Market Report: Double Bubble Trouble?

Qualifiers

• The measure limits the purchase price of the home to $800,000.
• It also imposes income caps so that people who make more than $125,000 annually and couples who make more than $225,000 would not be eligible for a refund.
• Anyone who collects the tax credit but sells their home within three years of buying it must return the refund.
• Current homeowners who are buying a new primary residence would be eligible for a $6,500 tax credit starting Dec. 1 if they owned their home for five consecutive years in the previous eight.
• Military families who have been deployed overseas for 90 days or more in 2008 or 2009, would have until April 30, 2011 to sign a contract.
• The program is estimated at $11 billion

 

 

Double Bubble Trouble

 

Dr Shiller, co-developer of the Case Shiller home price index and Yale economist points out that the price recovery of the last few months is the sharpest snap back he has ever seen.

 

He is concerned that that in supporting a real estate recovery we may again be fueling a bubble.

 

NAR reports that total state existing-home sales of single-family and condos increased 11.4 percent and are now 5.9 percent higher than the third quarter of 2008. Sales increased in 45 states and 28 states saw double-digit gains. Year over year sales were higher in 32 states and D.C. Buyers are coming back and in some parts of California we are seeing multiple bids and homes selling for more than list.   

 

 

Howard Bell PFP CCRM is the founder/editor of Your Property Path.com, featuring over 450 articles on property management, Your Property Path SF, trade talk for the San Francisco real estate industry, Your Property Path News Brief, snap news updates and real estate market info, and Your Property Path Amazon Store. Howard is a property manager in San Francisco and holds a certification in financial planning. 

 

See Howard Bell’s feature, Are the Stock Markets Telling Us Something?

American Apartment Owners Association offers discounts on products and services for landlords related to your real estate investment including REAL ESTATE FORMS, tenant debt collection, tenant background checks, insurance and financing. Find out more at joinaaoa.

 

To subscribe to our blog, click here.

Posted by Kim Ezzell on 11.16.2009. CLICK to Leave a Comment »

Filed under: AAOA Forum, Financing

Real Estate Investors, Landlords Reduce Your Rental Property Loan Payments by 30%

Since real estate investors and landlords have not been eligible for Home Affordability Modification Program (HAMP), they have had problems getting access to help from Uncle Sam with their residential rental loan payments.

Now real estate investors and landlords can tap into the PRP to reduce their monthly loan payment giving them time to work out their financial problem.

Posted by Kim Ezzell on 11.09.2009. 1 Comment »

Filed under: AAOA Forum, Financing

Fannie Mae Announces Deed for Lease™ Program

WASHINGTON, DC — Fannie Mae (FNM/NYSE) is implementing the Deed for Lease™ Program under which qualifying homeowners facing foreclosure will be able to remain in their homes by signing a lease in connection with the voluntary transfer of the property deed back to the lender.

“The Deed for Lease Program provides an additional option for qualifying homeowners who are facing foreclosure and are not eligible for modifications,” said Jay Ryan, Vice President of Fannie Mae. “This new program helps eliminate some of the uncertainty of foreclosure, keeps families and tenants in their homes during a transitional period, and helps to stabilize neighborhoods and communities.”

The new program is designed for borrowers who do not qualify for or have not been able to sustain other loan-workout solutions, such as a modification. Under Deed for Lease, borrowers transfer their property to the lender by completing a deed in lieu of foreclosure, and then lease back the house at a market rate.

To participate in the program, borrowers must live in the home as their primary residence and must be released from any subordinate liens on the property. Tenants of borrowers in this circumstance may also be eligible for leases under the program. Borrowers or tenants interested in a lease must be able to document that the new market rental rate is no more than 31% of their gross income.

Leases under the new program may be up to 12 months, with the possibility of term renewal or month-to-month extensions after that period. A Deed for Lease property that is subsequently sold includes an assignment of the lease to the buyer.

For additional information about the Deed for Lease Program, including full details on program eligibility, please review the Guide Announcement on www.efanniemae.com.

Posted by Kim Ezzell on 11.09.2009. CLICK to Leave a Comment »

Filed under: AAOA Forum, Financing

The Pitfalls of Property Exchanges

Financial, business risks stir concerns

by Tom Kelly, Inman News

Posted by Kim Ezzell on 11.02.2009. CLICK to Leave a Comment »

Filed under: AAOA Forum, Financing

Recession Officially Over – But Is It Good News for Landlords?

