Smart Real Estate News & Commentary by Chris McLaughlin March 29, 2011
*** Join Chris’ Facebook Fan Page–> http://www.mclaughlinchris.com
*** Follow Chris on Twitter–> http://www.twitter.com/mclaughlinchris
************************************************************
Home prices fall to 2009 levels
The S&P/Case-Shiller home price index covering 20 major markets fell 3.1% year-over-year, and was down 1% compared with December 2010. After rebounding nearly 7% off their post-bubble lows, prices have fallen more than 5% since July and are only 1.1% higher than the bottom set in April, 2009. “January brings us weakening home prices with no real hope in sight for the near future,” says David M. Blitzer, a spokesman for S&P. The dismal report followed other negative housing market indicators recently. Sales of existing homes were off nearly 10% in February and new homes sales were at a record low. “The housing market recession is not yet over,” said Blitzer, “and none of the statistics are indicating any form of sustained recovery. At most, we have seen all statistics bounce along their troughs; at worst, the feared double-dip recession may be materializing.”
Economy on the mend
A new survey from KPMG shows that 68% of manufacturing executives believe business activity will be higher in the next 12 months. That’s up from 57% in October. Forty-one% of those same executives say they plan to hire more in the weeks and months ahead. That number was just 28% five months ago. As far as revenue is concerned, 65% of manufacturers surveyed by KPMG expect revenues to rise in the next year. Things are also getting brighter for the U.S. service sector. Sixty-six% of executives believe business activity will pick up within the next 12 months. However, they’re not quite as optimistic on hiring. Only 28% of those who responded expect to add jobs in the short term, and that’s up ever so slightly from October.
NAR – pending home sales rise
The Pending Home Sales Index (PHSI), a forward-looking indicator released by the National Association of Realtors (NAR), rose 2.1% to 90.8, based on contracts signed in February, from 88.9 in January. The index is 8.2% below 98.9 recorded in February 2010. The data reflects contracts and not closings, which normally occur with a lag time of one or two months. The PHSI in the Northeast fell 10.9% to 65.5 in February and is 18.4% below a year ago. In the Midwest the index rose 4.0% in February to 81.1 but is 15.9% below February 2010. Pending home sales in the South increased 2.7% to an index of 100.3 but are 5.3% below a year ago. In the West the index rose 7.0% to 105.6 and is 0.6% higher than February 2010. The index is based on a large national sample, typically representing about 20% of transactions for existing-home sales. In developing the model for the index, it was demonstrated that the level of monthly sales-contract activity parallels the level of closed existing-home sales in the following two months. An index of 100 is equal to the average level of contract activity during 2001, which was the first year to be examined as well as the first of five consecutive record years for existing-home sales; it coincides with a level that is historically healthy.
Oil down in price
Benchmark crude for May delivery was down $1.02 to $102.96 a barrel by early afternoon in Europe in electronic trading on the New York Mercantile Exchange. The contract dropped $1.42 on Monday to settle at $103.98. In London, Brent crude was down $1.04 at $113.76 a barrel on the ICE futures exchange. Oil prices have come off near two-year highs above $106 last week after coalition bombing pushed back Gadhafi forces and allowed rebels to retake key oil ports. Fighting is expected to become more fierce as rebels approach the capital Tripoli — a Gadhafi stronghold. Trading volume of oil futures fell last week to its lowest level this year as investors tracked news not only from the Middle East, but also Japan. The Japanese government said it would release 22 days worth of inventories from its strategic petroleum reserves to ease shortages in the regions devastated by the March 11 earthquake and tsunami. Traders are also gauging the strength of the U.S. economic recovery. The Conference Board index of consumer confidence will be released later Tuesday, and analysts will be looking for signs that buying sentiment has improved in tandem with the falling unemployment rate. “If we see a disappointing consumer confidence number and a higher dollar there is a very real chance” of oil falling to $100 or below before the end of the week, energy consultant The Schork Group said.
MBA, NAR and others release set of principles for mortgage reform
The undersigned organizations, representing a variety of stakeholders in single- and multifamily housing, believe the following principles should help guide efforts to restore and repair the nation’s housing finance system:
- A stable housing sector is essential for a robust economic recovery and long term prosperity. Housing, whether through homeownership or rental, promotes social and economic benefits that warrant it being a national policy priority.
