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Home Loan Demand Sinks to 13-Year Low
Demand for loans to buy U.S. homes shriveled to a 13-year low last week, following the expiration of federal tax credits, while near-record low mortgage rates stoked refinancing, the Mortgage Bankers Association said on Wednesday. Mortgage purchase applications sank 27.1 percent to the lowest level since May 1997 in the absence of the popular government support, the group said. U.S. housing groped for footing after more than a year of homebuyer tax credits worth up to $8,000 expired on April 30. Requests for home purchase loans have fallen almost 20 percent over the past month despite low borrowing costs. “The data continue to suggest that the tax credit pulled sales into April at the expense of the remainder of the spring buying season,” Michael Fratantoni, the industry group’s vice president of research and economics, said in a statement.
Overall loan requests were down 1.5 percent, on a seasonally adjusted basis, in the week ended May 14, cushioned by a 14.5 percent jump in mortgage refinancing applications as home loan rates neared historic lows. Average 30-year mortgage rates fell 0.13 percentage point last week to 4.83 percent, the lowest since last November, the MBA said. The record low was 4.61 percent in March 2009, based on the group’s survey, which has been conducted since 1990. Low borrowing costs and stabilizing home prices are being offset by near double-digit U.S. unemployment and a looming supply of foreclosed properties yet to hit the market. The worst of the housing crisis is over but recovery will be long and slow, most economists agree.
SEC moves to expand stock circuit breakers
The Securities and Exchange Commission proposed new rules Tuesday that would pause trading in certain stocks that experience extreme swings. The move is in response to the brief but historic stock market crash of May 6, in which the Dow Jones industrial average fell nearly 1,000 points, its biggest intra-day drop on record, before the index rebounded within a matter of minutes. Under the proposed rules, trading in an individual stock would pause across all U.S. stock markets for a five-minute period in the event that the stock experiences a 10% change in price over the preceding five minutes.
The pause, also called a circuit breaker, would give the markets the opportunity to attract new trading interest, establish a reasonable market price, and resume trading of an affected stock in a fair and orderly fashion, according to the SEC. The proposal would create uniform, market-wide standards for individual securities in the S&P 500 stock index. In the current system, circuit breakers are triggered under various circumstances depending on which exchange a stock trades on. The SEC said about 30 stocks in the S&P 500 (SPX) fell at least 10% in a five-minute period in an event which has become known as the “flash crash.” The new rules reflect a “consensus” that was achieved in that meeting, the SEC said. The new rules, which are subject to Commission approval following the completion of a comment period, will be rolled out as a pilot program running through Dec. 10, 2010. The SEC did not state when the program would start.
DSNews.com – Moody’s: Distressed Sales Key to Speed of Recovery
The future of U.S. home prices is acutely tied to the speed and the manner in which distressed sales work through the system, Moody’s Economy.com stressed in a report issued this week. “We expect that house prices will continue to decline because the pipeline of distressed mortgages is substantial and because the price discounts for distress sales weaken all house prices,” the forecasting and credit risk unit of Moody’s Analytics wrote. While the overall housing market has largely bottomed, Moody’s Economy.com says home prices aren’t there just yet. The company projects home sales and new construction to rise slowly this year, but “[n]onetheless, we foresee a 5 percent additional house price decline nationally. Regions with increasing foreclosure volumes will suffer more,” Moody’s said in its report. During the course of this housing correction, home price trends have been closely tied to distressed transactions, including foreclosure sales and short sales.
The greater the number of foreclosures in a market relative to total home sales, the greater the downward pressure on prices, Moody’s says. Banks discount the price of foreclosed properties in order to dispose of them quickly, and Moody’s says the typical markdown has doubled since the beginning of the housing bust. The report noted that short sales have a more muted impact on the downward pace of home prices since the discount is far smaller than price cuts associated with a foreclosure sale. The administration’s Home Affordable Foreclosure Alternatives (HAFA) program is expected to drive up the number of short sales this year as compared to last year.