It’s now official.  The Great Recession is over.  That, according to a large majority of leading economists.  

 

What has the experts gazing cautiously up at the sky without bracing for falling debris?  

The Commerce Department’s Bureau of Economic Analysis released data Thursday on GDP in the third quarter – and it was good news.

According to the report, real GDP increased 3.5 percent at an annual rate in the third quarter, after declining in five of the preceding six quarters. The gain marked the largest quarterly advance since the third quarter of 2007.

 

U.S. Commerce Secretary Gary Locke issued the following statement in response to the news:

 

“Today’s numbers indicate that the tough decisions this administration made to rescue the economy from the abyss were correct. We’re headed in the right direction, and even though there are still too many Americans out of work and still much work to be done, without the action taken in the early days of this administration, the pain families are feeling today would be much worse.”

  

While most economists agree that the recession has halted, they are also cautious about sustained recovery. 

 

In fact, in a survey by the National Association for Business Economics, the vast majority of business economists believe that the recession has ended but that the economic recovery is likely to be more moderate than those typically experienced following steep declines.

 

“The NABE panel upgraded the economic outlook for the next several quarters, compared with the previous survey,” according to NABE President-elect Lynn Reaser, chief economist at Point Loma Nazarene University.

 

“Following a sharp 6.4 percent (annual rate) contraction in the first quarter of this year and another 0.7 percent drop in the second quarter, NABE forecasters expect real GDP to rise at an above trend 2.9 percent rate in the second half. The more-than-three-year downturn in the housing market is very close to coming to an end, with substantial growth (from a low base) expected for next year.”

According to the survey, the key areas of concern involve the large increases in federal debt and unemployment rates that are expected to remain very high through next year.

 The unemployment rate is forecast to rise to 10 percent in the first quarter of next year and edge down to 9.5 percent by the end of 2010.

 

That’s bad news for landlords. 

 We have already seen how the high unemployment figures have driven up vacancy rates.  With fewer qualified applicants, properties may sit vacant for a longer time, or landlords may have no choice but to lower rent or offer other incentives to keep properties filled. 

Congress is acting to extend unemployment benefits once again, which at least provides existing tenants who lose a job some income source for rent payments.

 All the while housing numbers are improving, recent reports show that the vast number of home sales is in the lower end of the market, to those using the first time buyer credits  – previous renters who can now afford a home of their own. 

Yet, according to NABE, inflation is expected to remain contained throughout 2010. “The good news is that this deep and long recession appears to be over, and with improving credit markets, the U.S. economy can return to solid growth next year without worry about rising inflation.”

 

See our feature, Bad News For The Rental Market.

  

American Apartment Owners Association offers discounts on products and services for landlords related to your real estate investment including REAL ESTATE FORMS, tenant debt collection, tenant background checks, insurance and financing. Find out more at joinaaoa.

To subscribe to our blog, click here. 

 

 

 

 

 

 

 

 

Posted by Kim Ezzell on 10.29.2009. CLICK to Leave a Comment »

Filed under: AAOA Forum, Financing

Are the Stock Markets Telling Us Something?

Home prices in the U.S., as measured by the S&P Case-Shiller home price indexes, rose in July over the previous month, as 18 of the 20 metropolitan areas comprising the benchmark saw saw a boost to real estate values (see chart here.)

American Apartment Owners Association offers discounts on products and services for landlords related to your real estate investment including REAL ESTATE FORMS, tenant debt collection, tenant background checks, insurance and financing. Find out more at joinaaoa.

To subscribe to our blog, click here.

Posted by Kim Ezzell on 10.22.2009. 1 Comment »

Filed under: AAOA Forum, Financing

Double-Digit Mortgage Rates on Horizon?

Economic recovery comes with tradeoffs

by Steve Bergsman

At a recent real estate conference, I found myself standing next to Richard Williams, a Century 21 Realtor from the Atlanta area, who had founded something called Clickit Inc., which provides flat-fee pricing for sales and listings. I would say we chatted, but Williams is a born raconteur and I mostly just listened.

