Friday, March 28, 2008, Brought to you by the CALIFORNIA ASSOCIATION OF REALTORS®
HIGH COURT DENIES REVIEW OF DECISION ELIMINATING BOND REQUIREMENT
The California Supreme Court has denied review of a Court of Appeal decision that the bond requirement under the home equity sales contracts law is unconstitutional and unenforceable.
Schweitzer v. Westminster Investments (2007) 157 Cal.App.4th 1195, review denied March 26, 2008.
Under Schweitzer, buyers' agents may represent investors without obtaining the surety bond required under the home equity sales contracts law.
Buyers and their agents must nevertheless comply with the other requirements of the home equity sales contracts law. Most notably, buyers and their agents should use C.A.R.'s standard form Notice of Default Purchase Agreement (NODPA) as amended, which will be available with the April forms release.
As background, this case arose when a seller sued to reclaim a property by arguing that the buyer's agent was not bonded under the home equity sales contracts law. The home equity sales contracts law imposes certain requirements when an investor buys an owner-occupied residential property up to four units with a recorded notice of default.
One of the statutory requirements is for a buyer's agent to be bonded by an admitted insurer in the amount equal to twice the fair market value of the subject property. Yet, C.A.R. is unaware of any insurer currently offering the requisite bond.
The Court of Appeal in Schweitzer held that the bond requirement was unconstitutionally vague under the due process clause and may not be enforced. The seller requested for the California Supreme Court to review that decision, but the high court refused. As with other published appellate court opinions, the Schweitzer decision is binding and controlling authority for all California trial courts and Division One of the Fourth Appellate District (San Diego and Imperial Counties). It is also persuasive authority for the other Courts of Appeal.
In light of the Schweitzer decision, C.A.R. will amend its standard form Notice of Default Purchase Agreement (NODPA) accordingly. The revised NODPA is scheduled to be released in the April forms release the week of April 27, 2008.
Monday, March 31, 2008
OFHEO Director: Markets Shows Improvement
From Realtor Magazine Online, Daily Real Estate News March 31, 2008
There are "some good signs" that the severe downturn in U.S. housing markets might be approaching an end, says James Lockhart, director of the Office of Federal Housing Enterprise Oversight.
"It's going to take a while, but we're starting to see some bottoms," Lockhart says. "It may take another six months or so, but hopefully we'll start pulling out of it."
But, Lockhart says, the idea of freezing mortgage rates would be a mistake to recovery. Presidential candidate Sen. Hillary Clinton had proposed the idea of a rate freeze.
"You'd really cause market dislocation. … I think we're going to have to let the market work," Lockhart told CNBC television in response. "Interest rates have come down dramatically, and people are going to be able to refinance."
Source: Reuters News (03/28/08)
There are "some good signs" that the severe downturn in U.S. housing markets might be approaching an end, says James Lockhart, director of the Office of Federal Housing Enterprise Oversight.
"It's going to take a while, but we're starting to see some bottoms," Lockhart says. "It may take another six months or so, but hopefully we'll start pulling out of it."
But, Lockhart says, the idea of freezing mortgage rates would be a mistake to recovery. Presidential candidate Sen. Hillary Clinton had proposed the idea of a rate freeze.
"You'd really cause market dislocation. … I think we're going to have to let the market work," Lockhart told CNBC television in response. "Interest rates have come down dramatically, and people are going to be able to refinance."
Source: Reuters News (03/28/08)
Bush: More Help on Way for Home Owners
From Realtor Magazine Online, Daily Real Estate News March 31, 2008
The Bush administration released over the weekend a sweeping proposal to revise regulation of financial markets.
The proposal, which will be outlined in detail April 1, will merge or eliminate some long-standing institutions like the Securities and Exchange Commission, and streamline others. The Federal Reserve would get a new role as the super cop in charge of financial-system stability. Some proposals are expected to directly address the current mortgage-risk problems.
Treasury Secretary Henry Paulson, who authored the plan, says it wouldn't necessarily prevent future financial crises.
"I don't think any regulatory system is going to change that," Paulson says. "I think we rely very, very heavily on market discipline. Having said that, I still think we need a system that is more efficient and gives us a better chance, gives us more tools to try to solve problems."
Rep. Barney Frank of Massachusetts, the Democrat who chairs the House Financial Services committee, says he found the plan encouraging. But he says that for the rest of this year, lawmakers need to devote all their energy to stabilizing the mortgage-market turmoil rather than determining broader fixes.
"It's too close to an election and it's a very major thing," he says.
Source: The Wall Street Journal, Damian Paletta, Greg Ip and Michael M. Phillips (03/31/08)
The Bush administration released over the weekend a sweeping proposal to revise regulation of financial markets.
The proposal, which will be outlined in detail April 1, will merge or eliminate some long-standing institutions like the Securities and Exchange Commission, and streamline others. The Federal Reserve would get a new role as the super cop in charge of financial-system stability. Some proposals are expected to directly address the current mortgage-risk problems.
Treasury Secretary Henry Paulson, who authored the plan, says it wouldn't necessarily prevent future financial crises.
"I don't think any regulatory system is going to change that," Paulson says. "I think we rely very, very heavily on market discipline. Having said that, I still think we need a system that is more efficient and gives us a better chance, gives us more tools to try to solve problems."
Rep. Barney Frank of Massachusetts, the Democrat who chairs the House Financial Services committee, says he found the plan encouraging. But he says that for the rest of this year, lawmakers need to devote all their energy to stabilizing the mortgage-market turmoil rather than determining broader fixes.
"It's too close to an election and it's a very major thing," he says.
Source: The Wall Street Journal, Damian Paletta, Greg Ip and Michael M. Phillips (03/31/08)
Friday, March 28, 2008
Mortgages Tailored to Islamic Home Buyers
From Realtor Magazine Online, Daily Real Estate News March 28, 2008
A few years ago, an Islamic home buyer would have found it almost impossible to get a mortgage compliant with Islam’s sharia law, which prevents the faithful from paying interest.
Today, sharia-compliant loans are a growing market. In a report last month, credit-rating agency Moody's Investors Service said the global Islamic finance market has increased about 15 percent in each of the past three years and is now worth about $700 billion worldwide.
All the largest lenders, including Citigroup, HSBC, and Deutsche Bank, have affiliates devoted to Islamic finance.
An Islamic mortgage looks like a lease-to-own deal. The bank, not the borrower, buys the house. The borrower makes installment payments to the bank for a period of years, at the end of which he or she gets the title to the house.
Source: USA Today, Paul Wiseman (03/27/08)
A few years ago, an Islamic home buyer would have found it almost impossible to get a mortgage compliant with Islam’s sharia law, which prevents the faithful from paying interest.
Today, sharia-compliant loans are a growing market. In a report last month, credit-rating agency Moody's Investors Service said the global Islamic finance market has increased about 15 percent in each of the past three years and is now worth about $700 billion worldwide.
All the largest lenders, including Citigroup, HSBC, and Deutsche Bank, have affiliates devoted to Islamic finance.
An Islamic mortgage looks like a lease-to-own deal. The bank, not the borrower, buys the house. The borrower makes installment payments to the bank for a period of years, at the end of which he or she gets the title to the house.
Source: USA Today, Paul Wiseman (03/27/08)
Last-Minute Home Owner Tax Primer
From Realtor Magazine Online, Daily Real Estate News March 28, 2008
As April 15 approaches, here’s what home owners need to know about the deductibility of mortgage interest and property taxes.
Taxpayers may deduct on Schedule A of Form 1040 mortgage interest on the purchase or home equity debt on two residences, their primary home and another dwelling, including a boat or a mobile home. These dwellings must have sleeping, cooking, and toilet facilities to qualify for a loan interest deduction. Interest paid on vacant land isn’t deductible.
Real estate taxes are deductible on all properties owned by the taxpayer — not just the first two. The deduction must be taken in the year the taxes are paid. Taxes placed in escrow are deductible when they are paid to the taxing authority, not when the money is put in escrow. Penalties and interest on late tax payments aren’t deductible.
Also, in order to deduct taxes and interest, the taxpayer must itemize instead of taking the standard deduction.
Source: Houston Chronicle, Shannon Buggs (03/27/08)
As April 15 approaches, here’s what home owners need to know about the deductibility of mortgage interest and property taxes.
Taxpayers may deduct on Schedule A of Form 1040 mortgage interest on the purchase or home equity debt on two residences, their primary home and another dwelling, including a boat or a mobile home. These dwellings must have sleeping, cooking, and toilet facilities to qualify for a loan interest deduction. Interest paid on vacant land isn’t deductible.
Real estate taxes are deductible on all properties owned by the taxpayer — not just the first two. The deduction must be taken in the year the taxes are paid. Taxes placed in escrow are deductible when they are paid to the taxing authority, not when the money is put in escrow. Penalties and interest on late tax payments aren’t deductible.
Also, in order to deduct taxes and interest, the taxpayer must itemize instead of taking the standard deduction.
Source: Houston Chronicle, Shannon Buggs (03/27/08)
Thursday, March 27, 2008
Jumbo Loan Rates to Climb Higher
From Realtor Magazine Online, Daily Real Estate News March 27, 2008
Jumbo Federal Housing Administration mortgages are likely to carry interest rates that are at least a 0.375 percentage point higher than rates on normal FHA loans, said Mahesh Swaminathan, a mortgage strategist at Credit Suisse in New York.
The current rate for a normal 30-year fixed-rate FHA loan is about 5.875 percent, while the rate on the new larger one is initially 6.375 percent.
Fannie Mae and Freddie Mac also are introducing larger loans under temporary authority from Congress. Early indications are that the larger Fannie and Freddie loans also may require interest rates about 0.5 point higher than ordinary ones, Swaminathan said.
Nevertheless, rates on these loans are expected to be lower than those on mortgages that aren't backed by Fannie, Freddie, or the FHA.
Source: The Wall Street Journal, James R. Hagerty (03/27/08)
Jumbo Federal Housing Administration mortgages are likely to carry interest rates that are at least a 0.375 percentage point higher than rates on normal FHA loans, said Mahesh Swaminathan, a mortgage strategist at Credit Suisse in New York.
The current rate for a normal 30-year fixed-rate FHA loan is about 5.875 percent, while the rate on the new larger one is initially 6.375 percent.
Fannie Mae and Freddie Mac also are introducing larger loans under temporary authority from Congress. Early indications are that the larger Fannie and Freddie loans also may require interest rates about 0.5 point higher than ordinary ones, Swaminathan said.
Nevertheless, rates on these loans are expected to be lower than those on mortgages that aren't backed by Fannie, Freddie, or the FHA.
Source: The Wall Street Journal, James R. Hagerty (03/27/08)
Don't Forget: PMI is Deductible
From Realtor Magazine Online, Daily Real Estate News March 27, 2008
As April 15 tax day approaches, here is a reminder for home buyers with mortgage insurance.
Home owners with adjusted gross incomes of $100,000 or less can deduct the full cost of their government or private mortgage insurance premiums on their 2007 federal returns.
Families with incomes between $100,000 and $109,000 are eligible for a reduced deduction.
This is a new tax break that Congress has approved through 2010.
"On average, this year's tax break could be worth $350 per taxpayer — an annual deduction that qualified home owners can take each year through 2010," says Kevin Schneider, president of the Mortgage Insurance Companies of America (MICA).
Source: MICA (03/26/08)
As April 15 tax day approaches, here is a reminder for home buyers with mortgage insurance.
Home owners with adjusted gross incomes of $100,000 or less can deduct the full cost of their government or private mortgage insurance premiums on their 2007 federal returns.
Families with incomes between $100,000 and $109,000 are eligible for a reduced deduction.
This is a new tax break that Congress has approved through 2010.
"On average, this year's tax break could be worth $350 per taxpayer — an annual deduction that qualified home owners can take each year through 2010," says Kevin Schneider, president of the Mortgage Insurance Companies of America (MICA).
Source: MICA (03/26/08)
4th Straight Month of Increased Activity
Statewide, California sales rose for the fourth straight month in February by 9.5 percent compared to the previous month.
Thirty-year fixed-mortgage interest rates averaged 5.92 percent during February 2008, compared with 6.29 percent in February 2007, according to Freddie Mac.
Adjustable-mortgage interest rates averaged 5.03 percent in February 2008, compared with 5.51 percent in February 2007.
The median number of days it took to sell a single-family home was 68.6 days in February 2008, compared with 66.1 for the same period a year ago.
In a separate report covering more localized statistics generated by C.A.R. and DataQuick Information Systems, 5.4 percent, or 14 out of 257 cities and communities, showed an increase in their respective median home prices from a year ago. DataQuick statistics are based on county records data rather than MLS information.
Thirty-year fixed-mortgage interest rates averaged 5.92 percent during February 2008, compared with 6.29 percent in February 2007, according to Freddie Mac.
Adjustable-mortgage interest rates averaged 5.03 percent in February 2008, compared with 5.51 percent in February 2007.
The median number of days it took to sell a single-family home was 68.6 days in February 2008, compared with 66.1 for the same period a year ago.
In a separate report covering more localized statistics generated by C.A.R. and DataQuick Information Systems, 5.4 percent, or 14 out of 257 cities and communities, showed an increase in their respective median home prices from a year ago. DataQuick statistics are based on county records data rather than MLS information.
Wednesday, March 26, 2008
Refinancing Boosts Mortgage Applications
From Realtor Magazine Online, Daily Real Estate News March 26, 2008
Borrowers hoping to refinance their home mortgages pushed mortgage applications up 50 percent last week, according to the Mortgage Bankers Association’s weekly survey.
The index rose 48.1 percent to a seasonally adjusted 965.9 last week compared to the previous week. On an unadjusted basis, the index increased 46.1 percent and was up 41.1 percent compared with the same week a year ago.
The refinance index rose 82.2 percent to 4255.2 from 2335.2 the previous week, while the purchase index increased only 10.6 percent. In all, the refinance share of mortgage activity increased to 62 percent of the total.
“The Federal Reserve acted last week to bring some stability to the mortgage-backed securities market and we saw an immediate impact with a drop in mortgage rates. With a drop in the 30-year fixed rate of at least a quarter of a point, we saw a sharp increase in refinance applications, but applications for home purchases also increased over where they have been the last few weeks, although still below where they were this time last year,” said Jay Brinkmann, MBA’s Vice President of Research and Economics.Mortgage rates were down:
- 30-year fixed-rate mortgages decreased to 5.74 percent from 5.98 percent;
- 15-year fixed-rate mortgages decreased to 5.23 percent from 5.24 percent;
- 1-year ARMs increased to 7.02 percent from 6.99 percent.
Source: Mortgage Bankers Association (03/26/2008)
Borrowers hoping to refinance their home mortgages pushed mortgage applications up 50 percent last week, according to the Mortgage Bankers Association’s weekly survey.
The index rose 48.1 percent to a seasonally adjusted 965.9 last week compared to the previous week. On an unadjusted basis, the index increased 46.1 percent and was up 41.1 percent compared with the same week a year ago.
The refinance index rose 82.2 percent to 4255.2 from 2335.2 the previous week, while the purchase index increased only 10.6 percent. In all, the refinance share of mortgage activity increased to 62 percent of the total.
“The Federal Reserve acted last week to bring some stability to the mortgage-backed securities market and we saw an immediate impact with a drop in mortgage rates. With a drop in the 30-year fixed rate of at least a quarter of a point, we saw a sharp increase in refinance applications, but applications for home purchases also increased over where they have been the last few weeks, although still below where they were this time last year,” said Jay Brinkmann, MBA’s Vice President of Research and Economics.Mortgage rates were down:
- 30-year fixed-rate mortgages decreased to 5.74 percent from 5.98 percent;
- 15-year fixed-rate mortgages decreased to 5.23 percent from 5.24 percent;
- 1-year ARMs increased to 7.02 percent from 6.99 percent.
Source: Mortgage Bankers Association (03/26/2008)
Tuesday, March 25, 2008
Feds Charge 19 With Mortgage Fraud
From Realtor Magazine Online, Daily Real Estate News March 25, 2008
Federal prosecutors announced 19 indictments Monday in a mortgage scheme that stole nearly $13 million in home equity and victimized more than 100 home owners.