- Private capital must be the dominant source of mortgage credit, and it must also bear the primary risk in any future housing finance system.
- Some continuing and predictable government role is necessary to promote investor confidence and ensure liquidity and stability for homeownership and rental housing.
- Changes to the mortgage finance system must be done carefully and over a reasonable transition period to ensure that a reliable mortgage finance system is in place to function effectively in the years ahead.
Private investment capital is critical for a robust and healthy mortgage marketplace, and the current government-dominated mortgage system is neither sustainable nor desirable. However, investors must be confident that they understand the risks and rules that can affect them. As policymakers move forward with Dodd-Frank Act rulemakings and similar regulatory efforts, it will be important to provide clarity and certainty to the marketplace in a manner that promotes recovery and growth. As such, the future mortgage system should seek to ensure a workable balance between sound underwriting principles, consumer protection and the need for responsible innovation and risk-taking.
As critical as it is to attract private money to the mortgage markets, an appropriate and clearly defined role for the government is essential to preserving financial stability. Government support through various insurance and guarantee mechanisms is especially important to facilitate long-term fixed-rate mortgages, affordable financing for 2 low- and moderate-income borrowers, and financing rental housing in all parts of the country including rural areas. While the goal should be to move toward a largely private secondary market, the private and public sectors should work as partners in creating a variety of financing options to ensure the availability of safe, stable, and affordable financing. Accomplishing all of these goals will require an on-going dialogue between policymakers and other key stakeholders, including industry and consumer groups. Our organizations stand committed to being part of this process.
Signatories:
American Bankers Association
American Financial Services Association
Community Mortgage Banking Project
CRE Finance Council
Housing Policy Council of the Financial Services Roundtable
Independent Community Bankers of America
Manufactured Housing Institute
Mortgage Bankers Association
Mortgage Insurance Companies of America
National Apartment Association
National Association of Home Builders
National Association of Realtors
National Council of State Housing Agencies
National Multi Housing Council
Real Estate Roundtable
Securities Industry and Financial Markets Association
Homeowner help running into trouble
Iowa Attorney General Tom Miller — a leader among the states involved in a probe into mortgage servicers’ foreclosure practices — has said he hopes to have a done deal to help homeowners by early May, after state attorneys general, regulators and the five largest mortgage servicers are expected to meet this week in Washington to resolve allegations that thousands of homeowners were foreclosed on wrongly. But making that timeline looks increasingly difficult, according to sources close to the negotiations — especially since the discussions officially begin tomorrow. One of the major sticking points is an effort to get the five largest mortgage servicers to consider reducing the principal on some loans held by underwater homeowners. Regulators and attorneys general sent the banks a 27-page offer, or so-called “term sheet,” in early March that included ways in which homeowners could more easily get mortgage modifications. Among the ideas was a reduction, in some cases, in the principal amount that they owe on their house.
However, seven state attorneys general have written letters to Miller saying that they think the opening offer goes too far. They specifically don’t agree that banks should be forced to reduce principal on underwater loans. The state officials who wrote letters represent Oklahoma, Alabama, Nebraska, Virginia, Texas, Florida and South Carolina. Banking groups representing those involved declined to talk about the settlement discussions underway. However, the banks are expected to push back against any measure that would require them to write down mortgage loan principal.
Olick – mortgage storm brewing
“When it rains, it pours, but we’re looking at a hail storm in housing finance this week, as government starts the business of taking itself out of the housing business. Tomorrow morning the FDIC will release and vote on proposed risk retention rules for the mortgage market. This includes the ‘Qualified Residential Mortgage’ definition. A QRM would be exempt from risk retention, where the banks have to hold on to 5% of the risk when securitizing loans. The QRM will likely require a 20% down payment on the loan, as well as other underwriting criteria, and loans sold to Fannie and Freddie (while still in conservatorship), as well as FHA loans, would be exempt. At the same time, Fannie, Freddie and the FHA are making themselves more expensive, as they try to shrink their currently overwhelming market share. Barely a few hours after the vote, House Republicans will introduce a slew of, possibly six, bills designed to reform/shrink/eliminate Fannie and Freddie. Then comes more at a hearing on Thursday on housing finance.
