When the Federal Reserve ends its meeting on Wednesday afternoon, it is almost certain to leave the key rate at or near zero and pledge to hold it there.
That makes it likely mortgages will stay historically low and rates on home-equity and other consumer loans will hug 3 percent.
But it is unclear whether the Fed will continue some programs that have kept mortgages and other consumer debt even lower than the market might expect. One such program involves buying U.S. Treasurys. The Fed is set to buy $300 billion worth of Treasury bonds by the fall. It has bought $235 billion already this year.
"I think they'll let it expire. It seems the mood turned against Treasury purchases in the last couple of months, and there's been some skepticism whether it has worked in bringing rates down," says Michael Feroli, an economist at JPMorgan Economics.
Source: The Associated Press, Jeannine Aversa (08/11/2009)
Wednesday, August 12, 2009
Fed Will Keep Key Rates Low
Commercial foreclosures rocket
Valley is 'at the tip of the iceberg' for notices, expert says
by J. Craig Anderson - Aug. 5, 2009 12:00 AM
The Arizona Republic
More than 2,000 commercial properties in Maricopa County have received 90-day foreclosure notices since Jan. 1, representing $6.3 billion in real-estate loans on which the borrowers have failed to make payments.
That number is staggering when placed in contrast with the average commercial foreclosure rate over the past decade, which has been practically zero.
The problem, sparked by property-value declines and a paucity of refinancing options, has produced a steady flow of distressed commercial properties onto the market, with a heavy emphasis on small and midsize office and retail centers.
Industrial and warehouse properties also have suffered tremendously, due in large part to disappearing jobs. More than 1 million square feet of previously occupied industrial and warehouse space was vacated in the second quarter.
Commercial-real-estate broker Bret Isbel has been tracking actual foreclosure sales in Maricopa County, which can take several months to occur following the issuance of a foreclosure or trustee's sale notice.
The number of notices issued has been holding steady at between 300 and 400 a month since January, but actual foreclosures vary more widely, because it can take months - potentially even years - for a property in default to be repossessed by the lender or sold to a third party.
In Arizona, a lender can foreclose in either of two ways: It can take the borrower to court via foreclosure, or it can bypass the court system and call for a trustee's sale, which is quicker and less expensive but requires the lender to waive certain legal rights.
Isbel said there's no indication that the pace of commercial foreclosures is about to taper off. If anything, it's still building momentum.
"We're at the tip of the iceberg, there's no doubt," said Isbel, of Scottsdale-based GPE Commercial Advisors. "It's just a question of how big it is underneath."
The inescapable problem for many commercial developers is that they've had to maintain the same construction loan payments while lowering rents because of dwindling demand for leased commercial space.
While the federal government has created programs to help homeowners in danger of foreclosure negotiate lower mortgage payments, no such program exists for commercial-property owners, and none is expected.
By and large, commercial-mortgage lenders are not modifying commercial-real-estate loans, even as commercial-lease rates have plummeted as much as 75 percent in some areas.
Isbel said county records show more than 50 commercial foreclosure sales in June, the most recent full month available, with a total mortgage value of about $54 million. Geographically, they're all over the map, including the East Valley, West Valley, Scottsdale and downtown Phoenix.
Declining rent income isn't the problem for all area commercial centers, real-estate data analyst Zach Bowers said.
Owner-occupied projects including "commercial condos," where individual office or retail spaces were sold to small-business owners, are going back to the lenders, said Bowers, of Ion Data in Mesa.
Not unlike their residential counterparts, commercial condos were overbuilt and now represent a disproportionately high percentage of commercial foreclosures, the analysts agreed.
They include medical and dental offices that opened, much like retailers did, in high-growth areas on the fringes now hit hard by residential foreclosures.
"We've been seeing dental properties popping up every week (in county foreclosure records)," Bowers said.
Commercial broker Marc Bonilla, who specializes in selling medical-office properties, said they can still be attractive investments to buyers paying today's lower prices, but that it depends largely on the tenants.
Bonilla, of Colliers International in Scottsdale, recently negotiated the $12.1 million sale of a 40,000-square-foot medical-office project in Peoria.