Under the scam, home owners facing foreclosure were promised lower home payments and cash up-front if they agreed to add another name to their home’s title. The victims were led to believe they were paying rent to the investors to give them time to get their affairs in order, according to officials.
Prosecutors say the scam was headed by Charles Head of La Habra, Calif. Prosecutors say additional indictments are likely as they continue investigating.
In all, prosecutors say Head defrauded 115 financially strapped home owners in 22 states of at least $12.6 million. The fraud began in and continued through 2006.
Victims ranged from first-time home buyers to the elderly and cost 90 percent of the victims their homes, said Assistant U.S. Attorney Ellen Endrizzi.
Source: The Associated Press, Aaron C. Davis (03/24/08)
Federal prosecutors announced 19 indictments Monday in a mortgage scheme that stole nearly $13 million in home equity and victimized more than 100 home owners.
Under the scam, home owners facing foreclosure were promised lower home payments and cash up-front if they agreed to add another name to their home’s title. The victims were led to believe they were paying rent to the investors to give them time to get their affairs in order, according to officials.
Prosecutors say the scam was headed by Charles Head of La Habra, Calif. Prosecutors say additional indictments are likely as they continue investigating.
In all, prosecutors say Head defrauded 115 financially strapped home owners in 22 states of at least $12.6 million. The fraud began in and continued through 2006.
Victims ranged from first-time home buyers to the elderly and cost 90 percent of the victims their homes, said Assistant U.S. Attorney Ellen Endrizzi.
Source: The Associated Press, Aaron C. Davis (03/24/08)
Monday, March 24, 2008
Government Eyes Ways to Help Markets
From Realtor Magazine Online, Daily Real Estate News March 24, 2008
The federal government is on the verge of announcing a series of responses to problems in the housing and financial markets.
Here are key areas for action:Have lenders or investors take a loss by forgiving some of the remaining principal in troubled home loans, after which the federal government would back new mortgages that are less costly for homeowners.
House Financial Service Chair Barney Frank (D-Mass.) would insure up to $300 billion in refinanced mortgages, even for people who are currently delinquent. Sen. Christopher Dodd (D-Conn.) is promoting a similar bill in the Senate.
The Senate is expected to take up a broad housing bill that has already passed the House that includes tax relief for home builders and increased funding for mortgage counseling.
Regulators are expected to allow the 12 regional Federal Home Loan banks to buy an additional $160 billion in mortgage-backed securities, which is expected to help revive the mortgage security market.
Several proposals would give the Federal Reserve broader responsibility for regulating the financial market, while providing them access to the federal safety net and prevent such a crisis from happening again.
Source: The Wall Street Journal (03/24/2008)
The federal government is on the verge of announcing a series of responses to problems in the housing and financial markets.
Here are key areas for action:Have lenders or investors take a loss by forgiving some of the remaining principal in troubled home loans, after which the federal government would back new mortgages that are less costly for homeowners.
House Financial Service Chair Barney Frank (D-Mass.) would insure up to $300 billion in refinanced mortgages, even for people who are currently delinquent. Sen. Christopher Dodd (D-Conn.) is promoting a similar bill in the Senate.
The Senate is expected to take up a broad housing bill that has already passed the House that includes tax relief for home builders and increased funding for mortgage counseling.
Regulators are expected to allow the 12 regional Federal Home Loan banks to buy an additional $160 billion in mortgage-backed securities, which is expected to help revive the mortgage security market.
Several proposals would give the Federal Reserve broader responsibility for regulating the financial market, while providing them access to the federal safety net and prevent such a crisis from happening again.
Source: The Wall Street Journal (03/24/2008)
How to Help the Kids Buy First Home
From Realtor Magazine Online, Daily Real Estate News March 24, 2008
Helping the kids buy a first home is a time-honored tradition that has become even more significant as home prices rise and incomes flatten.
Here are three ways parents can help their children:
Cash. For parents with the means, cash is clean and easy. An individual can give $12,000 a year to a recipient without having to pay a tax on the gift. Therefore, a couple could give an adult child and the child's spouse a total of $48,000 in one year. To keep things simple, the gift is best given well in advance of the mortgage application.
Cosigning or otherwise jointly investing in the property. This can work for parents of more limited means or those who want to be paid back. The biggest risk is that the offspring will be unable to meet their obligations and it will affect the parent’s credit rating.
Knowledge and hard work are worth gold. Parents who can’t afford to help financially maybe able to provide experience and even some sweat equity to help the kids make a smart housing choice.
Source: Market Watch (03/21/2008)
Helping the kids buy a first home is a time-honored tradition that has become even more significant as home prices rise and incomes flatten.
Here are three ways parents can help their children:
Cash. For parents with the means, cash is clean and easy. An individual can give $12,000 a year to a recipient without having to pay a tax on the gift. Therefore, a couple could give an adult child and the child's spouse a total of $48,000 in one year. To keep things simple, the gift is best given well in advance of the mortgage application.
Cosigning or otherwise jointly investing in the property. This can work for parents of more limited means or those who want to be paid back. The biggest risk is that the offspring will be unable to meet their obligations and it will affect the parent’s credit rating.
Knowledge and hard work are worth gold. Parents who can’t afford to help financially maybe able to provide experience and even some sweat equity to help the kids make a smart housing choice.
Source: Market Watch (03/21/2008)
Existing-Home Sales Rise in February
From Realtor Magazine Online, Daily Real Estate News March 24, 2008
Sales of existing homes increased in February and remain within a fairly stable range, according to the NATIONAL ASSOCIATION OF REALTORS®.
Existing-home sales – including single-family, townhomes, condominiums and co-ops – rose 2.9 percent to a seasonally adjusted annual rate of 5.03 million units in February from a pace of 4.89 million in January, but remain 23.8 percent below the 6.60 million-unit level in February 2007. The sales pace has been in a fairly narrow range since last September.
Lawrence Yun, NAR chief economist, said the gain is encouraging. “We’re not expecting a notable gain in existing-home sales until the second half of this year, but the improvement is another sign that the market is stabilizing,” he said. “Buyers taking advantage of higher loan limits for both FHA and conventional mortgages will unleash some pent-up demand. As inventories are drawn down, prices in many markets should go positive later this year.”
The national median existing-home price for all housing types was $195,900 in February, down 8.2 percent from a year earlier when the median was $213,500. Because the slowdown in sales from a year ago is greater in high-cost areas, there is a downward pull to the national median with relatively fewer sales in higher priced markets.
Source: NAR
Sales of existing homes increased in February and remain within a fairly stable range, according to the NATIONAL ASSOCIATION OF REALTORS®.
Existing-home sales – including single-family, townhomes, condominiums and co-ops – rose 2.9 percent to a seasonally adjusted annual rate of 5.03 million units in February from a pace of 4.89 million in January, but remain 23.8 percent below the 6.60 million-unit level in February 2007. The sales pace has been in a fairly narrow range since last September.
Lawrence Yun, NAR chief economist, said the gain is encouraging. “We’re not expecting a notable gain in existing-home sales until the second half of this year, but the improvement is another sign that the market is stabilizing,” he said. “Buyers taking advantage of higher loan limits for both FHA and conventional mortgages will unleash some pent-up demand. As inventories are drawn down, prices in many markets should go positive later this year.”
The national median existing-home price for all housing types was $195,900 in February, down 8.2 percent from a year earlier when the median was $213,500. Because the slowdown in sales from a year ago is greater in high-cost areas, there is a downward pull to the national median with relatively fewer sales in higher priced markets.
Source: NAR
Saturday, March 22, 2008
Once-in-a-Blue-Moon Bargains
From BusinessWeek, Investing March 20, 2008, 5:00PM EST - by Aaron Pressman
Whether it's Peter Lynch loading up on Chrysler in 1982, Wilbur Ross buying steel mills in 2002, or Warren Buffett opening a bond-insurance unit in February, great investors have a habit of rushing in where others fear to tread. And with ugly subprime surprises cropping up everywhere from Bear Stearns (BSC) to American International Group (AIG), there's plenty of fear in the markets right now.
That's prompting investors to head for the exits. So far this year they've pulled $75 billion from mutual funds that invest in U.S. stocks, including $9 billion in just the past two weeks, according to TrimTabs Investment Research.
Financial stocks are leading the torturous ride. Shock over Bear Stearns' rapid decline sent the stocks of many financial companies on double-digit dives. But then a surprise rate cut by the Federal Reserve and news that it would back a Bear Stearns buyout by JPMorgan Chase (JPM) sent most of the stocks rocketing upward. The chaos hasn't let up since.
The volatility is staggering, but for cool-headed investors who have a long horizon, the markets are creating once-in-a-decade bargain opportunities. The key is to search out offerings where stocks aren't just down but have catastrophe priced in. "Smart investors with strong stomachs are looking for real market failures, not just in areas with a few problems," says James Swanson, chief investment strategist at MFS Investment Management in Boston. Swanson sees such blue-moon bargains in municipal and junk bonds. More equity-oriented analysts and fund managers are considering financials, homebuilders, and even certain technology stocks.
JUNK BONDS
Debt issued by companies with less than investment-grade ratings has historically been a risky bet when the economy heads into a recession. But with the subprime-induced panic, the debt market has been driven below levels that even a major economic downtown might cause. Current yields imply that 50% of all junk issuers will default over the next five years, says Swanson of MFS. "Do you really think half of these companies will go bankrupt?" he asks.
The best way to play the junk-bond panic may be to buy shares of closed-end funds that specialize in high-yield debt. While ordinary mutual funds have to trade at their net asset value, closed-end funds trade freely on the stock exchange. A herd of sellers can push an out-of-favor fund's price well below the value of its assets.
And boy, are junk funds out of favor. Take the New America High Income Fund. Credit problems forced it to cut the value of its holdings by more than 30% over the past year and to reduce its dividend. The fund's shares have lost even more: They're down 42% over the past year. A buyer today gets its bond portfolio at a 20% discount, carrying a yield of over 10%. Once the credit crunch eases, the net asset value should recover, and the discount will narrow, too, says Thomas Herzfeld, whose eponymous firm has specialized in closed-end funds for 24 years.
MUNIS
Municipal debt, paying interest that's free from state and federal taxes, typically trades at yields well below the rates on taxable bonds. But the subprime crisis has slammed bond insurers including MBIA (MBI) and Ambac Financial Group (ABK) that back almost 40% of the tax-exempt market. It has led to an incredible sell-off in munis, with yields topping those of taxable bonds, a rare occurrence that has preceded some of the biggest muni market rallies of the past 25 years.
The situation has also created a second anomaly that won't last long: The yields on insured bonds from financially sound issuers are actually higher than those of bonds from the same issuers that don't carry any insurance. "It's just ludicrous," says veteran bond fund manager Daniel Fuss of Loomis Sayles in Boston.
Fuss is even adding munis to his firm's taxable bond mutual funds. Investors can benefit most easily through a muni mutual fund or one of the new crop of low-fee, exchange-traded funds that buy muni bonds.
FINANCIALS
Bear Stearns may have seemed like a bargain until JPMorgan Chases's offer emerged at a price of less than a quarter of what Bear's Manhattan headquarters building is worth. The piddling $2-a-share price came about because Bear Stearns had borrowed huge sums to buy a witch's brew of assets that may not cover its debts.
So while some courageous souls are dabbling in the shares of banks and brokerage firms, the better bet may be financial stocks with hard assets, says Horacio Valeiras, chief investment officer of Nicholas-Applegate Capital Management in San Diego. He's looking at real estate investment trusts (REITs). Valeiras thinks the best overall play, as it was in the savings and loan crisis, will be buying hard assets at distressed prices. The real estate market has yet to hit bottom, but Valeiras suggests accumulating a position slowly over the next 12 months. Focus on REITs with solid holdings and good balance sheets, he says. For those who prefer to invest through ETFs, Vanguard's $9 billion behemoth, the largest REIT ETF, is trading at about a 5% discount to its fair value, according to analysts at Chicago fund tracker Morningstar.
HOMEBUILDERS
Another sector that rocketed during the real estate boom only to crater during the current credit crunch is homebuilding. Justin Walters, co-founder of research firm Bespoke Investment Group in Harrison, N.Y., has spent the past few weeks jawboning his clients with a chart comparing the homebuilding stocks to the Nasdaq Internet bubble. A six-year run in the Nasdaq ended in March, 2000, kicking off a 943-day drop of 78%. Likewise, the homebuilders went on a five-year tear that peaked in July, 2005, and then dropped 76% for 859 days before hitting bottom in January. "We like the fact that homebuilders are getting overlooked right now by all the concerns elsewhere," Walters says. Hovnanian Enterprises (HOV) and St. Joe (JOE) are Walters' top picks, but he says investors will do well, with less risk, just buying the SPDR Homebuilders ETF.
TECH
If you have no interest in wading into the finance and real estate sector muck, there are promising opportunities in formerly high-flying tech stocks. Only last year, companies including Cisco Systems (CSCO) and Microsoft (MSFT) were on a roll. But mounting fears that the subprime crisis was pushing the economy into a recession put an end to all the happy talk. Now the tech giants are trading at multiples of 15 to 20 times their earnings, which puts them at the low range of their respective five-year average price-earnings ratios.
Many of the companies have little debt and are flush with cash, leaving them well positioned in a time of economic stress. That has investors like Michael Vogelzang, president and chief investment officer at Boston Advisors, looking at the big tech names as well as scoping out medical technology companies such as Thermo Fisher Scientific (TMO). Says Vogelzang: "What's fun for our business right now is that there's a ton of this stuff."
Whether it's Peter Lynch loading up on Chrysler in 1982, Wilbur Ross buying steel mills in 2002, or Warren Buffett opening a bond-insurance unit in February, great investors have a habit of rushing in where others fear to tread. And with ugly subprime surprises cropping up everywhere from Bear Stearns (BSC) to American International Group (AIG), there's plenty of fear in the markets right now.
That's prompting investors to head for the exits. So far this year they've pulled $75 billion from mutual funds that invest in U.S. stocks, including $9 billion in just the past two weeks, according to TrimTabs Investment Research.
Financial stocks are leading the torturous ride. Shock over Bear Stearns' rapid decline sent the stocks of many financial companies on double-digit dives. But then a surprise rate cut by the Federal Reserve and news that it would back a Bear Stearns buyout by JPMorgan Chase (JPM) sent most of the stocks rocketing upward. The chaos hasn't let up since.
The volatility is staggering, but for cool-headed investors who have a long horizon, the markets are creating once-in-a-decade bargain opportunities. The key is to search out offerings where stocks aren't just down but have catastrophe priced in. "Smart investors with strong stomachs are looking for real market failures, not just in areas with a few problems," says James Swanson, chief investment strategist at MFS Investment Management in Boston. Swanson sees such blue-moon bargains in municipal and junk bonds. More equity-oriented analysts and fund managers are considering financials, homebuilders, and even certain technology stocks.
JUNK BONDS
Debt issued by companies with less than investment-grade ratings has historically been a risky bet when the economy heads into a recession. But with the subprime-induced panic, the debt market has been driven below levels that even a major economic downtown might cause. Current yields imply that 50% of all junk issuers will default over the next five years, says Swanson of MFS. "Do you really think half of these companies will go bankrupt?" he asks.
The best way to play the junk-bond panic may be to buy shares of closed-end funds that specialize in high-yield debt. While ordinary mutual funds have to trade at their net asset value, closed-end funds trade freely on the stock exchange. A herd of sellers can push an out-of-favor fund's price well below the value of its assets.
And boy, are junk funds out of favor. Take the New America High Income Fund. Credit problems forced it to cut the value of its holdings by more than 30% over the past year and to reduce its dividend. The fund's shares have lost even more: They're down 42% over the past year. A buyer today gets its bond portfolio at a 20% discount, carrying a yield of over 10%. Once the credit crunch eases, the net asset value should recover, and the discount will narrow, too, says Thomas Herzfeld, whose eponymous firm has specialized in closed-end funds for 24 years.
MUNIS
Municipal debt, paying interest that's free from state and federal taxes, typically trades at yields well below the rates on taxable bonds. But the subprime crisis has slammed bond insurers including MBIA (MBI) and Ambac Financial Group (ABK) that back almost 40% of the tax-exempt market. It has led to an incredible sell-off in munis, with yields topping those of taxable bonds, a rare occurrence that has preceded some of the biggest muni market rallies of the past 25 years.
