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Builders to lose $500 million in 2010
Moody’s Investors Service expects that the building industry’s operating losses will worsen by 8% in 2009, and that while the sector will improve modestly in 2010, it will remain in a loss position and will experience more than $500 million in combined operating losses in 2010. An increase in foreclosures and weak employment figures will help keep house prices at their current low levels, and might cause prices to fall more and for a longer period than currently anticipated. Moody’s vice president and senior credit officer Joe Snider expects homebuilders to continue generating pre-impairment operating losses over the next 12 to 18 months. “We expect that the industry’s one relatively bright spot — that is, robust cash-flow generation — will keep fading in the year ahead, as inventory liquidation plays itself out and funds from operations remain negative.”
Unemployment will reach above 10%
Federal Reserve Chairman Alan Greenspan says the U.S. economy will keep growing – even more than expected – in the third quarter, but unemployment also will continue to increase and “penetrate” the 10% barrier. Nouriel Roubini, chairman of RGE Monitor, agrees, saying, “”Not just is going to go above 10 percent but the risk is it’s going to stay above this level and return to more normal only gradually…” That prediction matches previous comments by President Barack Obama and others who say that unemployment is a lagging indicator in an economic recovery. But while Obama said his administration would focus on job creation, Greenspan said it was too soon to consider another economic stimulus package or other major spending plan. He noted that only 40% of the $787 billion in Obama’s first stimulus package has been spent, and he cited his prediction of higher-than-expected third quarter growth. “It looks as though it’s going to be 3%, possibly even higher.” At the same time, Greenspan endorsed some short-term steps to help the unemployment situation, including extending jobless benefits for those out of work for months who face a cut-off.
Second wave of foreclosures coming?
About 10 percent of all mortgages in this country are scheduled to adjust in the next few years, with the numbers peaking in mid- to late 2011. Those loans are worth about $1 trillion, and nearly 20 percent of the borrowers who have them are already seriously behind on their monthly payments. With millions of adjustable-rate mortgages about to reset in the coming years, possibly to higher interest rates, the prospect of a new round of foreclosures is looming. Many of these loans will lapse into foreclosure and disappear before they adjust, said Sam Khater, senior economist at First American CoreLogic. Others will terminate for less dramatic reasons as people sell their homes, refinance or have their mortgages modified. What with job losses expected to climb to beyond 10%, there are problems on the horizon to be sure.
Housing delinquencies under the microscope
A study by First American CoreLogic examined the spatial distribution of serious mortgage delinquencies across neighborhoods in the 30 largest US cities, and five patterns emerged. “Type 1” is characterized by a high mean delinquency rate above 10%, with most of its volume distributed symmetrically around neighborhoods with the highest delinquency rates. Type 2 has a relatively low mean delinquency rate beneath 10%, and the majority of the mortgages are compact with little or none in high delinquency neighborhoods. Type 3 includes cities where delinquencies are skewed over a variety of impacted neighborhoods. Here, the maximum delinquency rate exceeds 20%. Type 4 markets have a higher volume of delinquencies in neighborhoods with a lower delinquency rate. They are less skewed and more compact, but the maximum delinquency rate swells to 20%. Type 5 cities have a more even disbursement of highly delinquent neighborhoods that often exceed 20% delinquency rates. The report also showed that the national serious delinquency of prime mortgages was 6.02% in June 2009. Florida and Nevada posted the highest rate of 15.05% and 14.05%, respectively. North Dakota’s 1.17% and South Dakota’s 1.77% serious delinquency rates were the lowest in the country.
US Officials Exaggerated Banks’ Health
Special Inspector General Neil Barofsky, an independent Treasury Department watchdog, issued a report claiming that senior U.S. officials deliberately created the impression last year that banks receiving huge government cash infusions were healthier than they were, and that as a result, the government and the bailout lost public credibility when the financial crisis deepened. Treasury Secretary Henry Paulson and Federal Reserve Chairman Ben Bernanke said at the time that their dramatic force-feeding of $125 billion into nine banks in October 2008 was a program for “healthy” institutions, but privately, senior officials worried about the health of some of those firms. “By stating expressly that the ‘healthy’ institutions would be able to increase overall lending, Treasury may have created unrealistic expectations about the institutions’ condition and their ability to increase lending,” the report said. The New York Fed, which was at the time headed by current Treasury Secretary Timothy Geithner played a key role in developing the capital injections program, Barofsky’s report said.
Now on to our real estate educational section…
“Black Friday” of REO’s – Buying Bail-Out Assets From Uncle Sam…FDIC Finds & Much More
While your Uncle Sam has been hard at work bailing out banks and buying toxic assets, most short sale investors have been focused upon dealing directly with lenders. However, as defaults continue to rise among mortgage modification loans, the government has been quietly selling off assets of their very own. Real estate investors searching for other ways to supplement their portfolio may be interested in participating in one or more of these government sponsored auctions or other sales events.
FDIC – Yes indeed, the very same agency that guarantees the money in your bank account is safe has more than their fair share of real estate to eliminate – courtesy of the nearly 100 banks having failed thus far this year.
• Bargain Properties: Actual brick and mortar homes ranging from $5,000 to $15,000. Most are located in Detroit or other severely distressed areas but hey, at these prices the raw materials might be worth a look; just be sure to act fast as these don’t last for long once made available. http://www.fdic.gov/buying/owned/bargain/index.html
• ORE Property Listings: These are more elusive “other real estate listings” owned by the FDIC but under the directive of CBRE. Well worth the time to occasionally review especially for those investors searching for small commercial properties as well as residential real estate. http://orelistings.cbre.com/
• Prescient Asset Management Listings: In collaboration with the FDIC, Prescient Asset Management has an extensive list of properties including sealed bid sales, bargain properties, online auctions and more located at http://www.fdiclistings.com/. Be sure to check out the upcoming North Georgia auction which will include more than 150 single family homes/land at bargain basement prices.
• Standard FDIC Owned Real Estate: Search by state, city or other criteria for FDIC owned real estate at http://www2.fdic.gov/drrore/.
Other Noteworthy Sales…
Auction.com is planning a virtual real estate extravaganza designed to put a capstone on what has already been a banner year for the online auction site. With average prices as low as 50 cents on the dollar, auction.com has sold over 19,000 homes in 2009 with a record number anticipated for the final quarter. Buyers should fully understand the potential and limitations of buying real estate via online auction but it’s worth the time to check-out…who knows, you might just get lucky. www.auction.com
U.S. Marshals Service: This relatively obscure branch of the federal government barely makes media headlines but what is bad for business is great for short sale investors since it often means fewer bidders and less competition. Head over to www.bid4assets.com to check out upcoming offerings.
See you at the top!
Chris McLaughlin
http://www.shortsalesriches.com
P.S. : YOU MUST SEE THIS! The move celebrated real estate
investing movie of the year:
http://www.housewarsmovie.com
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About the author:
Chris McLaughlin is widely known as America’s top
Real Estate Attorney and Investment Consultant.
* As the top Florida foreclosure and pre-
foreclosure expert, he oversees more than
100 short sale & REO closings each month
* Long-time authority on real estate investing
and rapid reselling of distressed homes. Owns
portfolio of nearly 100 high-value, high-profit
properties
* Owner of one of Florida’s largest Real Estate firms,
running 4 different offices, supporting nearly
400 agents, uniquely positioning him to help
thousands of investors make money in the
biggest market opportunity ever!
* Highly sought-after speaker, consultant, and
seminar leader for current trends and hot topics
in Real Estate Investing, Entrepreneurship, and
Wealth Building
* Follow me on Twitter: http://twitter.com/mclaughlinchris
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