Housing market turnaround is critical to economic recovery
Real Estate News & Commentary by Chris McLaughlin, July 28, 2009
http://www.shortsalesriches.com
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Housing market turnaround is critical to economic recovery
According to the latest monthly reading of the Standard & Poor’s/Case-Shiller index, home prices are showing signs of stability. Analysts say that this is encouraging, given that home values drive consumer confidence. “The key to everything is single-family housing because that’s where consumption comes from,” said Sam Zell, founder and chairman of Equity Group Investments. “If people don’t have confidence in their biggest asset, they won’t have the confidence to spend.” Analysts expect the extent of housing recovery to be different across the country.
For example, in cities such as Miami, where is there is a significant supply overhang, housing recovery will take longer, than in other areas. Zell is pessimistic about the near-term prospects for commercial real estate market. “The commercial real estate sector is definitely under water,” he said. Zell is critical of government programs introduced to revive the economy and believes that stimulus spending is likely to lead to higher taxes. “A lot of these wonderful, massive programs that they’re currently considering are interesting, and maybe at the top of the market we could afford to do them,” said Zell. “To do them at this stage of the game I think is very scary.”
Government sets targets for loan modification
The Obama administration wishes to see at least 500,000 loan modifications by November 1 of this year; currently about 200,000 loan modifications are in process. Administration officials held discussions this week with 25 loan servicers participating in the modification program and asked them to do expedite the program. Borrowers have been complaining about administrative delays in processing their loan modification application. “[T]oo many homeowners are at risk of foreclosure right now,” Treasury Secretary Tim Geithner said in a statement after the meeting. “Today’s meeting was an opportunity to identify ways to accelerate the program and bring relief faster.” President Obama has acknowledged that the modification program, which was announced in February this year, has so far not been effective. “Our mortgage program has actually helped to modify mortgages for a lot of our people, but it hasn’t been keeping pace with all the foreclosures that are taking place,” Obama said last month.
Servicers who participated in the meeting made a number of suggestions on streamlining the paperwork and creating a website to enable borrowers to make applications online. Sanjiv Das, chief executive of CitiMortgage, said: “Today’s meeting was an important step toward the administration’s and our shared objective of improving the effectiveness and efficiency of the Make Home Affordable mortgage modification program.”
Mortgage-backed bonds worth $3 billion in TALF pipeline
The Obama administration introduced the Term Asset-Backed Securities Loan Facility (TALF) last March in order to revive asset-backed securities market. The next TALF window which will open in September this year is likely to see deals worth $3 billion involving Commercial Mortgage Backed Securities (CMBS). More than a dozen real estate investment trusts are expected to participate. The Federal Reserve is likely to lend CMBS buyers up to 85% of the purchase price for TALF securities.
“If the first deals are successful, we think we can get $10 to $25 billion done in the next six months,” said Kenneth Rosen, who manages a hedge fund. The program accepts securities that have the highest rating, and borrowings under the program must be repaid within 5 years. Analysts are divided on the extent to which the program will revive the CMBS market which collapsed in 2008 due to credit crisis. David Twardock, president of Prudential Mortgage Capital, said TALF will help revive the CMBS market “in a very modest way.” TALF is set to expire by the end of 2009 and some analysts are seeking an extension of the program.
Consumer confidence drops for the second straight month
According to The Conference Board, its confidence index dropped to a reading of 46.6 in July, a second consecutive decline, following a reading of 49.3 in June. The Conference Board’s measure of present conditions dropped to 23.4 from 25 the prior month. The gauge of expectations for the next six months declined to 62 from 65.5. The drop in consumer sentiment reflects the unemployment situation. “Folks are still concerned about their jobs,” said Mark Vitner, a senior economist at Wells Fargo Securities. The survey is based on a representative sample of 5,000 U.S. households.
About 46% of survey respondents said that the business conditions are “bad,” and 48.1% said jobs are “hard to get.” Just about 18% said they expect an improvement in business conditions over the next 6 months. Lynn Franco, Director of The Conference Board Consumer Research Center, said: “Consumers are pessimistic about their income expectations, which does not bode well for spending in the months ahead.” Consumer spending accounts for about 70% of the economy and any decline in consumer confidence would adversely impact economic recovery.
Orders for durable goods rise in June
According to data from the Commerce Department, orders for durable goods excluding transportation equipment, orders for goods meant to last several years rose 1.1% in June, the most in four months. Total orders for durable goods fell 2.5% in June for the first time in 3 months. This reflects shutdowns by auto-plants in companies such as General Motors and Chrysler. “Orders have stabilized,” said Harm Bandholz, an economist at UniCredit Global Research in New York. “This fits in with the bottoming in the economy. We will see a rebound in production in the second half” of 2009.
