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Existing-Home Sales Continue to Improve in April
Existing-home sales rose again in April with buyers motivated by the tax credit, improving consumer confidence and favorable affordability conditions, according to the National Association of Realtors®. Existing-home sales, which are completed transactions that include single-family, town homes, condominiums and co-ops, increased 7.6 percent to a seasonally adjusted annual rate of 5.77 million units in April from an upwardly revised 5.36 million in March, and are 22.8 percent higher than the 4.70 million-unit pace in April 2009. Lawrence Yun, NAR chief economist, said the gain was widely anticipated. “The upswing in April existing-home sales was expected because of the tax credit inducement, and no doubt there will be some temporary fallback in the months immediately after it expires, but other factors also are supporting the market,” he said. “For people who were on the sidelines, there’s been a return of buyer confidence with stabilizing home prices, an improving economy and mortgage interest rates that remain historically low.”
Total housing inventory at the end of April rose 11.5 percent to 4.04 million existing homes available for sale. The national median existing-home price for all housing types was $173,100 in April, up 4.0 percent from April 2009. Distressed homes accounted for 33 percent of sales last month, compared with 35 percent in March. Single-family home sales rose 7.4 percent to a seasonally adjusted annual rate of 5.05 million in April from a pace of 4.70 million in March. NAR President Vicki Cox Golder, owner of Vicki L. Cox & Associates in Tucson, Ariz., said buyer traffic is mixed. “It looks like the level of home sales that close in May and June will stay elevated, but many buyers remain in the market even without the tax credit,” she said. “Some Realtors® tell us they are very busy with clients who are entering the market now as a result of improved conditions, while others are welcoming a slowdown from frantic market conditions in recent months.”
Diana Olick – Existing Homes Sales are Up-But Realtors are Still Down
“Today’s existing home sales report should have had analysts, experts, economists, and Realtors dancing in the streets. Sales were higher than expected, prices respectably up, but then there was that sticky inventory number that seemed to befuddle the Realtors’ chief economist Lawrence Yun: “The latest inventory increase is somewhat puzzling, because I had anticipated it steadily declining,” he said in an interview following the monthly presser. And then all the analysts reports came flooding in, which included adjectives, “Troubling,” “Concerning,” “Not healthy,” “Not meaningful.” I think this, from Credit-Suisse’s Dan Oppenheim, really sums it up: “Total months’ supply increased to 8.4 from 8.1 in March, driven by an 11.5% increase in absolute inventories. This reflects a larger increase than the typical 6% rise in inventories from March-April, as we think people listed more homes for sale in anticipation of tax credit demand and foreclosures continued to come on to the market. However, we think inventories are likely even higher, as the NAR does not fully capture total foreclosure levels.
The concern of course, nationally, is that all the positive numbers we’re looking at today, that is sales and prices, are all heavily influenced by the already-expired tax credit. The only number not under that spell is inventory, and that’s the one that went the wrong direction. “The figure that puzzles are sales in the West, where sales soared just before the first tax credit expired, but have hardly responded to the second tax credit,” writes Patrick Newport at IHS Global Insight. I think part of that puzzle is that so much of California’s sales over the past year were driven by investors…investors who would not be eligible for the home buyer tax credit. Remember, the existing home sales report is based on closings, not contract signings, so you will see these elevated sales numbers through June, still juiced by the credit. After that, most are expecting a drop off, and given the high inventories, that will put pressure back on home prices.”
Regulators May Never Know Cause of ‘Flash Crash’
U.S. regulators may never know what caused the recent market crash and still have not found evidence trading errors or system malfunctions triggered the brief free fall, on May 6. More than two weeks after the Dow Jones Industrial average lost nearly 700 points in minutes before recovering, regulators and exchange operators are still searching for answers. “I think that’s possible” that we may never know what happened on May 6, Jill Sommers, a commissioner with the Commodity Futures Trading Commission, told Reuters. The CFTC and fellow market regulator the Securities and Exchange Commission have been forced to set aside long-standing differences over jurisdiction. For more than a year their respective chairmen have worked together on new derivatives rules and were thrust back into the spotlight after the market crash.
The SEC will meet on Wednesday to propose rule to improve market surveillance. Currently the dozens of market venues are supervised by exchanges and market regulators such as the SEC, CFTC and broker dealer watchdog the Financial Industry Regulatory Authority. The investigation by regulators into the unexplained crash has been hampered by their inability to see clearly across all markets and obtain trading data from a single source. The panel set up to advise regulators on emerging regulatory issues is made up of former and current regulators and other financial luminaries, including Nobel laureate economist Joseph Stiglitz and Richard Ketchum, a market regulator for more than 30 years and currently the head of Finra and Brooksley Born, who has been praised for trying to regulate the $615 trillion over-the-counter derivatives market when she was the chairman of the CFTC.
Show Down for GSEs?
A house resolution (HR) currently under consideration in Congress details the timeline to take the government-sponsored enterprises (GSEs) out of conservatorship and eventually wind down Fannie Mae and Freddie Mac. However, even if passed in current form, as sponsored by Jeb Hensarling (R-TX), the bill will still contain provisions that may prevent the GSE from going totally out of business. If passed, the “GSE Bailout Elimination and Taxpayer Protection Act” — HR 4889 — directs the director of the Federal Housing Finance Agency (FHFA) to remove the GSEs from conservatorship, two years after the bill is signed into law. Three years after that, the bill would revoke the charters for both entities and establish a 10-year-long wind down of the entities. During that 10-year period, the FHFA director and the Treasury secretary would be responsible for imposing regulations that would divest the GSEs of their holdings.