After a while, a young man from New York joined us and in the course of the shifting conversation, the Big Apple dude wistfully noted he was renting an apartment but considering buying a condo. Williams turned his attention to the young fellow. “Now is the time to buy,” he exclaimed.

The reason for Williams’ emphasis on buying now? Was it because housing prices had gotten so low that good deals were everywhere? Actually, no. Williams strongly suggested to the New Yorker he should make his investment sometime this year as expectations are that interest rates were bound to rise and wouldn’t stop climbing until they hit double digits. That would make any future purchase considerably more expensive than it would today.

I, too, expect interest rates to start heading north again, but double digits seemed far out there — not in terms of a time line, but psychologically.

Williams rationalized that at some point in the near future, the economy was going to elevate very dramatically, which would raise the specter of inflation. If that happened, the Federal Reserve would push up interest rates to keep inflation under control.

I didn’t disagree with that scenario. However, I don’t believe the economy, when it does turn around, will take off like a rocket, so the government’s need to contain a budding inflationary climate would be moderate at best.

There are other factors to consider as well.

Interest rates have been kept low since the short recession at the turn of this century, and this was one of the causes of the housing bubble that lasted until 2007. Once the economy stabilizes, I figure the Fed might want to raise interest rates, thus slowly bringing them back to more sustainable levels, something like 3-4 percent.

Then there is the massive pumping of stimulus dollars into the economy.

Globally, the first major nation to experience economic recovery has been Australia, and there is already speculation interest rates will start to rise there. Now, tell me if this doesn’t sound familiar: as the Wall Street Journal reported, Australia’s recovery comes at a time “when huge amounts of government stimulus are still coursing through the Australian economy, raising fears of higher inflation in the years ahead if the central bank doesn’t start raising rates fairly soon.”

All those stimulus dollars have to come from somewhere. Sure, we could just print more money, but that would be hyperinflationary, so the federal government, instead, borrows it, which is less inflationary.

There are concerns about the budget deficit, which “looks like it is going to be huge,” notes Celia Chen, a senior director at Moody’s Economy.com. “If the budget deficit is too large, then the government is borrowing a lot and having to issue more Treasury bonds. That will cause the price of Treasuries to fall and if that happens, yields have to increase and interest rates will rise.”

No matter, how one slices and dices the economic prestidigitations, pressure continues to build on the government to raise interest rates, probably next year.

“There is no doubt that interest rates are going to have to go up,” says William Conerly, an economic consultant and author of “Businomics From the Headlines To Your Bottom Line: How To Profit in Any Economic Cycle.”

At some point the Federal Reserve is going to have to worry about inflation, Conerly adds. “Certainly not in 2009, but in 2010 the Fed will probably start pushing up short-term interest rates. If the economy gains some steam in the second half of this year, the long-term markets will push rates up even before the Fed tightens, so we’ll see Treasury yields rise even further between now and spring 2010.”

As of the third quarter, the spread between mortgages and the 10-year Treasury was wider than normal, which will narrow, but that won’t be enough to prevent the cost of borrowing from getting more expensive. Does that mean Richard Williams was on target in soothsaying interest rates and subsequently mortgage rates will be heading into the double-digit range, thus making home purchases considerably more expensive?

In summer 2009, mortgage rates had risen from below 5 percent earlier in the year to about 5.2 percent, and Conerly’s predictions are that the 30-year fixed mortgage rate will climb to 7.7 percent at the end of 2010.

Chen’s crystal ball shows a more conservative picture. “We have the fixed-rate climbing to 6.6 percent in 2010,” she says. “We expect mortgage rates to rise to 6.9 percent in mid-2011 and we don’t have those numbers going above 7 percent until the year 2012.”

Chen expects a reasonable economic rebound but inflation remaining at bay. Still, she recognizes there are some risks ahead. “Those predicting a higher mortgage rate are worried about too much credit on the market and the Fed having to keep inflation from creeping back,” she adds.

I bought my first home back in the 1970s. Apparently, sometime around then so did Conerly, because we both remember having to acquire homes at double-digit interest rates. Indeed, it wasn’t until 1985 that interest rates fell below double digits. The concern about interest rates rising past what to some is the seemingly astronomical 6 percent mark brings considerable levity to Conerly’s demeanor.