All of this begging the question: Without Fannie and Freddie, does the 30-year fixed still exist in a fully private market? And what are the dangers if it doesn’t? ‘We continue to believe that low cost, 30-year fixed-rate mortgages are the best way to support the housing market and see anything that threatens this product as negative for those with housing exposure as it will slow the eventual housing recovery,’ writes Jaret Seiberg at MF Global. ‘That means negative pressure on the big banks, the mortgage insurers, and the home builders.’ It also means mortgages get more expensive for you and me. ‘There’s no question if the government gets out of the business of backing mortgages, rates should go up, underwriting will be tougher, down payments will go up,’ Toll Brothers CEO Douglas Yearley Jr. said today on CNBC. ‘It’s going to affect all of us. It would be a head wind.’ A head wind is not exactly what we need in the midst of a hail storm. Am I seeming too gloomy to you? Given that the number of contracts signed for existing home sales rose a whopping 2% month to month in February? I don’t think so. Home prices are falling again, negative equity is rising, foreclosure inventory is surging and consumer confidence in housing is non-existent. Add rising interest rates to that, and you really do have the perfect storm.”
Now on to our real estate investor news…
Investing in REO/Bank-Owned Properties 101
When a property goes into foreclosure, the bank takes possession of the title and tries to sell it outright. If a property does not sell at the foreclosure auction, it goes back to the mortgage company and becomes real estate owned (REO) property. Surprisingly, many foreclosure auctions result in no bids at all. That is often because buyers need to have cash or a check ready to pay and not everyone has that quick of access to funding…unless they have been watching our webinars on how to obtain quick cash and profit from deals even if you are flat broke. Another common reason that people fail to take advantage of the great deals available at auction is because they might not have had enough time to do the proper amount of research. Regardless of the reason, if a property does not sell, the lender takes back the property…something they are prefer not to do with such significant numbers of non-performing loans on the books. .
An REO or bank owned property can be a very good investment, if you perform due diligence and cover all your bases before you leap. Don’t automatically assume the property will sell for a deep discount; many do but not all. It’s important to keep a few things in mind:
- As is—Most REO properties are sold as is. Lenders don’t want to put any more money into the property and only wish to get rid of it for as much as they can.
It is also important to remember that the homeowners lost this property to the bank. You can safely assume that they were not making any repairs to the property once they knew it was going to be foreclosed upon. Be aware of hidden risks like plumbing and electrical as well and include wording in your offer specifying that it is subject to inspection.
- Do your homework—banks are trying to get as much as possible for their property. So not all REOs will be great bargains and you shouldn’t automatically assume they are. That doesn’t mean good deals can’t be found. It just means that you will need to look closely. Make sure to check out other comparable sales in the area and neighborhood so that you can get a feel for the market.
- Be prepared to counter—Once you make an offer, most lenders will make a counter offer that is much higher than you might expect. This is generally because they are trying to show their stakeholders that they are making a solid effort at getting a good price. If you are prepared for this, you can simply counter their counter-offer and move forward.
REO properties can be good investments, but are not automatic bargains. Make sure you balance the costs, including fees and repairs costs, with what you think you can get out of the property should you decide to resell or rent out and make your decision from there.
See you at the top!
Chris McLaughlin
**************
Copyright Loss Mitigation Institute LLC 2010.
All Rights Reserved.
http://www.shortsalesriches.com
http://www.shortsalescoach.com
http://www.sixfigurebpo.com
http://www.reomillionaireclub.com
http://www.youtube.com/shortsalesriches
http://www.smartrealestatenews.com (subscribe to this newsletter)
*************************************************
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 150 high-value, high-profit
properties
* Owner of one of Florida’s largest Real Estate firms,
running 4 different offices, supporting over
420 agents, uniquely positioning him to help
thousands of investors make money in the
biggest market opportunity ever!
* In 2010, Chris’ 4 Central Florida real estate offices
closed 2,786 sides for a closed sales volume of
$392,912,927!
* 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
* Join my Facebook Fan Page: http://www.mclaughlinchris.com
–
