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Home prices fall
Home prices fell, but just 2.5% during the last three month of 2009 compared with the fourth quarter of 2008, according to the S&P/Case-Shiller Home Price Index. That was a big improvement over the past three years. “As measured by prices, the housing market is definitely in better shape than it was this time last year, as the pace of deterioration has stabilized for now, said David Blitzer, chairman of the Index Committee at Standard & Poor’s. “However, the rate of improvement seen during the summer of 2009 has not been sustained.” The index did rise 1.6% on a seasonally adjusted basis during the fourth quarter compared to the previous three months, for the third consecutive quarter of increase. S&P reports the national statistics quarterly and an index of 20 cities monthly. The 20-city index inched down in December, falling 0.2% compared with November. Only four cities showed improvement. One of those was Las Vegas, where prices rose 0.2% — the first monthly gain for that city in three years. The future of home prices remains difficult to forecast, though, as the market at some point will have to weather the withdrawal of government measures to boost home buying, Yale economist Robert J. Shiller told CNBC. “This isn’t a forecast, but it’s a worry that home prices might drop substantially from here forward once this support is taken away,” Shiller said in a live interview after the report was released. “Mortgage rates will go up, the economy might double-dip, the expectations for housing which helped drive the market might change suddenly once people see this support being withdrawn.”
Jobs bill passes
The Senate voted Monday to push forward a $15 billion jobs creation bill that would give businesses a tax break for hiring the unemployed. The 4-prong bill will: Exempt employers from Social Security payroll taxes on new hires who were unemployed; Fund highway and transit programs through 2010; Extend a tax break for business that spend money on capital investments like equipment purchases; and Expand the use of the Build America Bonds program, which helps states and municipalities fund capital construction projects. The final legislation is a scaled-down version of an $85 billion bipartisan draft bill that was crafted by Sens. Max Baucus, D-Mont., and Charles Grassley, R-Iowa. However, the bill does not extend the deadline to apply for unemployment benefits and the COBRA health insurance subsidy. Some 1.2 million people will run out of benefits after Feb. 28 if the deadline is not extended. Lawmakers are looking to pass a separate, 15-day extension to give them time to enact a longer fix. And unlike the House’s bill, the Senate measure does not provide additional assistance for states. Many governors, who are holding their annual meeting in Washington, want the Obama administration to send more federal dollars their way so they can cope with yawning budget gaps. Labor leaders and left-leaning think tanks all say the Senate must do more to spur job creation – as if the Senate can fabricate jobs out of thin air somehow.
Commercial real estate prices up
US commercial real estate prices, as measured by Moody’s Investors’ Service/Real Estate Analytics, Commercial Property Price Indices (CPPI) increased for the second month in a row in December, rising 4.1%, as the commercial real estate (CRE) market continues to face several challenges, such as the rising tide of defaults and subsequent foreclosures. Moody’s said the index’s improvement was the largest month-over-month increase in the nine-year history of the CPPI and followed a small, 1% gain in November. The volume of transactions also rose in December, typical for the end of the year, Moody’s added. In December, 716 transactions totaling $9bn were recorded in the month. At the end of December, CRE prices are down 29.2% from a year ago and 39.8% from two years ago. They are 40.8% below their peak values. But, Moody’s said, it’s uncertain whether the recent price increases represent CRE passing the bottom of the market or are only the “volatility of a market in transition.”
Underemployment at 20%
According to a Gallup poll released today, nearly 20% of the U.S. workforce lacked adequate employment in January. Gallup estimated that about 30 million Americans are underemployed, meaning either jobless or able to find only part-time work. This is a big deal, because underemployed people spent 36% less on household purchases than their fully employed neighbors in January, while six out of 10 were not hopeful about their chances of finding adequate work in the coming month. Gallup surveyed more than 20,000 U.S. adults from Jan. 2 to 31. The results have a 1% point margin of error. Gallup found that underemployed Americans were more likely to have a favorable view of Obama, with 55% approving of his performance as president against 49% of the wider public. Hopefully this doesn’t give President Obama ideas for a campaign strategy – to put people out of work to increase his popularity. The poll’s estimate of U.S. underemployment is higher than official statistics, and tends to paint a darker picture of the economy than official statistics. The Labor Department, for its part, disagrees with Gallup and claims only 16.5% of American workers were without employment or worked part-time for economic reasons in. A Labor Department official said the government rate may be lower because it factors out temporary seasonal changes in employment to better reflect the underlying economy.