Inventory fell at an $87 billion annual rate in the first quarter. The drop in inventory is likely to set the stage for economic recovery. The economy was projected to decline by 1.5% in the second quarter of 2009. “The pace of decline appears to have slowed significantly, and final demand and production have shown tentative signs of stabilization,” Federal Reserve Chairman Ben Bernanke told Congress last week. Caterpillar, which is among large manufacturing companies, posted second quarter results which exceeded analyst expectations. “We are seeing signs of stabilization that we hope will set the foundation for an eventual recovery,” said Chief Executive Officer Jim Owens.
Now on to our real estate investor education section…
GeoDemographics 101 for Short Sales Success
Never heard of geodemographics? Don’t worry, you probably aren’t alone. However, despite the rather convoluted label, the essential information contained in this incredibly powerful tool is able to take your short sale investments to the next level. Think of it like direct marketing on steroids. Geodemograpics allow you to locate your target population with near surgical precision then tailor a custom-made marketing message designed to elicit top results. Before we get into the tools of the trade on how to get started using geodemographics, it’s important to understand a few facts:
- Locating the right clients is the first step in success. Negotiation, sales and closing the deal all come later but will never matter as much as the ability to locate the “hot targets” before the competition.
- There are over 250,000 neighborhoods in this nation with an average of approx 280 households per neighborhood. Locating your niche allows you to concentrate a message that appeals to your target market with the highest possible “conversion” rate.
- Geo = location + Demographics = Population Data. Learn how to use data about the given population of each neighborhood in order to design and refine your message.
So, what are the basic steps to performing geodemographic research? It’s actually fairly simple once you know how. Begin by estimating the size and composition of your target area. Age, gender, marital status and life-status (retired, single, family etc) all provide important insight into what is important to them and what they will likely be searching for in terms of real estate. Excellent sources of neighborhood data are available for free at www.census.gov or by calling your local HUD office. Commercial resources include www.claritas.com, www.maponics.com or http://bp.mlsli.com/neighborhood.htm.
Next, design and refine a message created specifically for your target market. It should be engaging and effective. Start with several versions to determine which garner the most response – once you find out what works, stick with it!
Property designed geodemographic research can tell you all about your target audience including where to meet them, where they most often eat out (McD’s or true gourmet), where they shop and even other influential networking opportunities with service providers such as accountants or tire shops. Imagine how nice it would be to grab the best clients simply by printing up placemats for a local diner or handing out business cards at a local dry cleaner. Believe it or not, these were exactly the types of networking and marketing activities that tend to yield the best results when combined with highly targeted and effective data.
Finally, use a feedback loop to further refine and clarify both needs and opportunities as you collect more data. Remember, whether you sign or not, all information is important. Eventually you will develop a clear picture of the personality profile of those most likely to seal a deal, walk away or refer others.
See you at the top!
Chris McLaughlin
http://www.shortsalesriches.com
Copyright Loss Mitigation Institute LLC 2009.
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About the author:
Chris McLaughlin is widely known as America’s top
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* 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
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running 4 different offices, supporting nearly
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According to the Commerce Department, new-home sales dropped 0.6% in May over April, to an annual pace of 342,000 units. This is below what economists had estimated, and well below the 509,000 annual pace of May 2008. The median home price rose from $212,600 in April to $221,600 in May. Inventories of new homes fell to 292,000 units in May. At the current rate of sales, it would take over 10 months to clear the stock of unsold homes. Economists believe that home prices have to fall further to clear unsold home inventory. Joshua Shapiro, chief economist with MFR, says the inventory of homes for sale “will remain enormous, particularly with increased competition coming from distressed sales of existing homes.” Michael Moran, chief economist at Daiwa Securities America, said homebuyers are seeing more attractive opportunities in the existing-home market than in the new-home market. “Builders are less inclined to offer discounts and throw in amenities now that inventories are better under control,” said Moran.
The government has expressed its commitment to support energy efficient vehicles by announcing an $8 billion loan to Ford, Nissan, and Tesla Motors. The Energy Department will provide the loan out a $25 billion fund, to develop fuel-efficient vehicles. Energy secretary Steven Chu said: “By supporting key technologies and sound business plans, we can jump-start the production of fuel efficient vehicles in America. These investments will come back to our country many times over by creating new jobs, reducing our dependence on oil, and reducing our greenhouse gas emissions.” Ford will receive $5.9 billion to upgrade its 11 factories in the Midwest to produce hybrids and electric vehicles. Nissan will receive $1.6 billion to build advanced vehicles and a battery manufacturing facility, while Tesla would get $465 million to build electric vehicles and electric drive powertrains in California. “This is a tremendous development,” said Alan Mulally, Chief Executive Officer of Ford. Tesla CEO Elon Musk said the Tesla would use the loan “precisely the way that Congress intended — as the capital needed to build sustainable transport.” General Motors and Chrysler failed to qualify for the loan program since they were not considered “financially viable” by the Energy Department.