“I hear real estate brokers whining that interest rates, which have been at record lows, may go up to 6.5 percent,” he says. What these brokers don’t realize, he adds, “is that they are really living in the golden age of mortgage rates.”

Steve Bergsman is a freelance writer in Arizona and author of several books, including “After the Fall: Opportunities and Strategies for Real Estate Investing in the Coming Decade.”

Copyright 2009 Inman News

 

See Steve Bergsman’s feature, U.S. Retirement Patterns Shifting.

 

American Apartment Owners Association offers discounts on products and services for landlords related to your real estate investment including REAL ESTATE FORMS, tenant debt collection, tenant background checks, insurance and financing. Find out more at joinaaoa.

To subscribe to our blog, click here. 

 

 

 

Posted by Kim Ezzell on 10.19.2009. 1 Comment »

Filed under: AAOA Forum, Financing

FHA Bailout Imminent? Chief Says “No Way!”

Reports of an FHA bailout were widespread this weekend after the House heard testimony from a former Fannie Mae exec that the agency is heading over a cliff, with $40 billion in projected losses that will have to be offset by taxpayer dollars to buffer a flailing mortgage market.

Posted by Kim Ezzell on 10.12.2009. 1 Comment »

Filed under: AAOA Forum, Financing

Turbulence Seen For Reverse Mortgages

by Steve Bergsman

The reverse mortgage, which has proven very popular with the retirement-age crowd, has come under assault from two diverse groups: the government and scam artists.

Now I’m not going to argue with anyone who tries to say the government and scam artists are two sides of the same coin. That seems a bit mean.

After all, the government attempts (or is supposed to attempt) to do what’s best for the consumer and the country, although sometimes the net effect of legislation appears to be as wounding to some people as theft through fraudulent practices.

In regard to reverse mortgages, the government is, indeed, trying to protect their availability through conservative fiscal practices. Unfortunately, it could end up neutering them instead.

A reverse mortgage, which is available only to those 62 and older, allows homeowners to use the equity that has built up in a residence. In effect, the homeowner gets a loan in the form of a lump sum or multiple payments. Repayment, with interest, is deferred until the owner dies, or goes into aged care, and the home is sold. Or, in a worst-case scenario, if the homeowner fails to pay property taxes or homeowners insurance.

After being introduced with the new decade, reverse mortgages didn’t really gain any traction in the marketplace until 2005, when just under 50,000 were written. Growth came quickly since then, with totals surpassing 100,000 in 2007. The Wall Street Journal predicts the total number of federally insured reverse mortgages could run as high as 150,000 this year.

Here’s the problem: About 99 percent of reverse mortgages are FHA-insured. In scrutinizing the reverse mortgage loan outlook for fiscal year 2010 (which began Oct. 1, 2009), the Federal Housing Administration and Office of Management and Budget felt the reverse mortgage market — which had previously always paid its own way — would run about 130,000 loans (a more conservative estimate).

And the expectation was that over the life of those loans there would be losses in the range of $800 million.

That, of course, would mean an additional subsidy to cover the expected loss or, in the thinking of the Congress, to adjust the program so that it doesn’t require any further dollars.

Two questions arise: Is an additional subsidy necessary? And what would it mean to the efficacy of the reverse mortgage?

“The FHA and OMB did some calculations on what they believe the volume of originations will be in the next fiscal year and what they expect the behavior of the loans to be — most importantly, what will happen to housing prices,” explains Jeff Lewis, chairman of Atlanta-based Generation Mortgage Co., the largest independent reverse mortgage originator in the country.

“Presumably, if housing prices are weak next year, that means loans got originated at too high a loan-to-value (ratio) and it would make the loans less creditworthy. We don’t know what they used as far as their assumptions, but it would appear their estimates are very draconian about housing prices.”

To make the loans more creditworthy, the U.S. House and Senate are considering reducing the amount of loan value that can be pulled from a reverse mortgage by 5 percent to 10 percent.

That could be a problem.

Posted by Kim Ezzell on 10.05.2009. CLICK to Leave a Comment »

Filed under: AAOA Forum, Financing

Case Shiller Real Estate Trends and More

by Howard Bell

This report released yesterday, confirms that the housing markets are in a firming process. Hardly a recovery at this point. We are still in the numbers are bad, but not as bad stage. Typical of the early and therefore fragile stages of a housing recovery.