Arrowhead Professional Park, 16222 N. 59th Ave., in Glendale, was not a foreclosed property, Bonilla noted. The owner, Phoenix-based Arrowhead Health Office Properties, sold it to real-estate investment firm Jomike Realty Co., based in New York.
While Jomike technically bought the building, he said, the true investment was in future lease revenue from its occupants.
"Number 1, it was fully leased," he said, "and Number 2, it has tenants that have been successful in this market for a long time."
Saturday, August 8, 2009
Residential Real Estate Market Update
Recently in the news has been talk about there being an upswing in new construction and that is a sign of the market turning around. In this graph you can see the number of building permits in Maricopa county and there is the beginning of an upswing, but the market is still far from normal. The market should have about 3000 permits per month and we are just under 1000.
This graph shows the number of foreclosure notices and sales in Maricopa County. We should be around 2000 notices per month, but we are four times that rate. There is no obvious trend that shows a sign of slowing down. The moratorium from the beginning of the year has yielded record sales for this summer. I anticipate that there will be record number of bank owned properties coming on the market in August.
This is a graph of the available homes for sale in the MLS database. 2009 is the strong red line. As you can see we are on a heavy trend of shrinking inventory. The market would have a normal inventory of 30,000 to 35,000 units and we should be there at the current rate by the end of October.
This graphs shows the number of offers accepted per week in a year. The current volume of offers is in the range as was seen in 2004 and 2005. That is incredibly high.
Likewise this graph shows the number of closings per month. It shows closings are in the same range as in 2004 and 2005.
In conclusion the market activity is accelerating and I am seeing in the most competitive price ranges that it is hard to land a contract without having to bid up the price with multiple offers. The window for the "good deals" for investors is closing and the "easy deal" is gone. Depending on how the market adsorbs the coming foreclosures can determine if we are out of the downward cycle by the end of the year.
Friday, August 7, 2009
More Home Owners Underwater as Prices Fall
A report from Equifax and Moody's Economy.com shows that falling prices have left 24 percent of owner-occupied, single-family home owners with mortgage debt greater than the values of the residences.
At the end of this year's second quarter, more than 16 million Americans were in this predicament, an increase from 10 million a year earlier.
Almost 5 percent of owner-occupied dwellings are saddled with mortgage debt worth 150 percent of the property value. Nevada, where 40 percent of owner-occupied homes are "upside-down," is the hardest-hit state, followed by Arizona and California.
Source: Wall Street Journal, Nick Timiraos (08/05/09)
Feds Scold BoA, Wells Fargo on Loan Modifications
The Treasury Department on Tuesday announced that only 9 percent of eligible home owners had been helped by the federal program to modify home loans and prevent foreclosure.
It scolded banking giants Bank of America and Wells Fargo, both of which received federal bailout money, pointing out that these banks have been among the least willing to assist troubled borrowers.
Bank of American modified 4 percent of eligible loans, and Wells Fargo modified 6 percent.
Big banks that did better included JPMorgan Chase & Co., which modified 20 percent of eligible loans, and Citigroup Inc., which modified 15 percent.
The bank with the best results was Saxon Mortgage Services Inc., which helped about 25 percent of its eligible borrowers.
Source: The Associated Press, Alan Zibel (08/04/2009)
Construction Spending Rises, Defies Forecasts
Analysts predicted a 0.5 percent drop in construction spending in June, but they were wrong.
The U.S. Commerce Department said Monday that construction spending rose by a seasonally adjusted 0.3 percent annually in June. That’s positive news, despite the fact that overall spending was still down 10.2 percent compared to a year ago.
The increase was driven by federal government spending, which rose 1.9 percent. This offset a 0.5 percent decline in commercial, nonresidential building, including shrinkage in retail and offices.
Source: The Associated Press, Christopher S. Rugaber (08/03/2009)
Entrepreneur Identifies 10 Do-Business Cities
Entrepreneurmagazine has identified 10 major cities that it says encourage business start-ups.
The magazine chose cities that provide government incentives, have affordable commercial rents, have public officials who are open to new ideas, and have a population that's growing.
