momentum, driven by sheer speculative demand. Euro bulls may be counting on a hint of a possible year-end rate hike from the ECB at next week's rate announcement meeting but if no such signal is forthcoming from Mr. Trichet and company, the pair becomes vulnerable to a sharp sell off in the near future.
Written by Boris Schlossberg, Senior Currency Strategist
Non Farm payrolls for October printed much better than expected at 166,000 jobs versus 85,000 forecast, confirming earlier reports in the week that pointed to a rebound in the US labor markets. The unemployment rate remained the same at 4.7% as did the average weekly hours at 33.8. However, the one dark cloud in the report was the weaker than expected rise in average hourly earnings which increased only 3.8% versus 4.0% projected.
The news confirms the thesis that US economy remains remarkably resilient despite the woes in the housing and financial sectors and casts doubt on any additional easing by the Federal Reserve for the rest of the year. The dollar however, saw only a fleeting moment of strength as the currency market continues to be dominated by dollar bears skeptical of any positive US economic news.
As we noted in our morning piece, " We continue to believe that the EUR/USD is near the end of its current rally and while it may make another run at the 1.45 figure, any additional gains going forward are likely to be small and slow." At this point the EUR/USD is trading on pure momentum, driven by sheer speculative demand. Euro bulls may be counting on a hint of a possible year-end rate hike from the ECB at next week's rate announcement meeting but if no such signal is forthcoming from Mr. Trichet and company, the pair becomes vulnerable to a sharp sell off in the near future.
Written by Boris Schlossberg, Senior Currency Strategist
Mortgage Rates Drop to Five-Month Lows
From Realtor Magazine Online, Daily Real Estate News November 2, 2007
Mortgage rates have fallen to lows not seen in five months, according to the latest weekly report from Freddie Mac. The average interest for 30-year fixed loans was 6.26 percent, compared to 6.33 percent a week ago; and this was the lowest level since rates averaged 6.21 percent during the week of May 17. "Continued market concerns about weaker economic growth and further declines in the housing market have kept mortgage rates low over the last few weeks," according to Frank Nothaft, chief economist at the mortgage finance giant. Also, rates on 15-year fixed products fell to 5.91 percent from 5.99 percent last week; rates on five-year adjustable rate mortgages declined to 5.98 percent from 6.03 percent; and rates on one-year ARMs slipped to 5.57 percent from 5.66 percent a week ago.
Source: Chicago Sun-Times, Martin Crutsinger (11/02/07)
Mortgage rates have fallen to lows not seen in five months, according to the latest weekly report from Freddie Mac. The average interest for 30-year fixed loans was 6.26 percent, compared to 6.33 percent a week ago; and this was the lowest level since rates averaged 6.21 percent during the week of May 17. "Continued market concerns about weaker economic growth and further declines in the housing market have kept mortgage rates low over the last few weeks," according to Frank Nothaft, chief economist at the mortgage finance giant. Also, rates on 15-year fixed products fell to 5.91 percent from 5.99 percent last week; rates on five-year adjustable rate mortgages declined to 5.98 percent from 6.03 percent; and rates on one-year ARMs slipped to 5.57 percent from 5.66 percent a week ago.
Source: Chicago Sun-Times, Martin Crutsinger (11/02/07)
Thursday, November 1, 2007
Foreclosures are Up, But Workouts are Up Too
From Realtor Magazine Online, Daily Real Estate News November 1, 2007
U.S. foreclosures doubled in the third quarter compared with a year earlier, mortgage data company RealtyTrac, reports.There were 635,159 foreclosure filings in the quarter, or one for every 196 households. California, Florida and Ohio accounted for 44 percent of the total. Nevada had the highest foreclosure rate at one for every 61 households.The foreclosure issue doesn’t appear to be going away anytime soon.About 2.91 million subprime borrowers have adjustable-rate mortgages, some 90 percent of which will have reset at higher interest rates by the end of 2008, according to San Francisco-based First American Loan Performance, the research unit of the largest U.S. title company.But these numbers alone make the situation sound worse than it is, says John Robbins, CEO of American Mortgage Network and former chairman of the Mortgage Bankers Association of America."Half of loans going to foreclosures never go completely through the process, and every major servicer has a dedicated group that does nothing but loan modifications," Robbins says. "If you take that, and the Fannie Mae and Freddie Mac and FHA programs for subprime borrowers, there's going to be an impact.''