The situation has also created a second anomaly that won't last long: The yields on insured bonds from financially sound issuers are actually higher than those of bonds from the same issuers that don't carry any insurance. "It's just ludicrous," says veteran bond fund manager Daniel Fuss of Loomis Sayles in Boston.
Fuss is even adding munis to his firm's taxable bond mutual funds. Investors can benefit most easily through a muni mutual fund or one of the new crop of low-fee, exchange-traded funds that buy muni bonds.
FINANCIALS
Bear Stearns may have seemed like a bargain until JPMorgan Chases's offer emerged at a price of less than a quarter of what Bear's Manhattan headquarters building is worth. The piddling $2-a-share price came about because Bear Stearns had borrowed huge sums to buy a witch's brew of assets that may not cover its debts.
So while some courageous souls are dabbling in the shares of banks and brokerage firms, the better bet may be financial stocks with hard assets, says Horacio Valeiras, chief investment officer of Nicholas-Applegate Capital Management in San Diego. He's looking at real estate investment trusts (REITs). Valeiras thinks the best overall play, as it was in the savings and loan crisis, will be buying hard assets at distressed prices. The real estate market has yet to hit bottom, but Valeiras suggests accumulating a position slowly over the next 12 months. Focus on REITs with solid holdings and good balance sheets, he says. For those who prefer to invest through ETFs, Vanguard's $9 billion behemoth, the largest REIT ETF, is trading at about a 5% discount to its fair value, according to analysts at Chicago fund tracker Morningstar.
HOMEBUILDERS
Another sector that rocketed during the real estate boom only to crater during the current credit crunch is homebuilding. Justin Walters, co-founder of research firm Bespoke Investment Group in Harrison, N.Y., has spent the past few weeks jawboning his clients with a chart comparing the homebuilding stocks to the Nasdaq Internet bubble. A six-year run in the Nasdaq ended in March, 2000, kicking off a 943-day drop of 78%. Likewise, the homebuilders went on a five-year tear that peaked in July, 2005, and then dropped 76% for 859 days before hitting bottom in January. "We like the fact that homebuilders are getting overlooked right now by all the concerns elsewhere," Walters says. Hovnanian Enterprises (HOV) and St. Joe (JOE) are Walters' top picks, but he says investors will do well, with less risk, just buying the SPDR Homebuilders ETF.
TECH
If you have no interest in wading into the finance and real estate sector muck, there are promising opportunities in formerly high-flying tech stocks. Only last year, companies including Cisco Systems (CSCO) and Microsoft (MSFT) were on a roll. But mounting fears that the subprime crisis was pushing the economy into a recession put an end to all the happy talk. Now the tech giants are trading at multiples of 15 to 20 times their earnings, which puts them at the low range of their respective five-year average price-earnings ratios.
Many of the companies have little debt and are flush with cash, leaving them well positioned in a time of economic stress. That has investors like Michael Vogelzang, president and chief investment officer at Boston Advisors, looking at the big tech names as well as scoping out medical technology companies such as Thermo Fisher Scientific (TMO). Says Vogelzang: "What's fun for our business right now is that there's a ton of this stuff."
The Fed's Revolution
From BusinessWeek, The Financial Crisis March 20, 2008, 5:00PM EST
To head off a catastrophe, Bernanke has reinvented the central bank while injecting a huge dose of money into the system. - by Michael Mandel and Peter Coy
The current financial crisis—perhaps the biggest since the Great Depression—has turned Federal Reserve Chairman Ben Bernanke into a reluctant revolutionary. The quiet academic who wanted to make the post of Fed chairman less heroic is leading a dramatic expansion of the central bank's role. In the process, he is setting the stage for the next big boom—or bubble.
In the short run, Bernanke is waging a war to keep the financial markets from collapsing. The biggest move so far: On Sunday, Mar. 16, the Fed brokered the fire sale of troubled investment bank Bear Stearns (BSC) to JPMorgan Chase (JPM) and announced that it would be willing to lend directly to major Wall Street brokers, which have never before had access to loans from the central bank.
The two moves represented a new level of direct Fed involvement in the financial markets and made it clear that Bernanke would take any step needed to prevent a financial catastrophe. These maneuvers should work, says Julian Jessop, chief international economist of London-based research firm Capital Economics. ...
At the same time, by stepping in so aggressively, Bernanke is pouring an enormous slug of money into the financial system. To be sure, its full impact won't be felt right away, because banks are reluctant to lend and consumers are afraid to borrow. ...
Eventually, ... the Fed's stimulus will show up as some combination of stronger economic growth and higher asset prices. It also could boost inflation, further eroding the value of the dollar and raising the risk of a run on the world's most important currency. The possibility that a primarily domestic crisis could quickly become global highlights the need for international cooperation. Former Fed Chairman Paul A. Volcker, who broke the back of high inflation in the early 1980s, told BusinessWeek on Mar. 19: "If you have a closely integrated world economy with free trade and free movements of capital, the logical complement of that is a global currency."
The engine that eventually pulls the U.S. out of recession will most likely not be consumption but corporate investment. That will be good for big global corporations with clean balance sheets and access to markets around the world. The very fact that they already have plenty of cash will likely make investors all the more eager to fuel their expansion.
... The Fed-fueled boom of the 1990s was a big plus for the economy, because it stimulated investments in cutting-edge technology, which paid off as higher productivity and growth. That of the 2000s, though, mainly spurred homebuilding and higher house prices, with little or no long-term boost to growth. ...
GREENSPAN'S LEAD
Not everyone is pleased with Bernanke's approach. "They have basically polluted the world with dollars," says Dan North, U.S. chief economist for Euler Hermes, a unit of Allianz Group (AZ) that insures accounts receivables. "It lays the foundation for inflation and another asset bubble later on."
... Bernanke is going further than Greenspan ever did in responding to a popping bubble. He has pulled out all the stops, inventing new ways to pump money into a resistant financial system. For example, the Primary Dealer Credit Facility that the Fed announced on Mar. 16 could lend hundreds of billions of dollars to brokers such as Lehman Brothers (LEH), protecting them against the sort of panic that brought down Bear Stearns.
One measure of the size of monetary stimulus is the expansion of M3, a broad measure of the money supply that includes institutional money funds. Capital Economics calculates that M3 is up 15% from a year ago, the biggest increase in 37 years.
... The 2001 recession officially ended in November of that year, but Greenspan had to keep reducing interest rates for two more years to avoid deflation, a dangerous downward spiral of prices. His final cut to 1% came in June, 2003, and Greenspan didn't start raising rates until 2004.
STUCK IN LOW GEAR
Bernanke will have to be equally deliberate in taking back the money he has lent. He can't relax the monetary stimulus until George W. Bush—or his successor—steps in with a plan to lessen the burden of the bad mortgage debt. That could mean forcing lenders to reduce mortgages that far exceed the value of homes or some program to get bad loans off the books of financial institutions and investors. "The Fed can keep the financial system afloat," says Barry Eichengreen, an economist at University of California at Berkeley. "And it will have to do that until the Treasury and the Congress figure out an effective and politically acceptable way of injecting capital into the banking system."
... The big question: deciding how to allocate the giant losses among homeowners, investors, or taxpayers.
... It could take three to four years for Americans to work their debt down, unless the government steps in to help.
Part of the problem is that many lenders that financed the debt are disappearing as independent companies. Countrywide Financial (CFC), which is slated to be acquired by Bank of America (BAC), by itself made an astounding $2 trillion in home loans between 2000 and 2006.
BIG WILD CARD
On the other hand, much of the nonfinancial corporate sector is in good shape. So lending to businesses—even startups—is likely to be strong. Venture capital funds raised almost $35 billion in 2007, the highest level since the tech boom. ...
The biggest wild card right now is the dollar. Over the past year, its value against the currencies of U.S. trading partners has dropped by 10%. That has stimulated exports, which climbed in volume by 8% over the past year, and held down the volume of imports, which rose just 2%.
But if the dollar slips too far and too fast, global investors will see the value of their investments in the U.S. plummet.
... (The Fed's) weapon for fighting financial collapse is printing money. But the more dollars it prints, the faster the dollar will fall.
... Capital Economics' Jessop notes that two of the strongest currencies are in countries whose central banks have kept rates low: Japan and Switzerland. In the end, the U.S. may require an unprecedented amount of cooperation from global central banks to keep things afloat. That could mean coordinated interest rate cuts. Says Berkeley's Eichengreen: "The Europeans have been underestimating the impact that events in the U.S. will have on their economy."
Will the booms and busts ever level out? Probably not. It's the nature of modern financial systems to push the next big thing as far as it will reasonably go. And sometimes beyond.
[TJ: It is almost a certainty that the Fed will begin to raise interest rates after this November's elections or at some time in early 2009 to defend the value of the USD and to appease the world's other central bankers. When rates rise, real estate prices rise...it's a natural response. Buyers/investors want to lock-in the low rates, and so there is a flurry of buying activity, which results in rising prices for real estate.]
To head off a catastrophe, Bernanke has reinvented the central bank while injecting a huge dose of money into the system. - by Michael Mandel and Peter Coy
The current financial crisis—perhaps the biggest since the Great Depression—has turned Federal Reserve Chairman Ben Bernanke into a reluctant revolutionary. The quiet academic who wanted to make the post of Fed chairman less heroic is leading a dramatic expansion of the central bank's role. In the process, he is setting the stage for the next big boom—or bubble.
In the short run, Bernanke is waging a war to keep the financial markets from collapsing. The biggest move so far: On Sunday, Mar. 16, the Fed brokered the fire sale of troubled investment bank Bear Stearns (BSC) to JPMorgan Chase (JPM) and announced that it would be willing to lend directly to major Wall Street brokers, which have never before had access to loans from the central bank.
The two moves represented a new level of direct Fed involvement in the financial markets and made it clear that Bernanke would take any step needed to prevent a financial catastrophe. These maneuvers should work, says Julian Jessop, chief international economist of London-based research firm Capital Economics. ...
At the same time, by stepping in so aggressively, Bernanke is pouring an enormous slug of money into the financial system. To be sure, its full impact won't be felt right away, because banks are reluctant to lend and consumers are afraid to borrow. ...
Eventually, ... the Fed's stimulus will show up as some combination of stronger economic growth and higher asset prices. It also could boost inflation, further eroding the value of the dollar and raising the risk of a run on the world's most important currency. The possibility that a primarily domestic crisis could quickly become global highlights the need for international cooperation. Former Fed Chairman Paul A. Volcker, who broke the back of high inflation in the early 1980s, told BusinessWeek on Mar. 19: "If you have a closely integrated world economy with free trade and free movements of capital, the logical complement of that is a global currency."
The engine that eventually pulls the U.S. out of recession will most likely not be consumption but corporate investment. That will be good for big global corporations with clean balance sheets and access to markets around the world. The very fact that they already have plenty of cash will likely make investors all the more eager to fuel their expansion.
... The Fed-fueled boom of the 1990s was a big plus for the economy, because it stimulated investments in cutting-edge technology, which paid off as higher productivity and growth. That of the 2000s, though, mainly spurred homebuilding and higher house prices, with little or no long-term boost to growth. ...
GREENSPAN'S LEAD
Not everyone is pleased with Bernanke's approach. "They have basically polluted the world with dollars," says Dan North, U.S. chief economist for Euler Hermes, a unit of Allianz Group (AZ) that insures accounts receivables. "It lays the foundation for inflation and another asset bubble later on."
... Bernanke is going further than Greenspan ever did in responding to a popping bubble. He has pulled out all the stops, inventing new ways to pump money into a resistant financial system. For example, the Primary Dealer Credit Facility that the Fed announced on Mar. 16 could lend hundreds of billions of dollars to brokers such as Lehman Brothers (LEH), protecting them against the sort of panic that brought down Bear Stearns.
One measure of the size of monetary stimulus is the expansion of M3, a broad measure of the money supply that includes institutional money funds. Capital Economics calculates that M3 is up 15% from a year ago, the biggest increase in 37 years.
... The 2001 recession officially ended in November of that year, but Greenspan had to keep reducing interest rates for two more years to avoid deflation, a dangerous downward spiral of prices. His final cut to 1% came in June, 2003, and Greenspan didn't start raising rates until 2004.
STUCK IN LOW GEAR
Bernanke will have to be equally deliberate in taking back the money he has lent. He can't relax the monetary stimulus until George W. Bush—or his successor—steps in with a plan to lessen the burden of the bad mortgage debt. That could mean forcing lenders to reduce mortgages that far exceed the value of homes or some program to get bad loans off the books of financial institutions and investors. "The Fed can keep the financial system afloat," says Barry Eichengreen, an economist at University of California at Berkeley. "And it will have to do that until the Treasury and the Congress figure out an effective and politically acceptable way of injecting capital into the banking system."
... The big question: deciding how to allocate the giant losses among homeowners, investors, or taxpayers.
... It could take three to four years for Americans to work their debt down, unless the government steps in to help.
Part of the problem is that many lenders that financed the debt are disappearing as independent companies. Countrywide Financial (CFC), which is slated to be acquired by Bank of America (BAC), by itself made an astounding $2 trillion in home loans between 2000 and 2006.
BIG WILD CARD
On the other hand, much of the nonfinancial corporate sector is in good shape. So lending to businesses—even startups—is likely to be strong. Venture capital funds raised almost $35 billion in 2007, the highest level since the tech boom. ...
The biggest wild card right now is the dollar. Over the past year, its value against the currencies of U.S. trading partners has dropped by 10%. That has stimulated exports, which climbed in volume by 8% over the past year, and held down the volume of imports, which rose just 2%.
But if the dollar slips too far and too fast, global investors will see the value of their investments in the U.S. plummet.
... (The Fed's) weapon for fighting financial collapse is printing money. But the more dollars it prints, the faster the dollar will fall.
... Capital Economics' Jessop notes that two of the strongest currencies are in countries whose central banks have kept rates low: Japan and Switzerland. In the end, the U.S. may require an unprecedented amount of cooperation from global central banks to keep things afloat. That could mean coordinated interest rate cuts. Says Berkeley's Eichengreen: "The Europeans have been underestimating the impact that events in the U.S. will have on their economy."
Will the booms and busts ever level out? Probably not. It's the nature of modern financial systems to push the next big thing as far as it will reasonably go. And sometimes beyond.
[TJ: It is almost a certainty that the Fed will begin to raise interest rates after this November's elections or at some time in early 2009 to defend the value of the USD and to appease the world's other central bankers. When rates rise, real estate prices rise...it's a natural response. Buyers/investors want to lock-in the low rates, and so there is a flurry of buying activity, which results in rising prices for real estate.]
Friday, March 21, 2008
Home Sales Still Strong in Key Areas
From Realtor Online Magazine, Daily Real Estate News March 21, 2008
The housing slowdown isn’t being felt in some of the most desirable areas of the country.
For instance, in Ross, Calif., about 18 miles north of San Francisco, real estate practitioner Tracy McLaughlin says, “It’s supply constrained.”
Other metropolitan areas that continued to post gains in home prices nearly every month are Seattle, Portland, Ore., and Charlotte, N.C. In Charlotte, home price growth has averaged a steady 7 percent over the last five years.
In San Francisco, prices have declined slightly, but demand remains strong.
"The market is very strong," says Richard Weil of Hill & Co. in San Francisco. "We don't have any inventory. It comes down to that."
Weil says houses in the $3 million to $5 million range are taking a little longer to sell. But those shopping for homes priced at $6 million or more are largely unaffected by the market downturn.
Source: Reuters News, Jim Christie (03/18/20) and San Francisco Business Times, Mark Calvey (02/28/08)
The housing slowdown isn’t being felt in some of the most desirable areas of the country.
For instance, in Ross, Calif., about 18 miles north of San Francisco, real estate practitioner Tracy McLaughlin says, “It’s supply constrained.”
Other metropolitan areas that continued to post gains in home prices nearly every month are Seattle, Portland, Ore., and Charlotte, N.C. In Charlotte, home price growth has averaged a steady 7 percent over the last five years.
In San Francisco, prices have declined slightly, but demand remains strong.
"The market is very strong," says Richard Weil of Hill & Co. in San Francisco. "We don't have any inventory. It comes down to that."
Weil says houses in the $3 million to $5 million range are taking a little longer to sell. But those shopping for homes priced at $6 million or more are largely unaffected by the market downturn.