The bill is currently under consideration in the House Financial Services Committee and comes on the heels of a Senate that approved the Restoring American Financial Stability Act. That bill calls for the end to government ownership of the GSEs by the end of 2011. The house resolution would also amend the 1992 legislation and repeal GSE housing goals. When the 1992 law passed, it established HUD-imposed housing goals for financing of affordable housing and housing in central cities and other rural and underserved areas, according to Fannie Mae’s website. Those goals would be repealed.
The bill also sets down payment requirements for homebuyers. When the GSEs exit conservatorship, the bill requires borrowers to make a 5% down payment. One year later, it increases to 7.5% and after two years out of conservatorship, the bill requires borrowers make a 10% down payment.
MBA Reacts to Passage of Financial Regulatory Reform
Robert E. Story, Jr., CMB, Chairman of the Mortgage Bankers Association (MBA) issued the following comment today, reacting to passage of S. 3217, the Restoring American Financial Stability Act of 2010. Here are a few key comments: “MBA has long supported a more efficient regulatory regime for the financial services industry, and passage of the bill is another important milestone. However, the bill, as we view it, still has flaws that will negatively impact borrowers and the real estate markets. The next step will be to reconcile the differences between the House bill and the Senate bill. MBA believes the American people would be best served by Congress convening a formal conference committee. Of particular importance to us is ensuring that the final language on risk retention does not discourage prudent, responsible lending. If not, we risk doing long-term damage to our single-family, multifamily and commercial real estate markets. The bill could be improved by creating one consistent standard for the purpose of regulating residential mortgages.
If legislators insist on moving forward with mandating additional risk retention, setting credit criteria and restricting certain loan products and features, they should use one consistent standard that works across the board to identify what is and what is not subject to the new rules. Unless improvements are made during the Senate-House negotiations, this bill will likely bring regulations that will only further constrain credit for borrowers, make real estate purchases more expensive and drag out the ongoing turmoil in the real estate markets. All through this process, we have worked with members of Congress on both sides of the aisle to try and craft the best possible bill that will create a new regulatory structure that will better protect consumers without limiting product choices and increasing borrowers’ costs to finance a real estate purchase. We look forward to continuing those efforts.”
76% of Consumers Favor Renting to Homeownership
For many, homeownership is a dying dream. According to a new online survey of more than 2,000 U.S. adults conducted in May by Harris Interactive and commissioned by the Arlington, Virginia-based National Apartment Association (NAA), 76 percent of consumers deemed renting to be the more favorable option to owning a home in the current real estate market. “While some may want to declare the housing crisis over, consumer patterns of behavior are showing otherwise,” said Douglas Culkin, NAA president. “The findings in this survey mirror what our members are seeing throughout the country, especially in areas of the country that are experiencing the first signs of economic recovery.”
Of those who favored renting, 64 percent cited having no responsibility for major repairs or maintenance as the primary benefit to renting a home versus owning one, up from 57 percent in 2008. In addition, 50 percent cited financial reasons such as not being impacted by an unpredictable real estate market and not being susceptible to foreclosure. Going forward, 60 percent of renters surveyed said they plan to continue renting their current resident or rent a new residence within the next year, and just 12 percent said they have plans to buy a new home this year. As for homeowners, 71 percent said they will stay in their current home over the next year. As renters and homeowners are not eager to make any changes in their housing status signifies low consumer confidence and uncertainty in the housing market, NAA said. According to the survey 93 percent of respondents said they feel the financial security of homeowners is more or equally affected by the current state of the housing market. NAA said this indicated that the economic impact of the foreclosure crisis has not shifted or improved.
Now on to our real estate investing education section …
Understanding Triple Net Leases
Intrepid short sale investors searching for new ways to expand their portfolio are increasingly turning an eye toward retail and other commercial properties. Key to their success is the concept of Triple Net Lease; plain and simple…they are the life blood of the investment sector as they continue to outperform nearly all other comparable assets and generate double digit returns.
Triple Net Lease Defined
Unlike a standard lease where the property owner pays for required maintenance, taxes and insurance a triple net lease removes these major expenses from the equation by making the tenant assume full responsibility. Not only does this result in enhanced appreciation but generated income is substantially higher since taxes, insurance and maintenance remain the most costly expenses associated with any property.
What Type of Properties Qualify?
A triple net lease can be negotiated for nearly any type of commercial property but is commonly used in conjunction with retail, manufacturing and professional office space where the tenant may require extensive modifications of the space.
Savvy real estate investors interested in pursuing a long term approach (or searching for ways to maximize the attractiveness of an income producing property in anticipation for a resale) would do well to look into starter properties that could be used for physician offices, retail outlets and even major manufacturing. Remember, these are long term leases with an emphasis on tenants that rarely relocate.
Finding Triple Net Properties
Don’t listen to the naysayers who try to tell you it is impossible to locate a triple net property via short sale. Here are a few facts to keep in mind; due to the global recession and economic downturn, the commercial sector as a whole has experienced nearly 40% decline…triple net leases have held their value to a better extent but have still declined in value by nearly 15 percent or even more in some hard hit areas of the nation.
Benefits Galore
In addition to appreciation and enhanced income opportunities, a triple net lease tends to attract the most financially stable and least mobile types of tenants. Without maintenance, taxes and insurance to deal with, owners literally sit back and collect the cash. With the recent influx of short sale commercial properties hitting the market, now is the time to take the next step.
See you at the top!
Chris McLaughlin
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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
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