Amy Cosper, editor in chief of the publication, says she thinks Entrepreneur’s research will help other businesses that are searching for a location to start a new business or expand an existing one.
The most entrepreneurial cities identified in the July issue are:
- Las Vegas
- Portland, Ore.
- Orlando
- San Diego, Calif.
- Phoenix, AZ
- Chapel Hill, N.C.
- Atlanta
- Madison, Wisc.
- Youngstown, Ohio
- Austin, Texas
Source: Entrepreneur (07/29/2009)
Office Vacancies and Rents Are Still Slumping
Office vacancies rose 1 percent nationwide in the second quarter of the year to 15.45 percent, according to Colliers International, a real estate services firm.
The vacancy increase from 14.48 percent in the first quarter cuts across all kinds of property, Colliers said, although prime office space in downtown markets had the lowest increase in vacancy rates.
Rental rates also declined across the board. Since year-end 2008, downtown Class A weighted rents have fallen an average of 10.5 percent.
“Firms have little appetite for expansion and instead remain focused on reducing costs and watching their bottom lines," said Ross Moore, director of economic research for Colliers. "We expect further increases in office vacancy and falling rents for the balance of 2009."
Source: Colliers International (07/28/2009)
Treasury Pushes Bankers on Loan Modifications
During daylong meetings Tuesday, the Treasury Department pressured executives from 25 mortgage companies to promise to work harder to modify more mortgages for troubled borrowers.
The officials agreed orally on a new goal of 500,000 loan modifications by Nov. 1.
The meeting stemmed from concern that the program to modify mortgages will fall far short of the original goal of 3 to 4 million modified loans. As of this week, only 200,000 borrowers were enrolled in three-month trial loan modifications.
"Today's meeting was an opportunity to identify ways to accelerate the program and bring relief faster," Treasury Secretary Timothy Geithner said in a statement.
Bankers who attended the meeting complained that the original announcement of the program led the public to believe that modifications could be accomplished immediately.
"It was very difficult as an industry as a whole to try to live up to those expectations," said Dan Frahm, a Bank of America spokesman.
Source: The Associated Press, Alan Zibel and Daniel Wagner (07/28/2009)
Economists Optimistic That Market Is Upward Bound
Economic recovery is still a few months away, say economists surveyed by USA Today, but two-thirds of them think existing-home sales have bottomed out.
Both housing and automotive markets “have the potential to generate some quite large percentage increases,” says Bill Cheney, chief economist at MFC Global Investment.
Overall, economists say unemployment won’t peak until the first half of next year and credit markets will remain tight.
"I think (the recovery) is going to be anemic," says Allen Sinai, chief economist at Decision Economics. "I don't think consumers have the wherewithal to buy a lot of cars and a lot of houses."
Source: USA Today, Paul Davidson; Barbara Hansen (07/27/2009)
NAR: Existing-Home Sales Rise Again
Existing-home sales rose for the third consecutive month with inventory easing and home prices declining less sharply in June, according to the National Association of REALTORS®.
Existing-home sales — including single-family, townhomes, condominiums, and co-ops — increased 3.6 percent to a seasonally adjusted annual rate of 4.89 million units in June from a downwardly revised pace of 4.72 million in May, but are 0.2 percent lower than the 4.90 million-unit level in June 2008.
Lawrence Yun, NAR chief economist, is hopeful about the gain.
“The increase in existing-home sales occurred in all major regions of the country,” he says. “We expect a gradual uptrend in sales to continue due to tax-credit incentives and historically high affordability conditions. Despite the rise in closed transactions, many REALTORS® are reporting lost sales as a result of new appraisal standards that went into effect May 1 of this year.”
HVCC Issues
A June survey of NAR members shows 37 percent experienced at least one lost sale as a result of the new Home Valuation Code of Conduct, with seven out of 10 reporting an increased use of out-of-area appraisers. Seventy percent of NAR appraiser members said consumers were paying higher fees, while 85 percent report a perceived reduction in appraisal quality.