Source: Reuters News, Jim Christie (03/18/20) and San Francisco Business Times, Mark Calvey (02/28/08)
Mortgage Rates Drop Below 6%
From Realtor Magazine Online, Daily Real Estate News March 21, 2008
According to Freddie Mac's data, mortgage rates have dropped back below 6 percent after spending more than a month above that threshold. Thanks to the Federal Reserve's aggressive moves to insulate the U.S. economy by slashing borrowing costs, 30-year fixed home loans averaged 5.87 in the latest numbers.
That compares to 6.13 percent this time last week and represents the first time since mid-February that the benchmark interest rate has been less than 6 percent.
"Slowing consumer spending and weak employment conditions are among the concerns behind the Fed's decision to lower the target federal funds rate," says Freddie Mac chief economist Frank Nothaft.
Source: Tulsa World (Okla.) (03/21/08)
According to Freddie Mac's data, mortgage rates have dropped back below 6 percent after spending more than a month above that threshold. Thanks to the Federal Reserve's aggressive moves to insulate the U.S. economy by slashing borrowing costs, 30-year fixed home loans averaged 5.87 in the latest numbers.
That compares to 6.13 percent this time last week and represents the first time since mid-February that the benchmark interest rate has been less than 6 percent.
"Slowing consumer spending and weak employment conditions are among the concerns behind the Fed's decision to lower the target federal funds rate," says Freddie Mac chief economist Frank Nothaft.
Source: Tulsa World (Okla.) (03/21/08)
Thursday, March 20, 2008
FICO 08
Fair Isaac Corp. is preparing to launch a new FICO scoring system, called FICO 08, which promises to more accurately predict those at high risk of default. FICO 08 will score consumers on the same 300 to 850 scoring system as the current scoring system. However, the new system will give more points to those who carry a variety of credit types, and penalize those that max out or use a high percentage of their available credit. The new scores will be reflected in credit reports as early as spring, but large lenders may test FICO 08 further before adopting it.
Mortgage Debt Forgiven
Thanks to legislation passed by Congress, effective Jan. 1, 2008, distressed homeowners will not be required to pay taxes on mortgage debt written off or forgiven as part of a bankruptcy, short sale, foreclosure, or renegotiation that involves the homeowner's principal residence. Under the Mortgage Forgiveness Debt Relief Act of 2007, up to $2 million of indebtedness is shielded from taxes if the debt is the result of construction, acquisition, and major improvement of the principal residence. The act applies to debt discharges from Jan. 1, 2007 through Dec. 31, 2009.
PMI Deduction Extended
Homeowners with an adjusted gross income of $100,000 or less and a mortgage that originated(s) between 2007 and 2010 will continue to qualify for the mortgage insurance tax - PMI - deduction. The deduction was extended by Congress this year. Homeowners with an adjusted gross income of up to $109,000 also qualify for a partial deduction.
Interest Rate Cuts Help ARM Holders
From Realtor Magazine Online, Daily Real Estate News March 20, 2008
The Federal Reserve’s rate cuts aren’t doing much to lower mortgage rate for new buyers, but they could help holders of existing adjustable rate mortgages.
Rates on home-equity lines of credit, credit cards and auto loans have all dropped. In addition, millions of homeowners won't face higher rates as their adjustable-rate mortgages reset.
Applicants for new mortgage are likely to continue to pay more. Mortgage rates typically follow the 10-year Treasury and have historically traded at about 1.8 percentage points above the 10-year Treasury yield. Those Treasurys currently yield about 3.451 percent. But investors, including pension funds, insurance companies and bond mutual funds, are demanding a greater premium these days for mortgages over less risky U.S. Treasurys.
The best advice for those seeking a mortgage: shop around. All mortgages aren’t priced alike, experts say.
Source: The Wall Street Journal, Jeff D. Opdyke and Jane J. Kim (03/19/2008)
The Federal Reserve’s rate cuts aren’t doing much to lower mortgage rate for new buyers, but they could help holders of existing adjustable rate mortgages.
Rates on home-equity lines of credit, credit cards and auto loans have all dropped. In addition, millions of homeowners won't face higher rates as their adjustable-rate mortgages reset.
Applicants for new mortgage are likely to continue to pay more. Mortgage rates typically follow the 10-year Treasury and have historically traded at about 1.8 percentage points above the 10-year Treasury yield. Those Treasurys currently yield about 3.451 percent. But investors, including pension funds, insurance companies and bond mutual funds, are demanding a greater premium these days for mortgages over less risky U.S. Treasurys.
The best advice for those seeking a mortgage: shop around. All mortgages aren’t priced alike, experts say.
Source: The Wall Street Journal, Jeff D. Opdyke and Jane J. Kim (03/19/2008)
Fannie, Freddie Get Cash to Spend
From Realtor Magazine Online, Daily Real Estate News March 20, 2008
The Office of Federal Housing Enterprise Oversight yesterday reduced the amount of capital it requires Fannie Mae and Freddie Mac to maintain from 30 percent to 20 percent.
That means the companies are being allowed to take about $200 billion that they were previously required to hold in reserve against losses and invest that money in home loans.
''Additional capital will enable the companies to help more homeowners and will strengthen the underlying fundamentals of the mortgage market,'' said Treasury Secretary Henry M. Paulson Jr.
Officials hope that this move will reduce the cost of borrowing for prospective home buyers and those who are seeking to refinance, possibly staunching some of the decline in home prices.
Source: The New York Times, Stephen Labaton (03/20/2008)
The Office of Federal Housing Enterprise Oversight yesterday reduced the amount of capital it requires Fannie Mae and Freddie Mac to maintain from 30 percent to 20 percent.
That means the companies are being allowed to take about $200 billion that they were previously required to hold in reserve against losses and invest that money in home loans.
''Additional capital will enable the companies to help more homeowners and will strengthen the underlying fundamentals of the mortgage market,'' said Treasury Secretary Henry M. Paulson Jr.
Officials hope that this move will reduce the cost of borrowing for prospective home buyers and those who are seeking to refinance, possibly staunching some of the decline in home prices.
Source: The New York Times, Stephen Labaton (03/20/2008)
Tuesday, March 18, 2008
Fed Cuts by 0.75%
The U.S. central bank lowers key rate to lower borrowing costs for consumers, businesses, as it risks lower dollar in effort to ward off recession.
This will further fuel inflation, and NOW is the time to be buying real estate to lock in fixed-rate mortgages at these low rates.
We are even closer now to when the Fed will start raising rates...and mortgage rates will also rise. Capitalize on low prices and low rates now.
This will further fuel inflation, and NOW is the time to be buying real estate to lock in fixed-rate mortgages at these low rates.
We are even closer now to when the Fed will start raising rates...and mortgage rates will also rise. Capitalize on low prices and low rates now.
Company Says Banks Ignored Warnings
From Realtor Magazine Online, Daily Real Estate News March 18, 2008
Freelance loan checkers hired by brokers, lenders, and investment banks to examine the paperwork on home loans being sold as securities say they raised red flags and were ignored.
Executives at the two main firms that hired the freelancers – Shelton, Conn.-based Clayton Holdings Inc. and San Francisco-based Bohan Group – said the checkers were hired primarily to determine how much to pay for a pool of loans. The investors wanted only minimal testing of the quality of the loans, says Frank P. Filipps, CEO of Clayton. "The client really drives the process," he says.
New York Attorney General Andrew Cuomo, who is investigating some aspects of the mortgage debacle, has given Clayton immunity from prosecution in return for help in learning whether debt-rating firms and investors got enough information about the loans being sold.
A supervisor for Clayton, Ed Peek, who was interviewed by the Los Angeles Times, said he watched standards deteriorate. “When it started, you couldn’t get a subprime loan for over 80 percent of a property’s value. But the guidelines were loosened, and the investors would still buy," Peek said. "They were loosened up some more, and investors still buy. …Everyone knew this was a bubble that couldn't last. We all could see this coming."
Source: Los Angeles Times, E. Scott Reckard (03/17/08)
Freelance loan checkers hired by brokers, lenders, and investment banks to examine the paperwork on home loans being sold as securities say they raised red flags and were ignored.
Executives at the two main firms that hired the freelancers – Shelton, Conn.-based Clayton Holdings Inc. and San Francisco-based Bohan Group – said the checkers were hired primarily to determine how much to pay for a pool of loans. The investors wanted only minimal testing of the quality of the loans, says Frank P. Filipps, CEO of Clayton. "The client really drives the process," he says.
New York Attorney General Andrew Cuomo, who is investigating some aspects of the mortgage debacle, has given Clayton immunity from prosecution in return for help in learning whether debt-rating firms and investors got enough information about the loans being sold.
A supervisor for Clayton, Ed Peek, who was interviewed by the Los Angeles Times, said he watched standards deteriorate. “When it started, you couldn’t get a subprime loan for over 80 percent of a property’s value. But the guidelines were loosened, and the investors would still buy," Peek said. "They were loosened up some more, and investors still buy. …Everyone knew this was a bubble that couldn't last. We all could see this coming."
Source: Los Angeles Times, E. Scott Reckard (03/17/08)
Monday, March 17, 2008
Fed Slashes Rates
From Realtor Magazine Online, Daily Real Estate News March 17, 2008
In an effort to boost market liquidity, the Federal Reserve lowered the discount rate to 3.25 percent from 3.5 percent and launched a new lending program through which money will be moved from securities dealers to the securitization markets.
The effort — the latest attempt to stabilize prices of bonds backed by residential loans as delinquencies continue to escalate and home prices tumble — will provide financing for JPMorgan Chase & Co.'s acquisition of Bear Stearns Cos. for approximately $270 million, or about $2 per share.
Meanwhile, the central bank could reduce the interest rate affecting consumers and businesses to 2 percent at its March 18 meeting, marking a decline of a full percentage point.
Source: Dallas Morning News (03/17/08)
In an effort to boost market liquidity, the Federal Reserve lowered the discount rate to 3.25 percent from 3.5 percent and launched a new lending program through which money will be moved from securities dealers to the securitization markets.
The effort — the latest attempt to stabilize prices of bonds backed by residential loans as delinquencies continue to escalate and home prices tumble — will provide financing for JPMorgan Chase & Co.'s acquisition of Bear Stearns Cos. for approximately $270 million, or about $2 per share.
Meanwhile, the central bank could reduce the interest rate affecting consumers and businesses to 2 percent at its March 18 meeting, marking a decline of a full percentage point.
Source: Dallas Morning News (03/17/08)
Friday, March 14, 2008
The Fed: Time for Tough Love?
From The Economy March 13, 2008, 9:07PM EST
The dollar is sinking. Inflation is on the rise. Should Bernanke & Co. take a page from the Paul Volcker playbook and start raising rates?
by Chris Farrell
On Mar. 7, when the government reported a loss of 63,000 nonfarm jobs in February (with a decline of 101,000 private-sector jobs), it seemed that both Wall Street and Main Street decided all at once that, yes, the U.S. economy is in recession, or well on its way into one. That's why there's little doubt among the financial cognoscenti that when Federal Reserve policymakers meet on Mar. 18 the central bank will cut its benchmark interest rate again, perhaps by half a percentage point, to 2.5%.
If so, the Fed will have slashed its target rate by 2.75% since last August. But while the central bank's concerted policy of monetary easing is aimed squarely at forestalling a recession and lending a hand to the shaken financial system, other dangers lurk.
Inflation as Bailout
Here's the rub: While the Fed fights recessionary forces, inflation is gathering momentum. "It's the 'Fed to the rescue,'" says Jonathan Guyton, certified financial planner at Cornerstone Wealth Advisors in Edina, Minn. "But I'm worried that their actions will set up a real inflation problem a year from now."
Maybe sooner. The headline consumer price index and producer price index figures are already running at rates double to quadruple above the Fed's target range for inflation. The dollar has plunged to a record low against the euro, to a 12-year low against the Japanese yen, and is now nearly at par with the Swiss franc. After adjusting for inflation and trade flows, the dollar is off some 20% since peaking in early 2002, according to Mark Zandi, chief economist at Moody's Economy.com (MCO). The rise in the cost of imports spurred by the decline in the dollar is putting upward pressure on U.S. prices.
And the ripples are being felt in other markets as well. Gold, the hoary "currency" hedge against inflation, is trading around $1,000 an ounce. Oil, wheat, and other commodities are skyrocketing.
"So far I think all the tea leaves point to inflation as the bailout: thus, the run in oil, gold, and nondollar currencies all makes some sense," writes Bernard Picchi, a veteran oil industry analyst with Wall Street Access. "Very scary nonetheless."
A 1970s "Malaise"
The dollar's decline echoes some frightening moments in the recent past. In Secrets of the Temple, William Greider's magisterial history of the Fed, he recounts how global investors reacted to President Jimmy Carter's attempt to address inflation with his "malaise" speech on July 14, 1979. "The American dollar, bought and sold daily in huge volumes on the currency exchange, had been sliding in value, almost every day. This meant currency traders—banks, multinational corporations, wealthy investors, perhaps even other governments—expected the U.S. dollar to continue to lose its value in the coming weeks and months, and they, therefore, found it safer to hold their wealth in other currencies," writes Greider. "Roughly translated, the dollar's steady decline amounted to an inflation forecast."
Back in the days of disco, the opinion of the international financial community was that American inflation would get worse—a judgment that proved right. Shades of today's wobbly dollar?
Indeed, investment manager and financial writer John Mauldin invokes the days of malaise in commenting about Bernanke's zealous course of reviving the economy and ignoring inflation: "Won't that guarantee a repeat of the '70s and require a new Volcker to come in and cause a deep recession to bring inflation back down?" he asks. (For those who don't remember the 1970s, either because they weren't old enough or, well, because they were the 1970s, Paul Volcker was Federal Reserve chairman from 1979 to 1987.)
Bring back Volcker? Is the inflation problem and international financial crisis that bad? Let's hope not. Still, the risk facing the U.S. economy is that investors lose confidence in Ben Bernanke.
Lessons from the Great Stagflation
Let's take a trip back in time to see why. During the Great Stagflation of the 1970s, the Fed talked a good game against inflation. But in reality Fed Chairman Arthur Burns and his successor, G. William Miller, ran inept monetary policies that stoked the fires of inflation. By the end of the 1970s the Fed had no credibility internationally or domestically as an inflation-fighting central bank.
The numbers are enough to make anyone wince. For instance, during the 1973-74 bear market, stocks plunged by more than 40% before touching bottom and the bond market suffered a 35% loss—and the cost of living jumped some 20%.
It got worse. Inflation seemed to spiral ever higher. Prices kept going up—at the gas pump, the supermarket, and the car dealership. The dollar spiraled lower and gold surged to record levels. Nothing seemed to stem the inflationary tide. Wall Street treated Fed Chairman Miller, President Carter's appointee, as a joke. So Carter replaced Miller with Volcker, the extremely independent president of the Federal Reserve Bank of New York. (Miller was moved to the Treasury Dept.)
Volcker was determined to crush deeply ingrained expectations of ever-higher inflation among consumers, business, investors, and the international community. He stomped on the monetary brakes. Interest rates skyrocketed from about 11% in 1979 to 17% in April, 1980, and reached 20% in early 1981.
The economy went through two contractions, including the worst downturn since the Great Depression. Millions of workers lost their jobs. Farmers went bankrupt in droves.
But the strong medicine had its intended effect: Inflation came down. Volcker's successor, Alan Greenspan, continued the fight and the consumer price index came down from a peak of 14% in 1980 to the 2%-or-so range, until now.
A Little Tolerance Goes a Long Way
This history suggests why we don't need a Volcker—yet. It's important to remember that the stagflation of 2008 is nothing compared to the stagflation of the '70s. What's more, Volcker predecessor Miller, a former business executive, was in way over his head at the helm of the Fed. In sharp contrast, Bernanke is one of the nation's leading scholars of the central bank, steeped in its traditions and well aware of its monetary mistakes.
Still, what the past suggests is that once the systemic financial crisis calms down, Bernanke and his colleagues will have to turn their attention toward combating inflation even if the economy continues to drift lower. It's one thing to tolerate a burst of inflation in order to manage a crisis; it's another to let inflation take root to wreak havoc for several years. After all, the lesson of the 1970s is that once inflation expectations get ingrained, it's a tough, painful habit to break.