Source: Bloomberg, Dan Levy (11/01/2007)
U.S. foreclosures doubled in the third quarter compared with a year earlier, mortgage data company RealtyTrac, reports.There were 635,159 foreclosure filings in the quarter, or one for every 196 households. California, Florida and Ohio accounted for 44 percent of the total. Nevada had the highest foreclosure rate at one for every 61 households.The foreclosure issue doesn’t appear to be going away anytime soon.About 2.91 million subprime borrowers have adjustable-rate mortgages, some 90 percent of which will have reset at higher interest rates by the end of 2008, according to San Francisco-based First American Loan Performance, the research unit of the largest U.S. title company.But these numbers alone make the situation sound worse than it is, says John Robbins, CEO of American Mortgage Network and former chairman of the Mortgage Bankers Association of America."Half of loans going to foreclosures never go completely through the process, and every major servicer has a dedicated group that does nothing but loan modifications," Robbins says. "If you take that, and the Fannie Mae and Freddie Mac and FHA programs for subprime borrowers, there's going to be an impact.''
Source: Bloomberg, Dan Levy (11/01/2007)
Landlords Benefiting from Rising Rental Rates
From Realtor Magazine Online, Daily Real Estate News November 1, 2007
The weak U.S. housing market is a boon for landlords, at least in some areas.Actual rent paid – not including free months or other incentives – rose in 78 of 79 apartment markets, according to data compiled by Reis, a commercial real estate data analysis firm. The largest increases were in areas that saw home price run-ups during the housing boom, Reis says. New York City saw the highest third-quarter increase, with a rise of 3.6 percent compared with the second quarter. San Francisco was second, with an increase of 3.4 percent.Other top areas for rental increases: San Jose and Fairfield County in California, northern New Jersey, and Seattle.
Source: The Associated Press, Danielle Reed (10/30/2007)
The weak U.S. housing market is a boon for landlords, at least in some areas.Actual rent paid – not including free months or other incentives – rose in 78 of 79 apartment markets, according to data compiled by Reis, a commercial real estate data analysis firm. The largest increases were in areas that saw home price run-ups during the housing boom, Reis says. New York City saw the highest third-quarter increase, with a rise of 3.6 percent compared with the second quarter. San Francisco was second, with an increase of 3.4 percent.Other top areas for rental increases: San Jose and Fairfield County in California, northern New Jersey, and Seattle.
Source: The Associated Press, Danielle Reed (10/30/2007)
Construction Spending Posts 0.3 Percent Rise
From Realtor Magazine Online, Daily Real Estate News November 1, 2007
A slight increase in construction outlays for September surprised analysts, who had called for a decline of 0.4 percent. Expenditures bumped up 0.3 percent, fueled by a 1.9-percent gain in spending on government building projects. Spending on residential construction, however, slid 1.4 percent; while outlays for private nonresidential construction dipped 0.2 percent. The overall 0.3-percent gain for the month compares to August's drop of 0.2 percent, which was revised following initial reports of an increase by the same amount.
Source: Investor's Business Daily (11/01/07)
A slight increase in construction outlays for September surprised analysts, who had called for a decline of 0.4 percent. Expenditures bumped up 0.3 percent, fueled by a 1.9-percent gain in spending on government building projects. Spending on residential construction, however, slid 1.4 percent; while outlays for private nonresidential construction dipped 0.2 percent. The overall 0.3-percent gain for the month compares to August's drop of 0.2 percent, which was revised following initial reports of an increase by the same amount.
Source: Investor's Business Daily (11/01/07)
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