Real Estate News & Commentary by Chris McLaughlin, August 27, 2009

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FDIC may run out of cash by the end of this year

The Federal Deposit Insurance Corp. (FDIC) – the agency which guarantees bank deposits – may run out of cash by the end of this year on account of bank failures. FDIC is backed by the government and when it runs out of cash, it can borrow from the Treasury Department, something which has happened only once before — during the savings-and-loan crisis of the early 1990s. “I think the public should expect the fund to go negative at some point,” said Gerard Cassidy, a banking analyst at RBC Capital Markets, which has predicted that up to 1,000 banks could fail in the next three years. FDIC has estimated that it will need $70 billion to cover bank failures through 2013; this is over 5 times the $13 billion in FDIC’s fund in March 2009. Instead of going to the Treasury Department for money, FDIC can raise the assessment fee for the banks it regulates. “The more you levy these assessments on banks, the less money they have to lend to the general population,” said Camden Fine, president of the Independent Community Bankers of America, an industry group.

Mortgage applications rise for a second straight week

According to the Mortgage Bankers Association (MBA), its seasonally adjusted index of mortgage applications – which includes both purchase and refinance loans – rose 7.5% to a reading of 566.4 for the week ended August 21. The rate on 30-year fixed-rate mortgages, excluding fees, rose 0.09% from the previous week to an average of 5.24%. This is well above the all-time low rate of 4.61% in the last week of March this year. “Right now the market has investors taking advantage of the great deals out there, mostly distressed properties in foreclosure or selling as short sales and first-time home buyers who are taking advantage of the first-time home buyers tax credit,” said Jim Gillespie, president and chief executive officer, Coldwell Banker Real Estate. “If that tax credit expires the end of November then the real estate market recovery will probably stall.” Gillespie says “a $15,000 tax credit will go a long way to helping us out of our economic situation today.” The MBA’s seasonally adjusted index of refinancing applications increased 12.7% to 2,233.5, the highest level since the week ended June 5.

Homebuilders increase land acquisition

Homebuilders, who spent the last couple of years selling off their land holdings, are now looking for land in areas such as Phoenix, Orlando, Sacramento, and Denver – cities which saw a significant real estate bubble. So what is going on? Builders say they are getting ready for a market rebound. Signature Properties which has been trying since 2005 to sell 4,000 finished lots in Sacramento, California, recently decided to stop looking for a buyer. “We decided to build it out ourselves,” said John Bayless, president of the Sacramento division of Signature Properties. “Our feeling is, The tide’s turning. Let’s build ‘em.” Analysts say prices have dropped significantly for builders to show interest. “It’s a good time to acquire properties, because you can often find distressed properties at low prices,” said Bernie Markstein, senior economist for the homebuilder’s association. “There’s that old Wall Street saying: Don’t try to catch a falling knife. Maybe the knife is on the ground.” Builders such as Meritage, M.D.C. Holdings, KB Home, NVR Inc., Ryland Group, and Hovnanian are on the lookout for land deals. Hovnanian paid $25,000 per lot for 160 bank-owned finished lots in Florida recently. Ara Hovnanian, the company’s president and CEO, said: “We are seeing more land deals like this making their way to the surface around the country and will provide a once in a generation opportunity for us to reload and reinvest in land.”

Thrift industry records first profit since 2007

According to the Office of Thrift Supervision (OTS), the thrift industry posted a profit of $4 million in the second quarter of 2009, compared with a first-quarter loss of $1.62 billion. Thrift institutions had a higher fee income, made lower provisions for loan losses and had a higher net interest margins in the second quarter. The agency said thrifts still have significant problems to confront. “Despite some encouraging signs, the industry’s performance remained uneven,” said John Bowman, acting director of the OTS. “The bottom line is the industry is not out of the woods yet.” The OTS also said the number of “problem” thrifts grew to 40 from 31 during the second quarter. Troubled thrifts accounted for 3.52% of the industry’s assets, compared with 3.35% in the first quarter. OTS expects continued pressure on earnings until housing prices stabilize and loan losses drop. The OTS said 3 thrifts had failed during the second quarter. Overall, the agency supervised 794 thrifts at the end of the quarter, as well as 459 holding company enterprises.

New and continuing jobless claims drop, point to improvement in labor market

The Labor Department has said that initial jobless claims dropped to a seasonally adjusted 570,000 for the week ending August 22, from 580,000 for the earlier week. The total number of people collecting unemployment insurance fell to the lowest level since April. “The labor market is improving,” said David Sloan, a senior economist at 4Cast Inc. “The economy is returning to growth, but employment and consumer spending are going to remain weak for some time.” Continuing claims dropped by 119,000 in the week ended August 15 to 6.13 million, the least since the week ended April 4. Continuing claims data lags initial claims by a week. Forty states saw a decrease in claims, while 13 saw an increase. Data suggests that layoffs are abating. In July 247,000 jobs were lost; this was the smallest in almost a year and lower than economists had projected. The economy has lost 6.7 million jobs since the recession began in December 2007.

Now on to our real estate education section …

Seven Reasons First-Time Buyers Should Love Short Sales

For some reason many first time home buyers mistakenly believe that short sales are only for investors; few things could be further from the truth. The fact is, first time home buyers might have more to gain from purchasing a short sale property than nearly anyone else – if they understand the opportunities and pitfalls. Find out for yourself why first time homebuyers should love short sales with these bits of insight:

Low Prices = Instant Equity. Not only will first time homeowners benefit from an affordable monthly mortgage but it is often possible to purchase a home with instant equity. Short sale investors generate profit by buying low then selling higher…instead, learn how to put the same profit potential into your pocket with instant equity.
Lower Taxes & Insurance. Property taxes and insurance represent a significant portion of your annual housing expense; purchasing a short sale property may result in dramatically reduced taxes and insurance rates. Think of it as the savings that keeps going and going and going…
Tax Incentives. Thanks to Uncle Sam as well as state and local governments, first-time homebuyers may benefit from tax incentives, grants, down payment assistance and other financial incentives when purchasing a property.
Great Rates. Rates are still low – including 30 year fixed mortgages. The average is currently under 5.5 percent fixed which would easily purchase a property in the $135,000 range (well within the short sale guidelines) with PITI of under $1,000 per month! That includes a monthly mortgage of $744, Taxes and insurance of $165, PMI of $92. Lock in an affordable lifestyle while building equity. If you need to move or relocate it’s always possible to rent the home out or sell for a profit (remember, you have instant equity if you buy right!). Not only does a home provide stability for the entire family but locking in a low cost of living is a great way to protect your financial future against uncertain economic outcomes such as job loss or an eroding investment.
Motivated Sellers. The perfect home for you might be someone else’s idea of a nightmare. Every individual is different. Remember, you are often doing the seller a great service by making a decent offer on a short sale property – otherwise, they might face financial ruin without the ability to get out from a mortgage they can no longer afford or make a fresh new start. Use an experienced agent to negotiate the transaction while creating a win-win for all involved.
Negotiable Deals. Sellers have often made upgrades or might be willing to include other items in the offer such as hot-tubs, ATV or items they may no longer need or desire to keep. Don’t be afraid to negotiate appliances or other extras as part of the negotiation process.
Fixers. Not afraid of doing a little work? First time buyers can score big hits by doing some of the work on their own; painting, yard work and other minor repairs can make a solid home appear older and less appealing than it really is. Learn how to see through the unsightly carpet stains and overgrown weeds to find a real diamond in the rough. A few weekends of cleaning, painting and renovations may turn out to be the best investment you ever made!

See you at the top!
Chris McLaughlin

http://www.shortsalesriches.com

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