We're not there yet. Let's hope we don't have to call Volcker—or his hard-nosed policy prescriptions—out of retirement, either.
- Farrell is contributing economics editor for BusinessWeek. You can also hear him on Minnesota Public Radio's nationally syndicated finance program, Sound Money, as well as on public radio's business program Marketplace. Follow his Sound Money column, only on BusinessWeek Online .
The dollar is sinking. Inflation is on the rise. Should Bernanke & Co. take a page from the Paul Volcker playbook and start raising rates?
by Chris Farrell
On Mar. 7, when the government reported a loss of 63,000 nonfarm jobs in February (with a decline of 101,000 private-sector jobs), it seemed that both Wall Street and Main Street decided all at once that, yes, the U.S. economy is in recession, or well on its way into one. That's why there's little doubt among the financial cognoscenti that when Federal Reserve policymakers meet on Mar. 18 the central bank will cut its benchmark interest rate again, perhaps by half a percentage point, to 2.5%.
If so, the Fed will have slashed its target rate by 2.75% since last August. But while the central bank's concerted policy of monetary easing is aimed squarely at forestalling a recession and lending a hand to the shaken financial system, other dangers lurk.
Inflation as Bailout
Here's the rub: While the Fed fights recessionary forces, inflation is gathering momentum. "It's the 'Fed to the rescue,'" says Jonathan Guyton, certified financial planner at Cornerstone Wealth Advisors in Edina, Minn. "But I'm worried that their actions will set up a real inflation problem a year from now."
Maybe sooner. The headline consumer price index and producer price index figures are already running at rates double to quadruple above the Fed's target range for inflation. The dollar has plunged to a record low against the euro, to a 12-year low against the Japanese yen, and is now nearly at par with the Swiss franc. After adjusting for inflation and trade flows, the dollar is off some 20% since peaking in early 2002, according to Mark Zandi, chief economist at Moody's Economy.com (MCO). The rise in the cost of imports spurred by the decline in the dollar is putting upward pressure on U.S. prices.
And the ripples are being felt in other markets as well. Gold, the hoary "currency" hedge against inflation, is trading around $1,000 an ounce. Oil, wheat, and other commodities are skyrocketing.
"So far I think all the tea leaves point to inflation as the bailout: thus, the run in oil, gold, and nondollar currencies all makes some sense," writes Bernard Picchi, a veteran oil industry analyst with Wall Street Access. "Very scary nonetheless."
A 1970s "Malaise"
The dollar's decline echoes some frightening moments in the recent past. In Secrets of the Temple, William Greider's magisterial history of the Fed, he recounts how global investors reacted to President Jimmy Carter's attempt to address inflation with his "malaise" speech on July 14, 1979. "The American dollar, bought and sold daily in huge volumes on the currency exchange, had been sliding in value, almost every day. This meant currency traders—banks, multinational corporations, wealthy investors, perhaps even other governments—expected the U.S. dollar to continue to lose its value in the coming weeks and months, and they, therefore, found it safer to hold their wealth in other currencies," writes Greider. "Roughly translated, the dollar's steady decline amounted to an inflation forecast."
Back in the days of disco, the opinion of the international financial community was that American inflation would get worse—a judgment that proved right. Shades of today's wobbly dollar?
Indeed, investment manager and financial writer John Mauldin invokes the days of malaise in commenting about Bernanke's zealous course of reviving the economy and ignoring inflation: "Won't that guarantee a repeat of the '70s and require a new Volcker to come in and cause a deep recession to bring inflation back down?" he asks. (For those who don't remember the 1970s, either because they weren't old enough or, well, because they were the 1970s, Paul Volcker was Federal Reserve chairman from 1979 to 1987.)
Bring back Volcker? Is the inflation problem and international financial crisis that bad? Let's hope not. Still, the risk facing the U.S. economy is that investors lose confidence in Ben Bernanke.
Lessons from the Great Stagflation
Let's take a trip back in time to see why. During the Great Stagflation of the 1970s, the Fed talked a good game against inflation. But in reality Fed Chairman Arthur Burns and his successor, G. William Miller, ran inept monetary policies that stoked the fires of inflation. By the end of the 1970s the Fed had no credibility internationally or domestically as an inflation-fighting central bank.
The numbers are enough to make anyone wince. For instance, during the 1973-74 bear market, stocks plunged by more than 40% before touching bottom and the bond market suffered a 35% loss—and the cost of living jumped some 20%.
It got worse. Inflation seemed to spiral ever higher. Prices kept going up—at the gas pump, the supermarket, and the car dealership. The dollar spiraled lower and gold surged to record levels. Nothing seemed to stem the inflationary tide. Wall Street treated Fed Chairman Miller, President Carter's appointee, as a joke. So Carter replaced Miller with Volcker, the extremely independent president of the Federal Reserve Bank of New York. (Miller was moved to the Treasury Dept.)
Volcker was determined to crush deeply ingrained expectations of ever-higher inflation among consumers, business, investors, and the international community. He stomped on the monetary brakes. Interest rates skyrocketed from about 11% in 1979 to 17% in April, 1980, and reached 20% in early 1981.
The economy went through two contractions, including the worst downturn since the Great Depression. Millions of workers lost their jobs. Farmers went bankrupt in droves.
But the strong medicine had its intended effect: Inflation came down. Volcker's successor, Alan Greenspan, continued the fight and the consumer price index came down from a peak of 14% in 1980 to the 2%-or-so range, until now.
A Little Tolerance Goes a Long Way
This history suggests why we don't need a Volcker—yet. It's important to remember that the stagflation of 2008 is nothing compared to the stagflation of the '70s. What's more, Volcker predecessor Miller, a former business executive, was in way over his head at the helm of the Fed. In sharp contrast, Bernanke is one of the nation's leading scholars of the central bank, steeped in its traditions and well aware of its monetary mistakes.
Still, what the past suggests is that once the systemic financial crisis calms down, Bernanke and his colleagues will have to turn their attention toward combating inflation even if the economy continues to drift lower. It's one thing to tolerate a burst of inflation in order to manage a crisis; it's another to let inflation take root to wreak havoc for several years. After all, the lesson of the 1970s is that once inflation expectations get ingrained, it's a tough, painful habit to break.
We're not there yet. Let's hope we don't have to call Volcker—or his hard-nosed policy prescriptions—out of retirement, either.
- Farrell is contributing economics editor for BusinessWeek. You can also hear him on Minnesota Public Radio's nationally syndicated finance program, Sound Money, as well as on public radio's business program Marketplace. Follow his Sound Money column, only on BusinessWeek Online .
Mortgage Rates Continue to Climb
From Realtor Magazine Online, Daily Real Estate News March 14, 2008
Long-term mortgage rates continued in an upward trajectory that began four weeks ago, according to Freddie Mac.
Interest on 30-year fixed loans climbed to an average of 6.13 percent this week from 6.03 percent the prior week; while 15-year fixed rates jumped to 5.60 percent from 5.47 percent.
Adjustable rates were up as well, with the five-year ARM settling at 5.58 percent compared to 5.34 percent a week ago. The one-year ARM landed at 5.14 percent compared to 4.94 percent.
Despite the upward trend in mortgage rates over the past month, housing analysts say borrowing costs are still favorably low and should help pull the residential property market out of its worst slump in more than 20 years.
Source: Baltimore Sun (03/14/08)
Long-term mortgage rates continued in an upward trajectory that began four weeks ago, according to Freddie Mac.
Interest on 30-year fixed loans climbed to an average of 6.13 percent this week from 6.03 percent the prior week; while 15-year fixed rates jumped to 5.60 percent from 5.47 percent.
Adjustable rates were up as well, with the five-year ARM settling at 5.58 percent compared to 5.34 percent a week ago. The one-year ARM landed at 5.14 percent compared to 4.94 percent.
Despite the upward trend in mortgage rates over the past month, housing analysts say borrowing costs are still favorably low and should help pull the residential property market out of its worst slump in more than 20 years.
Source: Baltimore Sun (03/14/08)
Location, Location, Location: Neighborhood Choice
From Realtor Magazine Online, Daily Real Estate News March 14, 2008
Choosing the right neighborhood is very important in a slower real estate market. It can have a huge effect on whether a home turns out to be a winning investment.
Even in hard-hit cities, some neighborhoods are holding up better than others."It's location, location, location — more than ever," says Lori Dahl, an associate with Burgdorff Realty ERA in Summit, N.J.
There’s nothing new in this list of things that buyers should consider, but still these factors bear repeating.
* Schools. Homes in highly regarded school districts generally retain their value better.
* Supply and demand. Prices are tumbling in areas where there are a lot of recently constructed and unsold homes.
* Convenience. Land is cheaper in exurbia, but the commute can be brutal and the services thin, so many buyers reject outlying areas.
* The street. In every area, some streets — even some blocks — are more desirable than others. Picking the most attractive and least trafficked area is almost always the best idea.
Source: The Wall Street Journal, Jeff Opdyke (3/14/08)
Choosing the right neighborhood is very important in a slower real estate market. It can have a huge effect on whether a home turns out to be a winning investment.
Even in hard-hit cities, some neighborhoods are holding up better than others."It's location, location, location — more than ever," says Lori Dahl, an associate with Burgdorff Realty ERA in Summit, N.J.
There’s nothing new in this list of things that buyers should consider, but still these factors bear repeating.
* Schools. Homes in highly regarded school districts generally retain their value better.
* Supply and demand. Prices are tumbling in areas where there are a lot of recently constructed and unsold homes.
* Convenience. Land is cheaper in exurbia, but the commute can be brutal and the services thin, so many buyers reject outlying areas.
* The street. In every area, some streets — even some blocks — are more desirable than others. Picking the most attractive and least trafficked area is almost always the best idea.
Source: The Wall Street Journal, Jeff Opdyke (3/14/08)
Thursday, March 13, 2008
Just The Facts, Ma'm
• Because the U.S. dollar is weak right now and home prices are low, many foreigners are buying American real estate. Consider a REALTOR® who has partnerships with mortgage brokers or attorneys who work with international clients. The "Home, James!" team at Prudential California Realty is just such an agency. Check them out at www.homejames-california.com or www.invest-in-california-property.com.
• In many markets, there are a lot more homes for sale than there are buyers. That means you should be able to negotiate a better price than if there were multiple buyers for each house for sale. The southern California market bottomed in late November-early December. We've had a very strong Dec-Jan-Feb and Mar as investors gobbled up the foreclosures and short-sales. The prime ocean-view and oceanfront estates held up well and we have seen a return of multiple offers on many properties once again. The Greater San Diego market has certainly firmed and it is what we call a "market-in-transition" - one going from a Buyer's Market to a Seller's Market. Now that the sun has come out and our typical southern California weather has returned, the people are out buying in droves. Sellers are far less likely to negotiate than they were back in the summer and fall of 2007.
• Some new home sellers are offering buyer incentives, such as help with closing costs or down payments. Many new home builders are making features that used to cost extra standard in order to move inventory. But even those deals are going away fast. Our government has gone to great lengths to aid the real estate marketplace.
• Consumer confidence is showing signs of inching higher. According to the ABC News/Washington Post consumer comfort index, sentiment increased four points to -30 in the week ending March 9. This marks the second consecutive weekly gain. Over its 19-year history the index has ranged from a high of 38 in January 2000 to a low of -50 in February 1992.
Bottom Line: We have seen the bottom and prices are firming. We expect that by the end of 2008, prices will be back to where they were in 2005 - at the peak. We also expect interest rates to start rising significantly in 2009 and that always results in rising home prices. Some estimates are that home prices will be 30% higher than they were at the peak by the time 2010 gets here!
• In many markets, there are a lot more homes for sale than there are buyers. That means you should be able to negotiate a better price than if there were multiple buyers for each house for sale. The southern California market bottomed in late November-early December. We've had a very strong Dec-Jan-Feb and Mar as investors gobbled up the foreclosures and short-sales. The prime ocean-view and oceanfront estates held up well and we have seen a return of multiple offers on many properties once again. The Greater San Diego market has certainly firmed and it is what we call a "market-in-transition" - one going from a Buyer's Market to a Seller's Market. Now that the sun has come out and our typical southern California weather has returned, the people are out buying in droves. Sellers are far less likely to negotiate than they were back in the summer and fall of 2007.
• Some new home sellers are offering buyer incentives, such as help with closing costs or down payments. Many new home builders are making features that used to cost extra standard in order to move inventory. But even those deals are going away fast. Our government has gone to great lengths to aid the real estate marketplace.
• Consumer confidence is showing signs of inching higher. According to the ABC News/Washington Post consumer comfort index, sentiment increased four points to -30 in the week ending March 9. This marks the second consecutive weekly gain. Over its 19-year history the index has ranged from a high of 38 in January 2000 to a low of -50 in February 1992.
Bottom Line: We have seen the bottom and prices are firming. We expect that by the end of 2008, prices will be back to where they were in 2005 - at the peak. We also expect interest rates to start rising significantly in 2009 and that always results in rising home prices. Some estimates are that home prices will be 30% higher than they were at the peak by the time 2010 gets here!
Buyers Jump Into Murky Housing Market
From C.A.R., Market Matters, Thursday, March 13, 2008
While low interest rates and depressed home prices have started to attract entry-level home buyers, the typical home in San Diego County remains out of reach for the average family.
MAKING SENSE OF THE STORY FOR CONSUMERS
• Bleak economic news is usually followed by a downward turn in mortgage interest rates, but despite some fairly poor news this week about banks selling securitized loans at fire sale prices, the overall average of 30-year fixed-rate mortgages eased by just two basis points (.02 percent). The fact that news that would usually produce a significant decline in mortgage rates instead preceded only a modest drop could be a sign that rates may soon go up. Consumers should take advantage of low interest rates while they last.
• According to home-finance corporation Freddie Mac, U.S. house prices have climbed 6.2 percent a year over the past 30 years.
• The recently passed economic stimulus package raised the conforming loan limit to up to $729,750 in some areas. So-called "expanded conforming" loans should provide some borrowers with an opportunity to finance or refinance at lower rates than the jumbo market may currently offer, provided borrowers can meet the guidelines for a conforming loan, which are usually more restrictive than jumbo market underwriting criteria.
NOTE: The new FHA conforming loan limit for San Diego County is $697,500.
While low interest rates and depressed home prices have started to attract entry-level home buyers, the typical home in San Diego County remains out of reach for the average family.
MAKING SENSE OF THE STORY FOR CONSUMERS
• Bleak economic news is usually followed by a downward turn in mortgage interest rates, but despite some fairly poor news this week about banks selling securitized loans at fire sale prices, the overall average of 30-year fixed-rate mortgages eased by just two basis points (.02 percent). The fact that news that would usually produce a significant decline in mortgage rates instead preceded only a modest drop could be a sign that rates may soon go up. Consumers should take advantage of low interest rates while they last.
• According to home-finance corporation Freddie Mac, U.S. house prices have climbed 6.2 percent a year over the past 30 years.
• The recently passed economic stimulus package raised the conforming loan limit to up to $729,750 in some areas. So-called "expanded conforming" loans should provide some borrowers with an opportunity to finance or refinance at lower rates than the jumbo market may currently offer, provided borrowers can meet the guidelines for a conforming loan, which are usually more restrictive than jumbo market underwriting criteria.
NOTE: The new FHA conforming loan limit for San Diego County is $697,500.
Home Equity Slips Below 50 Percent
From C.A.R., Market Matters, Thursday, March 13, 2008
Homeowners’ debt on their houses exceeded their equity for the first time since the Federal Reserve Board began tracking it in 1945, falling below 50 percent.
MAKING SENSE OF THE STORY FOR CONSUMERS
• Today’s low equity is a result of lax lending standards during the housing boom, when many buyers were able to obtain mortgages with little or no money down. Although some of those buyers could not afford their homes and lost them to foreclosure, some could afford houses—with help from alternative loan models—and but for those loans would have found homeownership beyond their reach.
• The statewide median price of existing single-family homes for January 2008 was $430,370. The last time we had a comparable median price was in March 2004, when the median was $428,060. Homeowners who bought their homes before 2004 will likely have more equity than those who purchased since 2004.