“Clearly the process needs to be revised, but the most logical approach is to use appraisers with local expertise, industry designations, and access to local data, who make a physical examination of the property and use apples-to-apples comparisons with nearby home sales,” Yun says. “In many cases, normal homes are being compared with distressed homes sold at a discount, which often are in subpar condition – this is causing real harm to both buyers and sellers.”
According to Freddie Mac, the national average commitment rate for a 30-year, conventional, fixed-rate mortgage rose to 5.42 percent in June from 4.86 percent in May; the rate was 6.32 percent in June 2008. Mortgage interest rates have trended lower in recent weeks.
Inventory Declines
Total housing inventory at the end of June fell 0.7 percent to 3.82 million existing homes available for sale, which represents a 9.4-month supply at the current sales pace, down from a 9.8-month supply in May. Raw inventory totals are 14.9 percent below a year ago.
“This is another hopeful sign — if we can keep the volume of sales above the level of new inventory, prices could stabilize in many areas around the end of the year,” Yun says.
An NAR practitioner survey in June showed first-time buyers accounted for 29 percent of transactions, unchanged from May, and that the number of buyers looking at homes is up nearly 12 percentage points from June 2008.
NAR President Charles McMillan notes that there are very good opportunities. “Despite some of the challenges, the housing market continues to demonstrate signs of recovery,” he says. “The temporary first-time buyer tax credit is clearly helping people make a decision and is contributing to the overall stimulus impact, but since it’s taking longer to close transactions, many would-be beneficiaries may not be able to take advantage of the credit before the Dec. 1 expiration date."
The national median existing-home price for all housing types was $181,800 in June, which is 15.4 percent below June 2008. Distressed properties, which accounted for 31 percent of sales in June, continue to downwardly distort the median price because they generally sell at a discount relative to traditional homes.
Single-family home sales rose 2.4 percent to a seasonally adjusted annual rate of 4.32 million in June from a level of 4.22 million in May, and are 0.2 percent higher than the 4.31 million-unit pace a year ago. The median existing single-family home price was $181,600 in June, which is 15.0 percent below June 2008.
Existing condominium and co-op sales jumped 14.0 percent to a seasonally adjusted annual rate of 570,000 units in June from 500,000 in May, but are 3.1 percent below the 588,000-unit level in June 2008. The median existing condo price was $183,300 in June, down 18.9 percent from a year ago.
By Region
- Northeast: Regionally, existing-home sales in the Northeast rose 2.5 percent to an annual pace of 820,000 in June, but are 4.7 percent below a year ago. The median price in the Northeast was $249,400, down 5.9 percent from June 2008.
- Midwest: Existing-home sales in the Midwest increased 0.9 percent in June to a level of 1.10 million but are 1.8 percent lower than June 2008. The median price in the Midwest was $157,000, which is 9.1 percent below a year ago.
- South: In the South, existing-home sales rose 4.0 percent to an annual pace of 1.81 million in June but are 3.7 percent below a year ago. The median price in the South was $163,200, down 11.9 percent from June 2008.
- West: Existing-home sales in the West improved by 6.4 percent to an annual rate of 1.16 million in June, and are 11.5 percent higher than June 2008. The median price in the West was $214,800, which is 24.9 percent below a year ago.
Source: NAR
Investors Drive Foreclosure Prices Up
Home shoppers in parts of the country with lots of foreclosures are finding it increasingly difficult to buy. Investors are bidding up prices thousands above the original asking price.
Federal legislation slowing the number of foreclosures is adding to the problem by reducing the number of homes on the market. For instance, in Las Vegas, one of the areas where the bidding problem is greatest, home inventories are down 10 percent since March, according to the Las Vegas Association of REALTORS®.
When a bidding war erupts, the problem is particularly difficult for traditional buyers because investors are usually cash purchasers. They can bid up a property without concern whether the appraisal will prevent them from getting a loan.
Experts say the problem is not unlike the situation at the height of the housing bubble.
"This market is about as abnormal as the hypermarket that we came out of a few years ago," says Jay Butler, director of the Realty Studies program at Arizona State University.