Mortgage Default Rates Lower as Consumers Choose Property Over Plastic
The monthly default rates for first and second mortgages fell in April, but climbed for bank card loans for the third consecutive month, according to the latest data from credit-rating agency Standard & Poor’s and national credit bureau Experian. Defaulting balances of bank card loans rose to 9.1% in April, from 8.9% in March and from 7.7% a year earlier, according to S&P. First and second mortgage default rates slipped to 3.7% and 2.5%, respectively down 6% and 11% from March levels. At the same time, the share of borrowers delinquent on credit cards but current on their mortgages slipped to 3.6% from 4.1%.
“Consumer defaults continue to moderate in the key big ticket items of first and second mortgages and auto loans,” said David Blitzer, managing director and chairman of the index committee at S&P Indices. “In these areas, defaults bottomed out around the same time as the stock market in the first half of 2009. Bank cards on the other hand continue to worsen and are at levels not seen in the history of these indices.” The S&P/Experian default index for first mortgages fell 6.2% from last month and 31.1% from the same time last year, while that of second mortgages posted similar declines of 11% and 45.4%. At the same time, however, the default index for credit cards grew 2.4% from last month and 19.3% from last year. According to the S&P/Experian indices, consumer credit defaults vary across major cities and regions of the US. Among the five major Metropolitan Statistical Areas (MSAs) studied for the April report, Chicago showed the smallest decrease of 5.8% in the past year. The sharpest decline was in Miami where defaults declined 40.5% in the last 12 months and 7.9% in the past month. It marks a reversal of recent trends of borrowers paying down credit cards before mortgages, as seen by national credit bureau TransUnion.
Investor confidence takes a hit
U.S. futures and European shares fell sharply early Wednesday after Germany announced restrictions that prevent traders from betting against some government debt securities and financial shares. Germany’s DAX lost 1.7%, the FTSE 100 in Britain fell 1.7% and the CAC 40 in France declined 1.9% in morning trading in Europe. In the United States, Dow Jones industrial average (INDU), S&P 500 (SPX) and Nasdaq (COMP) futures were all lower. Futures measure current index values against perceived future performance and offer an indication of how markets may open when trading begins in New York.
Companies: Target reported Wednesday that net earnings for its most recent quarter were $671 million, up from $522 million in the year-ago quarter. The retailer also reported earnings per share of 90 cents, up 30% from 69 cents in the same quarter last year. This fell just short of the 91 cents EPS expected by a Thomson Financial’s analyst consensus. Dollar and commodities: The euro partly pulled out of its slump, after hitting a four-year low on Tuesday. Against the shared currency, the dollar fell 0.5%. The greenback was down 0.3% on the British pound and fell 1% versus the Japanese yen. Bonds: Treasury prices were higher early Wednesday, pushing the benchmark 10-year note’s yield down to 3.36%. Bond prices and yields move in opposite directions.
Now on to our real estate investing education section …
Commercial Real Estate Jargon Buster
Real estate can be a complex and confusing area but in our ever expanding effort to follow the KISS directive, we are proud to present a real life interpretation for modern day real estate lingo. While you may not find these definitions in sync with the latest version of Webster’s Dictionary, we think you will agree they accurately reflect the state of affairs.
PAD: A stand alone building in a prime location of a large shopping center…or, what banks are doing with bail-out funding while waiting for the next shoe to drop.
Anchored Tenants: A big brand-name national tenant…or a commercial tenant that can’t afford to relocate across the street much less across town.
Gross Lease: A lease where the tenants are supposed to pay the rent while the landlord or property owner pays the taxes, insurance and maintenance. Given the rising cost of property taxes and insurance, the standard definition will suffice.
GRM: Gross Rent Multiplier or the ratio of purchase price over annual income. In many commercial divisions that bought during the boom, the GRM can perform the rare and somewhat elusive feat of multiplying negative numbers.
LOI: Typically this stands for Letter of Intent or a non-binding offer letter use to purchase a commercial property. In today’s tough commercial market it could also stand for “Loss of Interest” as short sales continue to climb among many retail spaces.
Absorption: The amount of inventory or units of a specific commercial property type that become occupied during a specified time period…or the amount of money being soaked up by the under-performing property.
Cash Flow After Taxes/ES – The net operating income less mortgage, improvements, property taxes etc…or, a non-existent state among many retail operations bought over the past several years.
See you at the top!
Chris McLaughlin
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Copyright Loss Mitigation Institute LLC 2009.
All Rights Reserved.
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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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