• The median home price in January 2003 was $336,210. Comparing the current median to five years ago, it is now 28 percent higher. People who buy a home and hold onto it at least five years will usually come out ahead.
• A house is not a stock. It’s always been first and foremost a place to live, to raise a family or to retire. Even when prices were falling, home buyers who pursued a buy and hold strategy—retaining the property at least five years—have almost always come out ahead in the long-run.
Historically, the value of single-family homes in California has increased about 9 percent a year.
Homeowners’ debt on their houses exceeded their equity for the first time since the Federal Reserve Board began tracking it in 1945, falling below 50 percent.
MAKING SENSE OF THE STORY FOR CONSUMERS
• Today’s low equity is a result of lax lending standards during the housing boom, when many buyers were able to obtain mortgages with little or no money down. Although some of those buyers could not afford their homes and lost them to foreclosure, some could afford houses—with help from alternative loan models—and but for those loans would have found homeownership beyond their reach.
• The statewide median price of existing single-family homes for January 2008 was $430,370. The last time we had a comparable median price was in March 2004, when the median was $428,060. Homeowners who bought their homes before 2004 will likely have more equity than those who purchased since 2004.
• The median home price in January 2003 was $336,210. Comparing the current median to five years ago, it is now 28 percent higher. People who buy a home and hold onto it at least five years will usually come out ahead.
• A house is not a stock. It’s always been first and foremost a place to live, to raise a family or to retire. Even when prices were falling, home buyers who pursued a buy and hold strategy—retaining the property at least five years—have almost always come out ahead in the long-run.
Historically, the value of single-family homes in California has increased about 9 percent a year.
Housing: Best Time to Buy in Four Years
From C.A.R., Market Matters, Thursday, March 13, 2008
Valuations—the difference between a home’s actual price and what it should cost—are the lowest they’ve been in four years.
MAKING SENSE OF THE STORY FOR CONSUMERS
• More than 88 percent of 330 housing markets surveyed showed price declines and improved affordability during the last three months of 2007, according to bank National City Corp. and financial analysis firm Global Insight.
• The survey covered home valuations during the last quarter of 2007, but there's reason to believe that valuations are even more favorable for buyers today, according to the authors of the report.
• The biggest gains in affordability occurred in California, Michigan and Florida, which are areas that also have been some of the hardest hit by foreclosures. Those states registered 43 of the 50 biggest price declines.
Valuations—the difference between a home’s actual price and what it should cost—are the lowest they’ve been in four years.
MAKING SENSE OF THE STORY FOR CONSUMERS
• More than 88 percent of 330 housing markets surveyed showed price declines and improved affordability during the last three months of 2007, according to bank National City Corp. and financial analysis firm Global Insight.
• The survey covered home valuations during the last quarter of 2007, but there's reason to believe that valuations are even more favorable for buyers today, according to the authors of the report.
• The biggest gains in affordability occurred in California, Michigan and Florida, which are areas that also have been some of the hardest hit by foreclosures. Those states registered 43 of the 50 biggest price declines.
Tap Today's Housing Opportunity
From Realtor Magazine Online, Daily Real Estate News March 13, 2008
Falling home prices spell opportunity for buyers, even if they already own a home and don’t want to be a landlord.
Here are three smart ways to invest in today’s housing market.
Trade up. Now’s the time to buy a larger home in a better neighborhood at what will almost certainly be a good price. To be sure, buyers will have to sell their old home at a modest price. Still this could be an excellent time to improve quality of life at a bargain rate.
Buy a vacation home. Buyers, especially those who are a few years away from retirement, could find this is the perfect time to buy a place that will be more than a vacation home down the road.
Help offspring go from renters to owners. This is a great time to give the kids an advance on their eventual inheritance so they will have enough money for a down payment.
Source: The Wall Street Journal, Jonathan Clements (03/12/2008)
Falling home prices spell opportunity for buyers, even if they already own a home and don’t want to be a landlord.
Here are three smart ways to invest in today’s housing market.
Trade up. Now’s the time to buy a larger home in a better neighborhood at what will almost certainly be a good price. To be sure, buyers will have to sell their old home at a modest price. Still this could be an excellent time to improve quality of life at a bargain rate.
Buy a vacation home. Buyers, especially those who are a few years away from retirement, could find this is the perfect time to buy a place that will be more than a vacation home down the road.
Help offspring go from renters to owners. This is a great time to give the kids an advance on their eventual inheritance so they will have enough money for a down payment.
Source: The Wall Street Journal, Jonathan Clements (03/12/2008)
Wednesday, March 12, 2008
Buy Now, says Foreclosure Expert
From Realtor Magazine Online, Daily Real Estate News March 12, 2008
Now’s the time to pick up properties at fire sale prices, says Ralph R. Roberts, author of Foreclosure Investing for Dummies and Flipping Houses for Dummies.
"Properties could double in value over the next 10 years. But you have to be willing to go in, buy them, and hang on for the longer term," he advises.
Roberts, owner of Ralph Roberts Realty in suburban Detroit, who says he has bought and sold more than 2,000 foreclosed properties in his career, believes profitable investing in foreclosures requires exhaustive records searches in advance.
Roberts recommends that buyers of foreclosures create a file that contains a range of property information that will establish what the property is worth and help avoid bureaucratic snafus. Here is his list of must-have information:
* A copy of the foreclosure notice, or notice of default;
* Title commitment and a 24-month history in the chain of title or the last two recorded documents
* Deed with the current homeowners' names.
* Last recorded first mortgage, so you know how much the current homeowners owe.
* Documentation of all liens against the property, including property tax liens.
* Map showing the location of the property.
* Exterior home inspection (with photos and videos), plus neighborhood photos.
* City worksheet on the property showing all repairs, inspection reports and other information.
* MLS data showing how much comparable homes are selling for in the area;
* Tax bills.
* SEV (standard equalized value) of the property, on which property taxes are based.
* Any notes documenting conversations with neighbors.
Source: ThinkGlink.com, Ilyce Glink (03/07/2008)
Now’s the time to pick up properties at fire sale prices, says Ralph R. Roberts, author of Foreclosure Investing for Dummies and Flipping Houses for Dummies.
"Properties could double in value over the next 10 years. But you have to be willing to go in, buy them, and hang on for the longer term," he advises.
Roberts, owner of Ralph Roberts Realty in suburban Detroit, who says he has bought and sold more than 2,000 foreclosed properties in his career, believes profitable investing in foreclosures requires exhaustive records searches in advance.
Roberts recommends that buyers of foreclosures create a file that contains a range of property information that will establish what the property is worth and help avoid bureaucratic snafus. Here is his list of must-have information:
* A copy of the foreclosure notice, or notice of default;
* Title commitment and a 24-month history in the chain of title or the last two recorded documents
* Deed with the current homeowners' names.
* Last recorded first mortgage, so you know how much the current homeowners owe.
* Documentation of all liens against the property, including property tax liens.
* Map showing the location of the property.
* Exterior home inspection (with photos and videos), plus neighborhood photos.
* City worksheet on the property showing all repairs, inspection reports and other information.
* MLS data showing how much comparable homes are selling for in the area;
* Tax bills.
* SEV (standard equalized value) of the property, on which property taxes are based.
* Any notes documenting conversations with neighbors.
Source: ThinkGlink.com, Ilyce Glink (03/07/2008)
Mortgage Activity Fell Last Week
From Realtor Magazine Online, Daily Real Estate News March 12, 2008
Mortgage applications were down 1.9 percent last week to a seasonally adjusted volume of 671.7, according to the Mortgage Bankers Association weekly survey.
On an unadjusted basis, the index decreased 1.4 percent compared with the previous week and was down 3.4 percent compared with the same week a year ago.
The slight decline reflected a 4.7 percent decline in the refinance index, while the purchases index increased 1.6 percent. The refinance share of mortgage activity slid from 52.4 percent the previous week to 50.6 last week.
Average interest rates generally increased:
* 30-year fixed-rate mortgages increased to 6.37 percent from 5.98 percent;
* 15-year fixed-rate mortgages increased to 5.72 percent from 5.26 percent;
* 1-year ARMs increased to 6.72 percent from 5.83 percent.
Source: Mortgage Bankers Association (03/12/2008)
Mortgage applications were down 1.9 percent last week to a seasonally adjusted volume of 671.7, according to the Mortgage Bankers Association weekly survey.
On an unadjusted basis, the index decreased 1.4 percent compared with the previous week and was down 3.4 percent compared with the same week a year ago.
The slight decline reflected a 4.7 percent decline in the refinance index, while the purchases index increased 1.6 percent. The refinance share of mortgage activity slid from 52.4 percent the previous week to 50.6 last week.
Average interest rates generally increased:
* 30-year fixed-rate mortgages increased to 6.37 percent from 5.98 percent;
* 15-year fixed-rate mortgages increased to 5.72 percent from 5.26 percent;
* 1-year ARMs increased to 6.72 percent from 5.83 percent.
Source: Mortgage Bankers Association (03/12/2008)
Lending Standards Will Stay Tight
From Realtor Magazine Online, Daily Real Estate News March 12, 2008
The loan a borrower qualifies for on Monday is likely to be out of reach on Tuesday because lenders are changing the rules hourly, industry observers say.
For those who can meet the rapidly changing lending standards, the plan announced Tuesday by the Federal Reserve to loosen credit by providing $200 billion to the financial services sector should make plenty of money available at lower interest rates, says David Wyss, chief economist at Standard & Poor’s.
Last year a borrower could get complete financing on a $300,000 home with a mortgage alone or in combination with a home equity loan or line of credit. Today, that same borrower likely needs $60,000 for a down payment, plus a credit score higher than 680.
"Credit is the gateway right now," says Dan Green, a certified mortgage planning specialist and author of TheMortgageReports.com. "Weak credit is cost prohibitive."
Source: The Associated Press (03/11/2008)
The loan a borrower qualifies for on Monday is likely to be out of reach on Tuesday because lenders are changing the rules hourly, industry observers say.
For those who can meet the rapidly changing lending standards, the plan announced Tuesday by the Federal Reserve to loosen credit by providing $200 billion to the financial services sector should make plenty of money available at lower interest rates, says David Wyss, chief economist at Standard & Poor’s.
Last year a borrower could get complete financing on a $300,000 home with a mortgage alone or in combination with a home equity loan or line of credit. Today, that same borrower likely needs $60,000 for a down payment, plus a credit score higher than 680.
"Credit is the gateway right now," says Dan Green, a certified mortgage planning specialist and author of TheMortgageReports.com. "Weak credit is cost prohibitive."
Source: The Associated Press (03/11/2008)
UCLA Anderson Forecast Predicts No Recession
By Peter Y. Hong, Los Angeles Times Staff Writer March 11, 2008
Article Summary:
UCLA economists say that the U.S. and California will shrink in the second quarter, but will not plunge into a recession, according to the quarterly UCLA Anderson Forecast released today. The report, which offers a contrarian view of the economy, predicts that GDP will dip by 0.4% in the second quarter before rebounding. A recession is defined as two consecutive quarters of negative GDP growth.
The housing market remains a big drag on the economy. But the UCLA economists attribute the growing number of foreclosures to falling home prices and higher interest rates, instead of job losses, which caused the last spike in foreclosures. The U.S. economy is expected to grow 2.5% by the end of this year.
Source: Los Angeles Times
Article Summary:
UCLA economists say that the U.S. and California will shrink in the second quarter, but will not plunge into a recession, according to the quarterly UCLA Anderson Forecast released today. The report, which offers a contrarian view of the economy, predicts that GDP will dip by 0.4% in the second quarter before rebounding. A recession is defined as two consecutive quarters of negative GDP growth.
The housing market remains a big drag on the economy. But the UCLA economists attribute the growing number of foreclosures to falling home prices and higher interest rates, instead of job losses, which caused the last spike in foreclosures. The U.S. economy is expected to grow 2.5% by the end of this year.
Source: Los Angeles Times
Tuesday, March 11, 2008
Home Inventory Stabilizes in February
From Realtor Magazine Online, Daily Real Estate News March 11, 2008
The inventory of homes for sale in major metropolitan areas grew just 1.2 percent in February, according to ZipRealty, a national brokerage doing business in 29 major cities.
The inventory was up 17 percent from February 2007 in 18 metropolitan areas for which ZipRealty has comparable year-earlier data.
Here’s an alphabetical list of the increases and decreases in February 2008 compared with January 2008:
Baltimore: -0.6
Boston: +3.7
Chicago: + 2.7
Dallas: -0.2
Houston: +0.7
Las Vegas: -4.4
Los Angeles: -0.4
Miami-Fort Lauderdale: +0.9
Minneapolis: +4.4
Orange County, Calif.: +0.1
Orlando, Fla.: -0.3
Phoenix: +0.6
San Francisco Bay: +4.8
Sacramento, Calif.: +2.7
Seattle: +5.4
San Diego: +1.4
Tampa, Fla.: -0.1
Washington, D.C.: +2.7
Source: The Wall Street Journal, James Hagerty and ZipRealty (03/11/08)
The inventory of homes for sale in major metropolitan areas grew just 1.2 percent in February, according to ZipRealty, a national brokerage doing business in 29 major cities.
The inventory was up 17 percent from February 2007 in 18 metropolitan areas for which ZipRealty has comparable year-earlier data.
Here’s an alphabetical list of the increases and decreases in February 2008 compared with January 2008:
Baltimore: -0.6
Boston: +3.7
Chicago: + 2.7
Dallas: -0.2
Houston: +0.7
Las Vegas: -4.4
Los Angeles: -0.4
Miami-Fort Lauderdale: +0.9
Minneapolis: +4.4
Orange County, Calif.: +0.1
Orlando, Fla.: -0.3
Phoenix: +0.6
San Francisco Bay: +4.8
Sacramento, Calif.: +2.7
Seattle: +5.4
San Diego: +1.4
Tampa, Fla.: -0.1
Washington, D.C.: +2.7
Source: The Wall Street Journal, James Hagerty and ZipRealty (03/11/08)
Why Now is a Smart Time to Buy
From Realtor Magazine Online, Daily Real Estate News March 11, 2008
Now is a great time to buy a home, say the financial gurus at the Wall Street Journal.
The Journal calls it a buyers market and offers these suggestions for first-timers getting their feet wet. While their advice is solid, it’s not revolutionary, but some potential customers might find it reassuring.
Remember this is a place to live not a stock market investment, they say. Lenders want buyers to spend no more than 28 percent of their gross monthly income on mortgage payments, real estate taxes, and home insurance. Buyers shouldn’t count on stretching further because lenders won’t approve their loans.
* Cash is king. Having enough money in the bank to pay closing costs that are typically an additional 2 percent to 3 percent of the price of the home is necessary.
* Location. Location, location. As any good real estate professional knows, homes in good school districts where the crime is low are much more likely to hold or increase their value.
* Compare. Besides just looking at the comps, buyers should examine what it would cost to rent a similar house in the same area and they might consider what it would cost to buy land and build a comparable home.
* Think long haul. It will probably take at least six or seven years of living in the house to be able to sell and come out ahead.
Source: The Wall Street Journal, Shelly Banjo (03/11/08)
Now is a great time to buy a home, say the financial gurus at the Wall Street Journal.
The Journal calls it a buyers market and offers these suggestions for first-timers getting their feet wet. While their advice is solid, it’s not revolutionary, but some potential customers might find it reassuring.
Remember this is a place to live not a stock market investment, they say. Lenders want buyers to spend no more than 28 percent of their gross monthly income on mortgage payments, real estate taxes, and home insurance. Buyers shouldn’t count on stretching further because lenders won’t approve their loans.
* Cash is king. Having enough money in the bank to pay closing costs that are typically an additional 2 percent to 3 percent of the price of the home is necessary.
* Location. Location, location. As any good real estate professional knows, homes in good school districts where the crime is low are much more likely to hold or increase their value.
* Compare. Besides just looking at the comps, buyers should examine what it would cost to rent a similar house in the same area and they might consider what it would cost to buy land and build a comparable home.
* Think long haul. It will probably take at least six or seven years of living in the house to be able to sell and come out ahead.
Source: The Wall Street Journal, Shelly Banjo (03/11/08)
Monday, March 10, 2008
Bargain Hunters Target Vacation Hotspots
From Realtor Magazine Online, Daily Real Estate News March 10, 2008
Bargain hunters are sniffing out the best deals in parts of the country where the underlying economics are good but prices have fallen or look like they could fall from their height in 2005.