Source: The Associated Press, Jonathan J. Cooper (07/20/2009)
Thursday, July 2, 2009
Investors return to Valley, flood rental-house market
Bank-owned homes sell fast; are there enough tenants?
by J. Craig Anderson - Jun. 18, 2009 12:00 AM
Arizona Business Gazette .
Real-estate investors have returned to the Valley in a big way, prompting concerns that the housing market is becoming too speculative to sustain the recent buyer activity.
The lure of once-in-a-lifetime deals on bank-owned homes is driving investor purchases, which experts say account for 50 to 70 percent of recent home-buying transactions. Still, it's the ability to generate revenue by renting the homes to tenants - in some cases, previous owners - that makes the properties such attractive investments.
The Phoenix-area housing market has been flooded with homes for rent in recent months, raising concerns about whether there will be enough tenants to keep the Valley's estimated 130,000-and-growing rental properties out of financial jeopardy.
Even some longtime supporters of the home-investment market say they've noticed a disturbing return of the can't-lose mentality that got so many house-flippers into trouble a few years ago.
"Investors are starting to look at the market from a speculative standpoint," said Alan Langston, who runs the Arizona Real Estate Investors Association. "We could end up with an oversaturated rental market."
Although the demand for rental homes is still strong, Langston said, speculators seeking big returns could be in for an unpleasant surprise, especially if they don't treat rental-home ownership as a business that requires time, effort and cash reserves.
Dealing with tenants also requires legal knowledge, he added. "You need to have a good lease, and you need to know how to enforce it," he said.
Langston has created a second organization, the Arizona Rental Property Owners and Landlords Association, to provide resources such as proper lease agreements, market data and legal advice in exchange for an annual fee of $129.
Rental-home owners who lack a full understanding of the financial risks and recommended precautions could find the homes they purchased from lenders right back on the market, which would be bad for investors, tenants and the area's economic recovery.
Home foreclosures have created an atypically high demand for rental properties, but that demand is not unlimited, and rental investments are not immune to financial risks such as tenants losing their jobs or continued decline in rental rates as supply increases. The glut of single-family homes for rent, overbuilding of apartments and failed condominium projects have created a difficult and highly competitive market for rental-property owners.
Many apartment managers have responded by boosting incentives such as lower rents, waived or reduced fees and complimentary services.
Still, Langston and others see real-estate investment as a positive. The competition that's causing frustration for other buyers is keeping prices from falling further, they said. Starter-home buyers alone would not create enough demand to absorb the supply of bank-owned homes coming on to the market each month, they said.
Investors have fixed up many dilapidated or trashed homes and prevented the Valley from having neighborhoods littered with abandoned properties.
However, he said, there is a big difference between an investor and a speculator.
"Investors follow solid investment practices. They add value to the transaction," Langston said. "Speculators are looking for a very quick turnaround and a very large return."
Saturday, May 16, 2009
House Passes Bill to Protect Borrowers
A bill passed by the U.S. House of Representatives on May 7 requires mortgage lenders to take borrowers' repayment ability into account. It also makes it possible for borrowers to take legal action against entities that pool mortgages and sell them as securities on the secondary market.
The bill also will force lenders to retain a 5 percent interest in mortgages other than standard 30-year fixed and adjustable-rate loans. However, adjustable-rate mortgages that carry prepayment penalties or fees greater than 2 percent do not qualify for the exemption.
Source: Washington Post, Dina ElBoghdady (05/08/09)
Real Estate: Home refinancing program a huge maze
Submitted by SHNS on Thu, 05/07/2009 - 15:19.
The federal government's Home Affordable Refinance program is designed to help homeowners refinance their mortgages -- even if they owe slightly more than the current value of their homes.
For some borrowers, the program could be a boon. But many layers of rules may resemble one of those maddeningly complex contests that offer prizes to people who complete a maze of special offers.
The program is complicated because the federal government has a top-level set of rules; Fannie Mae and Freddie Mac have their own separate sets of rules and lenders, loan servicers and mortgage insurers generally have their own rules as well.