Case Shiller reports that home prices have increased for the third month and that the decline in prices continues to shrink. No bottom yet and we can do this for quite a while before we see an end to this.

Never the less, this is good news and the 20 MSA composite index shows improvement. The year over year change of home price has declined 13.3%, less that the 15.4% decline last year. We may be seeing the emergence of a trend towards higher home prices.

In any market as complex as real estate there are always trends and counter trends. As the economy continues to unfold, some of these trends will be strengthened and others weakened. Why Its never a straight line and so hard to predict direction.

In Our Favor

Prevailing Positive Trends

We have an increasingly strong economy. As someone recently said, we have the turn signal on but haven’t yet turned the corner.

1. Real Estate: The real estate sector is looking better.

2. The stock market: Market action is actually bullish. The Dow has gone from a annual low of to 6440 to over 9500 today

3. Manufacturing: National figures show factory output has actually expanded. The ISM index is over 50 a positive number indicating manufacturing is growing and expanding.

4. TARP: The Obama administration is about to put a lot of money to correct some of the excesses still holding the financial system back from functioning properly. The toxic asset program is launching one year after Congress approved the $700 billion financial rescue legislation for Troubled Assets Relief Program

5. Treasury Department: Treasury has been working with private groups to build investment funds, combining public and private money to buy toxic paper still on the books. Ive read that Treasury is committing 2.5 billion is a dollar for dollar match for funds raised by private firms, eventually reaching 40 billion dollars in new investment money for bad paper.

6. REITs are raising money as we approach a real bottom in the commercial and mortgage sectors. New stock issues have raised between 15-20 billion dollars. The REIT indexes are up handsomely, in anticipation of bargain prices when the dust settles on commercial property now feeling the pain of a great recession.

Prevailing Counter Trends

1. Long Road Back: By historical standards this collapse is deep. The chart on my web site compares the red bubble of today to the last bubble of the 1980-1990s . It took almost 97 months for home prices to turn positive and this collapse is much larger

2. Homes Foreclosure: Realty Trac reports that there is still ample supply in the foreclosure pipeline. “record 138,224 properties entered the foreclosure process in August when they were subjected to notices of default or lis pendens, up 3 percent from July and a 16 percent increase from a year ago. The number of properties subjected to auction notices in August, 144,113, was also a new record, rising 4 percent from July and 53 percent from a year ago.”

3. Option ARMs: Option ARM mortgages will begin to readjust, slamming borrowers with higher monthly mortgage payments. Analysts say that could unleash the next big wave of foreclosures

4. Commercial Property: All of those developers and owners of office buildings and big apartment complexes that have bought or built in the last five years, will be looking to refinance their loans. Some commercial indexes show property off 50% nationally. The banks will be hard pressed to refinance and many properties will be significantly underwater. Why the REITs have raised money is in expectation of foreclosures as owners and developers walk away from loans they know now will never recoup the initial investment

5. Federal Tax Credit: The Federal tax credit and the phase out of treasury bond purchases will put some pressure on the housing markets.

6. Tighter Loan Standards: FHA has joined the banks in tightening up their standards. This coupled with the expectation of higher interest rates because the Treasury will phase out bond purchases. Its a test to see if the bond markets are healthy enough to stand on their own. Clearly its still a long road complete with speed bumps. I think the best take away now is that its a mixed bag…we have good news to talk about too.

Howard Bell PFP CCRM is the founder/editor of Your Property Path.com, featuring over 450 articles on property management, Your Property Path SF, trade talk for the San Francisco real estate industry, Your Property Path News Brief, snap news updates and real estate market info, and Your Property Path Amazon Store. Howard is a property manager in San Francisco and holds a certification in financial planning.

See Howard Bell’s feature, FHA Has New Rules.

American Apartment Owners Association offers discounts on products and services for landlords related to your real estate investment including REAL ESTATE FORMS, tenant debt collection, tenant background checks, insurance and financing. Find out more at joinaaoa.

To subscribe to our blog, click here.

Posted by Kim Ezzell on 10.01.2009. CLICK to Leave a Comment »

Filed under: AAOA Forum, Financing