The most popular hunting grounds are those areas where there are lots of second homes, including Sante Fe, N.M., the Outer Banks of North Carolina, Cape Cod and Nantucket-Martha’s Vineyard in Massachusetts, and California’s Napa Valley. Prices in these areas actually haven’t fallen much, but the abundance of inventory on the market suggests that sellers may have to concede and cut prices if they want to sell soon.
In Miami and Las Vegas, where the problems stem from over building, prices are about 64 percent higher than they were in December 2002 when the run up began in earnest, according to Radar Logic. In Los Angeles, where tighter lending after the subprime mess has made getting financing difficult for some buyers, prices are 57 percent ahead.
At the height of the real estate boom, an investor could flip a house at a profit in as little as three months in many areas. Now the odds are stacked against a quick turnaround, experts say, and buyers should plan to hold onto properties for at least three to five years.
"I think to be an investor like this you've got to have a pretty strong stomach," says Jonathan Miller, chief executive of Miller Samuel, an appraisal firm.
Source: The Wall Street Journal, Christina S.N. Lewis (03/07/08)
Bargain hunters are sniffing out the best deals in parts of the country where the underlying economics are good but prices have fallen or look like they could fall from their height in 2005.
The most popular hunting grounds are those areas where there are lots of second homes, including Sante Fe, N.M., the Outer Banks of North Carolina, Cape Cod and Nantucket-Martha’s Vineyard in Massachusetts, and California’s Napa Valley. Prices in these areas actually haven’t fallen much, but the abundance of inventory on the market suggests that sellers may have to concede and cut prices if they want to sell soon.
In Miami and Las Vegas, where the problems stem from over building, prices are about 64 percent higher than they were in December 2002 when the run up began in earnest, according to Radar Logic. In Los Angeles, where tighter lending after the subprime mess has made getting financing difficult for some buyers, prices are 57 percent ahead.
At the height of the real estate boom, an investor could flip a house at a profit in as little as three months in many areas. Now the odds are stacked against a quick turnaround, experts say, and buyers should plan to hold onto properties for at least three to five years.
"I think to be an investor like this you've got to have a pretty strong stomach," says Jonathan Miller, chief executive of Miller Samuel, an appraisal firm.
Source: The Wall Street Journal, Christina S.N. Lewis (03/07/08)
IRS Releases Vacation Home Ruling
From Realtor Magazine Online, Daily Real Estate News March 10, 2008
The Internal Revenue Service recently issued a Revenue Procedure ruling that spells out how vacation properties can qualify for 1031 exchanges, which involve the exchange of investment properties.
The guidance aims to clear up the debate about whether vacation homes are investment or personal use properties. The ruling states that the property must be held by the taxpayer for 24 months. The holding period is broken into 12-month blocks, and during each the property must be rented at the fair market rate for no less than 14 days.
Additionally, the owner can use the property for 14 days or 10 percent of the days rented, whichever is greater, plus a "reasonable" number of days devoted to maintenance tasks. Because it is a safe harbor ruling, experts say failing to comply with all the rules does not mean the exchange will be denied or an audit will automatically occur.
However, they underscore the importance of keeping good records of the property's rental history and the dates the property was occupied by the owner for maintenance.
Source: Realty Times, Gary Gorman (03/06/08)
The Internal Revenue Service recently issued a Revenue Procedure ruling that spells out how vacation properties can qualify for 1031 exchanges, which involve the exchange of investment properties.
The guidance aims to clear up the debate about whether vacation homes are investment or personal use properties. The ruling states that the property must be held by the taxpayer for 24 months. The holding period is broken into 12-month blocks, and during each the property must be rented at the fair market rate for no less than 14 days.
Additionally, the owner can use the property for 14 days or 10 percent of the days rented, whichever is greater, plus a "reasonable" number of days devoted to maintenance tasks. Because it is a safe harbor ruling, experts say failing to comply with all the rules does not mean the exchange will be denied or an audit will automatically occur.
However, they underscore the importance of keeping good records of the property's rental history and the dates the property was occupied by the owner for maintenance.
Source: Realty Times, Gary Gorman (03/06/08)
Lease-to-Own Primer
From Realtor Magazine Online, Daily Real Estate News March 10, 2008
Lease-to-own agreements can help sell a hard-to-sell property during a sluggish housing market. Here’s how they work:
- A seller agrees to rent a property to an interested buyer for a set period of time, usually one to three years. At the end of the lease, the buyer has the option to purchase the home at a preset price.
- A portion of the monthly rent paid during the lease is usually counted toward the down payment. To cover that, the seller charges a rent increment or monthly premium of $200 to $300 compared to comparable rentals.
- Many owners also charge an option fee for taking the property off the market, usually 1 percent to 2 percent of the sale price. This may be applied toward the purchase.
- Sellers have no guarantee that renters will buy at the end of the term, but if they don’t, they keep the option fee and the amount of the rent that would have gone toward the down payment.
Source: Orlando Sentinel (03/09/08)
Lease-to-own agreements can help sell a hard-to-sell property during a sluggish housing market. Here’s how they work:
- A seller agrees to rent a property to an interested buyer for a set period of time, usually one to three years. At the end of the lease, the buyer has the option to purchase the home at a preset price.
- A portion of the monthly rent paid during the lease is usually counted toward the down payment. To cover that, the seller charges a rent increment or monthly premium of $200 to $300 compared to comparable rentals.
- Many owners also charge an option fee for taking the property off the market, usually 1 percent to 2 percent of the sale price. This may be applied toward the purchase.
- Sellers have no guarantee that renters will buy at the end of the term, but if they don’t, they keep the option fee and the amount of the rent that would have gone toward the down payment.
Source: Orlando Sentinel (03/09/08)
Friday, March 7, 2008
Fed: Rates May Remain Low for Awhile
NOTE: Compare this article to "Mortgage Rates Could Soar, Predicts Economist" from earlier today and understand that near-term rates will remain low but eventually rates will rise dramatically as both the media and the government 'fess up to the groundswell of inflation that is taking place. As rates rise, so will the prices of homes and condos...and all fixed assets!
From Realtor Magazine Online, Daily Real Estate News March 7, 2008
The Federal Reserve may need to keep a lid on interest rates for a significant length of time if the financial markets continue to be under duress, New York Fed President Timothy Geithner told the Council on Foreign Relations.
"If turbulent financial conditions and the associated downside risks to growth persist, monetary policy may have to remain accommodative for some time," he said.
Geithner also said that dealing with growth risks and rising inflation "requires a fine balance" but added "if the medium-term outlook for inflation deteriorates significantly, the Federal Open Market Committee will move with appropriate speed and force to address this risk."
Source: Reuters News, Pedro Nicolaci da Costa and Steven C. Johnson (03/06/08)
From Realtor Magazine Online, Daily Real Estate News March 7, 2008
The Federal Reserve may need to keep a lid on interest rates for a significant length of time if the financial markets continue to be under duress, New York Fed President Timothy Geithner told the Council on Foreign Relations.
"If turbulent financial conditions and the associated downside risks to growth persist, monetary policy may have to remain accommodative for some time," he said.
Geithner also said that dealing with growth risks and rising inflation "requires a fine balance" but added "if the medium-term outlook for inflation deteriorates significantly, the Federal Open Market Committee will move with appropriate speed and force to address this risk."
Source: Reuters News, Pedro Nicolaci da Costa and Steven C. Johnson (03/06/08)
Tax Benefits of Owning a Home
From Realtor Magazine Online, Daily Real Estate News March 7, 2008
Before a home owner curses the troubled housing market, he or she should take solace in the U.S. tax code, which makes buying a home a good deal for almost everyone.
Here’s why:
Mortgage interest deductions, including in some cases mortgage insurance premiums, reduce home owners’ tax liability by reducing income. The deduction includes interest paid on both a first and a second home.
Interest on home equity loans is also deductible — whether the borrower uses the money to remodel the kitchen or to take a vacation to Disney World.
Profits from selling a house are potentially a huge windfall. When a home owner sells a primary residence, any profit on the sale of the property is tax free up to $250,000 for single home owners and $500,000 for married home owners filing. Any profit above that is nearly always a long-term capital gain taxed at 15 percent — less if the seller’s tax rate is less than 20 percent.
Home owners can itemize. That opens up opportunities to deduct a host of other items that wouldn’t be deductible if the taxpayer took the standard deduction.
Source: The Boston Globe, Leonard Wiener (03/02/08)
Before a home owner curses the troubled housing market, he or she should take solace in the U.S. tax code, which makes buying a home a good deal for almost everyone.
Here’s why:
Mortgage interest deductions, including in some cases mortgage insurance premiums, reduce home owners’ tax liability by reducing income. The deduction includes interest paid on both a first and a second home.
Interest on home equity loans is also deductible — whether the borrower uses the money to remodel the kitchen or to take a vacation to Disney World.
Profits from selling a house are potentially a huge windfall. When a home owner sells a primary residence, any profit on the sale of the property is tax free up to $250,000 for single home owners and $500,000 for married home owners filing. Any profit above that is nearly always a long-term capital gain taxed at 15 percent — less if the seller’s tax rate is less than 20 percent.
Home owners can itemize. That opens up opportunities to deduct a host of other items that wouldn’t be deductible if the taxpayer took the standard deduction.
Source: The Boston Globe, Leonard Wiener (03/02/08)
Mortgage Rates Drop This Week
From Realtor Magazine Online, Daily Real Estate News March 7, 2008
Freddie Mac says the 30-year fixed mortgage rate fell to 6.03 percent during the week ended March 6, from 6.24 percent the prior week.
Interest on 15-year, fixed-rate mortgages also declined, falling to 5.47 percent from 5.72 percent over the same period.
The five-year adjustable mortgage rate dipped to 5.34 percent from 5.43 percent, while the one-year ARM dropped to 4.94 percent from 5.11 percent.
Freddie Mac chief economist Frank Nothaft attributes the decrease in mortgage rates to reports of weakness in the job market, manufacturing sector, and consumer confidence.
Source: San Diego Union-Tribune (03/07/08)
Freddie Mac says the 30-year fixed mortgage rate fell to 6.03 percent during the week ended March 6, from 6.24 percent the prior week.
Interest on 15-year, fixed-rate mortgages also declined, falling to 5.47 percent from 5.72 percent over the same period.
The five-year adjustable mortgage rate dipped to 5.34 percent from 5.43 percent, while the one-year ARM dropped to 4.94 percent from 5.11 percent.
Freddie Mac chief economist Frank Nothaft attributes the decrease in mortgage rates to reports of weakness in the job market, manufacturing sector, and consumer confidence.
Source: San Diego Union-Tribune (03/07/08)
Mortgage Rates Could Soar, Predicts Economist
Mortgage Viewpoint by Blanche Evans
There are few real estate economists more respected than Mark Dotzour, chief economist of the Real Estate Center at Texas A & M University. He says the time to refinance is now, and that there may not be a better time for years to come.
"Inflation is clearly rampant all over the world, including in the United States," he said. "When inflation is a problem, mortgage rates goup. Rates probably should be much higher right now, but they aren't."
Dr. Dotzour says the reason mortgage rates aren't higher is that the fear of a global collapse of the banking system is greater than the fear of inflation. The world's bond investors, he says, are moving their money into U.S. Treasury bonds. That's why mortgage interest rates have remained stable at about 5.75 percent on a 30-year fixed rate with good credit.
When investors are scared, there's a Wall Street phenomenon called the 'flight to quality.'
The United States is perceived as a haven of safety, says Dotzour, and that's why treasury bond investors are "willing to accept a 3.7 percent interest rate even though the U.S. inflation rate is at 4.1 percent."
Once the banking system is repaired and the fear of global collapse of the banks is over, Dotzour predicts treasury rates and mortgage rates will move up again, perhaps substantially.
So what should you do? If you own a home and you believe that we are in for a global financial collapse, then don't refinance. Interest rates will continue to fall," says Dotzour. "If you think the U.S. government and the central banks around the world won't let this happen, then now is the time to get a fixed-rate mortgage at rates we haven't seen in the past 40 years."
As far as buying goes, that's up to you, but now is as good a time as any. Sellers have lost 15 to 20 percent of the market -- first-time home buyers and investors who were using the easy exotic loans to finance their purchases. That could mean that housing prices have further to fall. Inventories are already at 9.6-months on hand, as of December.
If prices fall, and mortgage interest rates rise, buyers may surge before rates go even higher. That could stimulate first-time home buyers who are waiting for the green light to buy. Anyone still on the sidelines would then be facing higher prices and higher interest rates.
There are few real estate economists more respected than Mark Dotzour, chief economist of the Real Estate Center at Texas A & M University. He says the time to refinance is now, and that there may not be a better time for years to come.
"Inflation is clearly rampant all over the world, including in the United States," he said. "When inflation is a problem, mortgage rates goup. Rates probably should be much higher right now, but they aren't."
Dr. Dotzour says the reason mortgage rates aren't higher is that the fear of a global collapse of the banking system is greater than the fear of inflation. The world's bond investors, he says, are moving their money into U.S. Treasury bonds. That's why mortgage interest rates have remained stable at about 5.75 percent on a 30-year fixed rate with good credit.
When investors are scared, there's a Wall Street phenomenon called the 'flight to quality.'
The United States is perceived as a haven of safety, says Dotzour, and that's why treasury bond investors are "willing to accept a 3.7 percent interest rate even though the U.S. inflation rate is at 4.1 percent."
Once the banking system is repaired and the fear of global collapse of the banks is over, Dotzour predicts treasury rates and mortgage rates will move up again, perhaps substantially.
So what should you do? If you own a home and you believe that we are in for a global financial collapse, then don't refinance. Interest rates will continue to fall," says Dotzour. "If you think the U.S. government and the central banks around the world won't let this happen, then now is the time to get a fixed-rate mortgage at rates we haven't seen in the past 40 years."
As far as buying goes, that's up to you, but now is as good a time as any. Sellers have lost 15 to 20 percent of the market -- first-time home buyers and investors who were using the easy exotic loans to finance their purchases. That could mean that housing prices have further to fall. Inventories are already at 9.6-months on hand, as of December.
If prices fall, and mortgage interest rates rise, buyers may surge before rates go even higher. That could stimulate first-time home buyers who are waiting for the green light to buy. Anyone still on the sidelines would then be facing higher prices and higher interest rates.
Thursday, March 6, 2008
New FHA, Fannie Mae and Freddie Mac Loan Limits
The new FHA and Fannie Mae- Freddie Mac conforming loan limits have been released by the U.S. Department of Housing and Urban Development. For a nationwide county-by-county listing of the new FHA and Fannie Mae-Freddie Mac loan limits at REALTOR.org by following this link:
http://www.realtor.org/GAPublic.nsf/files/chart_hud_loan_limits_08.pdf/$FILE/chart_hud_loan_limits_08.pdf
http://www.realtor.org/GAPublic.nsf/files/chart_hud_loan_limits_08.pdf/$FILE/chart_hud_loan_limits_08.pdf
NAR Urges Increase in National Loan Limits
From Realtor Magazine Online, Daily Real Estate News March 6, 2008
The NATIONAL ASSOCIATION OF REALTORS® today called on the U.S. Senate to enact reform legislation for the nation’s government-sponsored enterprises (GSEs) that will protect the vibrancy, liquidity and stability of the U.S. housing finance system.
In testimony before the Senate Committee on Banking, Housing and Urban Affairs, NAR urged the Senate to permanently raise the national GSE conforming loan limits to $625,000 with an additional increase of 125 percent of the local median home-sales price in high-cost areas.
“We believe this move will boost the housing market and the economy by bolstering home buyer confidence and bringing families back into the marketplace,” says Vince Malta, chair of NAR’s Public Policy Coordinating Committee and a broker-owner from San Francisco. “That would increase home sales by nearly 350,000, lower inventories, and increase home prices by two to three percent. It would also result in as many as 210,000 fewer foreclosures, and more than 500,000 borrowers would be able to refinance into lower interest rate loans.”
NAR reiterated its eagerness for the committee to pursue GSE reform legislation similar to the Federal Housing Finance Reform Act of 2007 passed last year in the House, which, in addition to raising loan limits, would create a strong regulator and sound governance principles, preserve and protect the GSEs vital housing mission, and allow flexibility for new program approval.