Borrowers may well wonder where to begin. Here's our guide to help you navigate through this labyrinth of rules:
The federal government's Home Affordable Refinance program is intended to help creditworthy homeowners whose homes have decreased in value refinance their mortgages to obtain lower interest rates or payments, lock in a fixed interest rate or eliminate onerous loan terms to improve their long-term stability as homeowners.
The program applies only to loans that are owned or guaranteed by Fannie Mae or Freddie Mac, the two secondary-market mortgage corporations that currently are operated under federal government conservator ships.
The borrower must be an owner-occupant of a detached house, condominium, duplex, triplex or four-unit residential property.
The borrower must not have made a loan payment more than 30 days late in the last 12 months or missed a payment if the loan was originated fewer than 12 months ago.
The new first mortgage cannot exceed 105 percent of the current market value of the property.
The borrower may be allowed to finance closing costs or obtain small amounts of cash.
The interest rate on the new mortgage will be a market rate.
The borrower must have sufficient income to afford the new mortgage payments.
The borrower's existing loan balances will not be reduced.
Nearly a dozen lenders have signed formal agreements to participate in this program. A list of these lenders has been posted on the Making Home Affordable Web site.
This program will end June 10, 2010.
Fannie Mae's Home Affordable Refinance program is intended to help borrowers refinance to reduce their monthly principal-and-interest payment or switch from a risky loan product such as a short-term, adjustable-rate mortgage, or ARM, or from an interest-only mortgage to a fixed-rate mortgage.
To qualify, the borrower must have an existing mortgage that is owned or guaranteed by Fannie Mae. To find out whether Fannie Mae owns or guarantees your loan call (800) 732-6643.
Borrowers can apply through any lender that has been approved by Fannie Mae. However, some borrowers may find that they need to refinance through their original lender or loan service.
The new loan may be a fixed-rate mortgage or an ARM with an initial fixed-rate period of at least five years. The payback period may be as long as 40 years.
So-called "jumbo-conforming" or high-balance loans that meet loan-limit requirements may be eligible.
Vacation/second-home and investment properties may be eligible.
The borrower may be able to finance closing costs or take out cash of up to 2 percent of the mortgage amount or $2,000, whichever is less.
The borrower must have sufficient income to afford the new loan payments. A verbal verification of employment is required.
No minimum credit score is required. However, borrowers whose credit is impaired may be offered a higher interest rate.
An appraisal may be required.
Freddie Mac's Home Affordable Refinance program, known as the Relief Refinance Mortgage, may be used to reduce the borrower's interest rate, shorten the loan repayment period or replace an adjustable-rate mortgage, interest-only mortgage or balloon/reset mortgage with a fixed-rate loan.
To qualify, the borrower must have an existing mortgage that is owned or guaranteed by Freddie Mac. To find out whether Freddie Mac owns or guarantees your loan, call (800) 373-3343.
Borrowers should contact their original lender or loan servicer to apply for this program.
The new mortgage can be a 15, 20 or 30-year, fixed-rate loan or an adjustable-rate mortgage with an initial term of five, seven or 10 years.
The property may be a vacation/second home or an investment property, with some restrictions.
The existing loan, new loan or both may be a so-called "super-conforming" loan limit within the applicable loan limit for the area.
The borrower may be able to finance transaction costs of up to $2,500.
Borrowers whose monthly payment increases 20 percent or more must provide income and employment documentation and have an acceptable credit score and debt-to-income ratio to demonstrate they can afford the new higher payment.
Mortgage rates inched higher this week.
The average 30-year fixed-rate rose 4 basis points, to 5.27 percent. A basis point is one-hundredth of a percentage point.
This week's average 15-year fixed-rate -- a popular option for refinancing -- increased by 5 basis points, to 4.78 percent.
The average jumbo 30-year fixed climbed 3 basis points, to 6.68 percent.
Adjustable-rate mortgages were split this week. The one-year adjustable-rate mortgage slid 12 basis points, to 5 percent. The popular 5/1 ARM edged up 2 basis point, to 5.07 percent.
(Distributed by Scripps Howard News Service. Reach Marcie Geffner at editors(at)bankrate.com)