DSNews – Subprime securities fall in value
Heightened concerns about the valuation of subprime assets backing U.S. residential mortgage-backed securities (RMBS) has manifested in an across-the-board drop for all vintages, Fitch Solutions reported last week. The ratings agency’s U.S. Subprime RMBS Price Index fell by just under 6 percent month on month to 7.17 as of February 1, down from 7.62 as of January 1. All vintages dropped in value, highlighting concerns about the valuation of all RMBS subprime assets. Driving the declines was the 2007 vintage, which dropped by 17.7 percent, followed by the 2005 vintage falling by 9.5 percent month on month. Recent loan level analysis conducted by Fitch Solutions on the indices’ constituents found that the 2007 vintage showed a significant jump in 90-day plus delinquencies rising from 13.7 percent to 14.2 percent. “The rise in delinquencies is signaling a potential increase in 2007 loan defaults,” explained Thomas Aubrey, managing director at Fitch Solutions. Further evidence of a potential rise in defaults is in the six-month constant default rate (CDR) for both 2007 and 2005 vintages, both of which fell only marginally, the company said. Fitch explained that this is in stark contrast to much larger declines in the default rates of 2004 and 2006 vintages.
Now on to our real estate investing educational section…
Fiscal Survival of the Fittest
Survival of the fittest applies to economics as well as biology – in fact, some would argue the concept is better applied to the financial arena than any other area of study. Unfortunately, it’s a fact few Americans want to face head on…it goes against the steady diet of “American ingenuity” and the (false) belief that any child born in the good old USA can grow up to be anything they want. While there are exceptions to every rule, survival of the fittest is an economic trend currently undergoing the equivalent of an ice-age extinction as one era gives rise to an entirely new one. Research by consulting firm McKinsey found a few unsettling statistics that demonstrate the depth of the problem:
Over 70 percent of currently employed Americans work in jobs for which there is low or declining demand. This includes both blue collar and white collar. Competition for jobs that cannot be shipped overseas (healthcare for example) has created high competition which is driving down wages and promoting part-time, per diem and other “job sharing” situations.
Mainstream stores are doing double-takes as consumers shift spending habits. Not only are brick and mortar stores under heavy competition from online retailers like Amazon but the bleak economy is finally taking a toll. Violating one of the core marketing principles ‘never undercut your own product’, heavy weight’s ranging from Proctor & Gamble to Macy’s are rolling out discount versions of their more expensive popular items. Cost of Tide got you down? Don’t worry, you can now buy Tide Basic…a discount version. Research shows 1/2 of Americans have already reduced spending and 1/3 plan to do so permanently with 18 percent of consumer switching from name brands to generics in the past two years alone.
So, how are Americans spending their money both today and into the near future?
1. Nearly 34 percent of the average household income goes toward housing. Expect this trend to continue as people downsize into affordable housing options.
2. Just over 19 percent goes toward entertainment and/or miscellaneous items…however, as a discretionary item this is subject to volatility.
3. Roughly 17 percent goes toward transportation – a number experts expect to hold steady as people opt for more affordable options.
4. Just under 13 percent goes toward food; a necessity to be sure but one that is subject to “replacement” purchases as people opt for hamburger instead of steak during tough times.
5. Approximately 11 percent on retirement and personal insurance.
6. Nearly 6 percent on healthcare.
Even a precursory look at where Americans spend their money tells the average investor where to spend theirs…housing, entertainment, transportation, food, financial products and healthcare. Those are the big six that run the American economy. Now stop and consider which are available to the average “little guy” investor…stocks and bonds for healthcare, insurance and finance have been decimated in recent years. The auto industry? Please! Now that’s it’s been nationalized you can count on the same efficiency that brought you the driver license office to run the auto industry. Food is notoriously volatile and forget direct intervention unless you have an unusual level of gardening know how. No, the answer remains the same today as it did 100 years ago…real estate. It’s not easily outsourced, it’s not subject to the market manipulations of stocks and bonds nor is it entirely dependent upon your ability to work yourself into an early grave. It simply requires a willingness to adapt to the new economic environment like all other species that learn to thrive or barely survive.
See you at the top!
Chris McLaughlin
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Copyright Loss Mitigation Institute LLC 2009.
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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 over
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
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