“Fannie Mae and Freddie Mac provide liquidly and stability in the mortgage market and are vital to the housing sector,” says Malta. “Targeted reform should strengthen and expand their presence in the housing finance system, especially now when we need them the most. The recent problems in the credit markets show just how vital the GSEs’ housing mission is to America’s families and to our nation. We all must work together to sustain and improve the performance and safety of Fannie Mae and Freddie Mac.”
— REALTOR® magazine online
The NATIONAL ASSOCIATION OF REALTORS® today called on the U.S. Senate to enact reform legislation for the nation’s government-sponsored enterprises (GSEs) that will protect the vibrancy, liquidity and stability of the U.S. housing finance system.
In testimony before the Senate Committee on Banking, Housing and Urban Affairs, NAR urged the Senate to permanently raise the national GSE conforming loan limits to $625,000 with an additional increase of 125 percent of the local median home-sales price in high-cost areas.
“We believe this move will boost the housing market and the economy by bolstering home buyer confidence and bringing families back into the marketplace,” says Vince Malta, chair of NAR’s Public Policy Coordinating Committee and a broker-owner from San Francisco. “That would increase home sales by nearly 350,000, lower inventories, and increase home prices by two to three percent. It would also result in as many as 210,000 fewer foreclosures, and more than 500,000 borrowers would be able to refinance into lower interest rate loans.”
NAR reiterated its eagerness for the committee to pursue GSE reform legislation similar to the Federal Housing Finance Reform Act of 2007 passed last year in the House, which, in addition to raising loan limits, would create a strong regulator and sound governance principles, preserve and protect the GSEs vital housing mission, and allow flexibility for new program approval.
“Fannie Mae and Freddie Mac provide liquidly and stability in the mortgage market and are vital to the housing sector,” says Malta. “Targeted reform should strengthen and expand their presence in the housing finance system, especially now when we need them the most. The recent problems in the credit markets show just how vital the GSEs’ housing mission is to America’s families and to our nation. We all must work together to sustain and improve the performance and safety of Fannie Mae and Freddie Mac.”
— REALTOR® magazine online
Another Rate Cut Expected Soon
From Realtor Magazine Online, Daily Real Estate News March 6, 2008
The Federal Reserve is expected to again cut key interest rates – now at 3 percent – at its next meeting on March 18.
Futures market investors are betting the cut will be at least a half-percentage point.
Some have predicted a three-quarter-percentage point cut, but most analysts believe the Fed doesn’t view the situation as dire enough for that and the Fed has said it fears fueling inflation.
The Fed's quarterly Beige Book report, released this week, said housing markets in just about every area of the country were weak, and were characterized by low demand, high inventories, and falling prices. It also found consumers and businesses are growing more cautious.
Source: The Wall Street Journal, Greg Ip and Sudeep Reddy (03/06/08)
The Federal Reserve is expected to again cut key interest rates – now at 3 percent – at its next meeting on March 18.
Futures market investors are betting the cut will be at least a half-percentage point.
Some have predicted a three-quarter-percentage point cut, but most analysts believe the Fed doesn’t view the situation as dire enough for that and the Fed has said it fears fueling inflation.
The Fed's quarterly Beige Book report, released this week, said housing markets in just about every area of the country were weak, and were characterized by low demand, high inventories, and falling prices. It also found consumers and businesses are growing more cautious.
Source: The Wall Street Journal, Greg Ip and Sudeep Reddy (03/06/08)
Wednesday, March 5, 2008
Legendary Builder Says (East Coast) Slump is Near End
From Realtor Magazine Online, Daily Real Estate News March 5, 2008
Florida home builder Arthur Rutenberg, 80, says you can take it to the bank: The home-building bust is at or near bottom.
"Anyone who buys a home right now will say in five years, 'I'm glad we bought when we did,' " Rutenberg says.
Still active in the business, the developer spoke while inspecting a newly completed $1.5 million Arthur Rutenberg Homes luxury model in Orlando. Rutenberg remains chairman of Arthur Rutenberg Homes Inc., which has 32 franchised home building operations in Florida, Georgia, and South Carolina.
Rutenberg said the current building bust is especially deep because the run-up in prices and sales that preceded it was so robust. As a result, it takes a little longer to get prices and annual growth "back to a long-term trend line," he says.
Rutenberg franchises closed last year on 726 homes valued at about $400 million, down from a peak of more than $600 million in 2005.
Source: Orlando Sentinel, Jerry W. Jackson (03/04/2008)
Florida home builder Arthur Rutenberg, 80, says you can take it to the bank: The home-building bust is at or near bottom.
"Anyone who buys a home right now will say in five years, 'I'm glad we bought when we did,' " Rutenberg says.
Still active in the business, the developer spoke while inspecting a newly completed $1.5 million Arthur Rutenberg Homes luxury model in Orlando. Rutenberg remains chairman of Arthur Rutenberg Homes Inc., which has 32 franchised home building operations in Florida, Georgia, and South Carolina.
Rutenberg said the current building bust is especially deep because the run-up in prices and sales that preceded it was so robust. As a result, it takes a little longer to get prices and annual growth "back to a long-term trend line," he says.
Rutenberg franchises closed last year on 726 homes valued at about $400 million, down from a peak of more than $600 million in 2005.
Source: Orlando Sentinel, Jerry W. Jackson (03/04/2008)
Bank CEO Sees End to Housing Woes
From Realtor Magazine Online, Daily Real Estate News March 5, 2008
Bank of America’s CEO Ken Lewis recently spoke with the South Florida Sun-Sentinel about the housing market. Here are some of his comments:
Q: When do you expect the nation's housing market to improve?
A: At best, it's a guess, but my anticipation is that by the end of the year, we'll begin to hit a bottom. But we're not going to see improvement for several more quarters. Prices will begin to normalize, but it will take some time and some pain.
Q: How will the mortgage industry be different now that the housing boom has ended?
A: It'll be a much simpler world. We're not going to see as many complex loans because there are no takers. Going forward, you'll see more prudent lending, with borrowers having more down payments. It'll be a more traditional environment than you've seen over the past five or six years.
Q: Will you allow Countrywide [which Bank of America is in the process of acquiring] to continue in the subprime business?
A: They have stopped all subprime loans and have stopped buying subprime loans from brokers. That would be the model under which we would operate.
Source: South Florida Sun-Sentinel, Paul Owers (03/04/2008)
Bank of America’s CEO Ken Lewis recently spoke with the South Florida Sun-Sentinel about the housing market. Here are some of his comments:
Q: When do you expect the nation's housing market to improve?
A: At best, it's a guess, but my anticipation is that by the end of the year, we'll begin to hit a bottom. But we're not going to see improvement for several more quarters. Prices will begin to normalize, but it will take some time and some pain.
Q: How will the mortgage industry be different now that the housing boom has ended?
A: It'll be a much simpler world. We're not going to see as many complex loans because there are no takers. Going forward, you'll see more prudent lending, with borrowers having more down payments. It'll be a more traditional environment than you've seen over the past five or six years.
Q: Will you allow Countrywide [which Bank of America is in the process of acquiring] to continue in the subprime business?
A: They have stopped all subprime loans and have stopped buying subprime loans from brokers. That would be the model under which we would operate.
Source: South Florida Sun-Sentinel, Paul Owers (03/04/2008)
Mortgage Applications Rise Slightly
From Realtor Magazine Online, Daily Real Estate News March 5, 2008
Mortgage applications rose 3 percent last week to 684.9, according to the Mortgage Bankers Association’s weekly seasonally adjusted index.
On an unadjusted basis, the index increased 15.3 percent compared with the previous week, which was cut short because of President’s Day. It was up 1.1 percent compared with the same week a year ago.
The refinance share of mortgage activity increased to 52.4 percent of total applications from 52 percent the previous week.
Mortgage rates were down compared to the previous week.
- 30-year fixed-rate mortgages decreased to 5.98 percent from 6.27 percent.
- 15-year fixed-rate mortgages decreased to 5.26 percent from 5.77 percent.
- 1-year ARMs decreased to 5.83 percent from 5.84 percent.
Source: Mortgage Bankers Association (03/05/2008)
Mortgage applications rose 3 percent last week to 684.9, according to the Mortgage Bankers Association’s weekly seasonally adjusted index.
On an unadjusted basis, the index increased 15.3 percent compared with the previous week, which was cut short because of President’s Day. It was up 1.1 percent compared with the same week a year ago.
The refinance share of mortgage activity increased to 52.4 percent of total applications from 52 percent the previous week.
Mortgage rates were down compared to the previous week.
- 30-year fixed-rate mortgages decreased to 5.98 percent from 6.27 percent.
- 15-year fixed-rate mortgages decreased to 5.26 percent from 5.77 percent.
- 1-year ARMs decreased to 5.83 percent from 5.84 percent.
Source: Mortgage Bankers Association (03/05/2008)
Tuesday, March 4, 2008
Freddie Mac: 30-Year Rates to Hit 5.5 Percent
From Realtor Magazine Online, Daily Real Estate News March 4, 2008
Freddie Mac expects the average 30-year fixed mortgage rate to slip to 5.5 percent this year from 6.3 percent in 2007, marking a 45-year low; but Global Insight Inc. economist Brian Bethune does not expect the drop in mortgage rates to spark a housing rebound.
According to him, "People are going to stay away from the market if they see instability, and lenders are going to have a hard time valuing properties and issuing mortgages."
Freddie Mac also forecasts a decline in economic growth to 2.3 percent from 2.5 percent and a decrease in inflation to 2.5 percent from 4 percent over the same period.
Source: Baltimore Sun (03/04/08)
Freddie Mac expects the average 30-year fixed mortgage rate to slip to 5.5 percent this year from 6.3 percent in 2007, marking a 45-year low; but Global Insight Inc. economist Brian Bethune does not expect the drop in mortgage rates to spark a housing rebound.
According to him, "People are going to stay away from the market if they see instability, and lenders are going to have a hard time valuing properties and issuing mortgages."
Freddie Mac also forecasts a decline in economic growth to 2.3 percent from 2.5 percent and a decrease in inflation to 2.5 percent from 4 percent over the same period.
Source: Baltimore Sun (03/04/08)
Real Estate Investor Opportunity Could Be Now
From Investor Outlook
by Kenneth R. Harney
If you're what's known as an "opportunity investor" in real estate, lookslike your prime time may be now ... or very soon!
Economists say the next 12 to 18 months could be your best period since theearly 1990s to pick up property at depressed prices -- discount diamonds inthe rough and turnaround situations.
That's because the real estate downcycle is close to running its course inmany local markets, where prices today are 10 to 25 percent below their peaklevels of two and three years ago.
Serious investors understand that real estate is an all-weather, cyclicalbusiness: When times are tough for some owners, the opposite is true forinvestors with the knowledge, negotiating skills and vision to helpdistressed owners out of their jams.
We recently caught up with economist and real estate consultant Jack McCabeof Deerfield Beach, Florida -- just up the coast from Miami Beach. McCabe'scompany advises opportunity investors who are now buying waterfront andinland condo units and single family houses at 30 to 40 percent discountsoff last year's pricing.
"If you're going to be in the game," according to McCabe, "you've got to beactive right now before it's too late" -- the market bottoms out and theanticipated gradual rebound begins.
We also checked in with the most famous opportunity investor in Americanreal estate -- Sam Zell, who once described himself as "the grave dancer."From the early 1970s through the 1990s, Zell turned himself into amulti-billionaire by spotting and acquiring distress property for pennies onthe dollar in situations that he knew offered outstanding long-term valuepotential.
Zell was speaking recently to real estate economics students at the WhartonSchool at the University of Pennsylvania. "What's different about thecurrent real estate down cycle?" he was asked.
The big factor today, said Zell, is financing. In all the earlier downcycles of the seventies, eighties and nineties, money was extremelyexpensive for investors -- or just impossible to obtain.
This time around, capital is relatively cheap -- and available -- whetherfrom regular lenders or private equity sources. That's an important pointfor anyone thinking about whether, and how quickly, to get involved.
So where are the top opportunity markets right now -- places where realestate values are down the most compared with a year ago -- and whereboom-time speculators are most eager to bail out of their mistakes at deepdiscounts?
The latest property price index from real estate data collector FirstAmerican Corp. offers road signs to markets with plenty of distress. Hereare the top ten:
* Riverside-San Bernadino, California
* Fort Myers, Florida
* Las Vegas
* Phoenix
* Miami-Fort Lauderdale
* Los Angeles
* Orlando
* Tampa
* Cleveland, and
* Metropolitan Washington DC.
by Kenneth R. Harney
If you're what's known as an "opportunity investor" in real estate, lookslike your prime time may be now ... or very soon!
Economists say the next 12 to 18 months could be your best period since theearly 1990s to pick up property at depressed prices -- discount diamonds inthe rough and turnaround situations.
That's because the real estate downcycle is close to running its course inmany local markets, where prices today are 10 to 25 percent below their peaklevels of two and three years ago.
Serious investors understand that real estate is an all-weather, cyclicalbusiness: When times are tough for some owners, the opposite is true forinvestors with the knowledge, negotiating skills and vision to helpdistressed owners out of their jams.
We recently caught up with economist and real estate consultant Jack McCabeof Deerfield Beach, Florida -- just up the coast from Miami Beach. McCabe'scompany advises opportunity investors who are now buying waterfront andinland condo units and single family houses at 30 to 40 percent discountsoff last year's pricing.
"If you're going to be in the game," according to McCabe, "you've got to beactive right now before it's too late" -- the market bottoms out and theanticipated gradual rebound begins.
We also checked in with the most famous opportunity investor in Americanreal estate -- Sam Zell, who once described himself as "the grave dancer."From the early 1970s through the 1990s, Zell turned himself into amulti-billionaire by spotting and acquiring distress property for pennies onthe dollar in situations that he knew offered outstanding long-term valuepotential.
Zell was speaking recently to real estate economics students at the WhartonSchool at the University of Pennsylvania. "What's different about thecurrent real estate down cycle?" he was asked.
The big factor today, said Zell, is financing. In all the earlier downcycles of the seventies, eighties and nineties, money was extremelyexpensive for investors -- or just impossible to obtain.
This time around, capital is relatively cheap -- and available -- whetherfrom regular lenders or private equity sources. That's an important pointfor anyone thinking about whether, and how quickly, to get involved.
So where are the top opportunity markets right now -- places where realestate values are down the most compared with a year ago -- and whereboom-time speculators are most eager to bail out of their mistakes at deepdiscounts?
The latest property price index from real estate data collector FirstAmerican Corp. offers road signs to markets with plenty of distress. Hereare the top ten:
* Riverside-San Bernadino, California
* Fort Myers, Florida
* Las Vegas
* Phoenix
* Miami-Fort Lauderdale
* Los Angeles
* Orlando
* Tampa
* Cleveland, and
* Metropolitan Washington DC.
Monday, March 3, 2008
How to Judge if a Teardown Will Pay Off
From Realtor Magazine Online, Daily Real Estate News March 3, 2008
When does buying a house and tearing it down make economic sense?
Builders have a guide for estimating whether a teardown will pay off. Generally, the cost of the land must be one-third of the cost of the final sales price of the house.
For instance, if the old home and the land it is on can be acquired for $400,000 and the new house can be sold for $1.2 million, then the builder can spend $600,000 or $200 per square foot on a 3,000 square foot home and still cover miscellaneous expenses and make a profit.
Home owners who are contemplating buying a teardown and commissioning a custom-built home should keep this formula in mind as they consider whether the proposition is realistic, experts say.
Source: ThinkGlink.com, Ilyce Glink (03/01/08)
When does buying a house and tearing it down make economic sense?
Builders have a guide for estimating whether a teardown will pay off. Generally, the cost of the land must be one-third of the cost of the final sales price of the house.
For instance, if the old home and the land it is on can be acquired for $400,000 and the new house can be sold for $1.2 million, then the builder can spend $600,000 or $200 per square foot on a 3,000 square foot home and still cover miscellaneous expenses and make a profit.
Home owners who are contemplating buying a teardown and commissioning a custom-built home should keep this formula in mind as they consider whether the proposition is realistic, experts say.
Source: ThinkGlink.com, Ilyce Glink (03/01/08)
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