Real Estate News & Commentary by Chris McLaughlin, June 29, 2009
http://www.shortsalesriches.com
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KB Home new-home orders rise; cancellation rate improves
KB Home, a large homebuilder, has reported a lower loss for the quarter ended May 31 as compared to the earlier quarter. Analysts say this could be yet another sign of housing sector recovery. The company said new home orders, which totaled 2,910 units in the quarter, were up from the beginning of the year. In addition, the company’s cancellation rate improved. Net loss for the quarter was $78.4 million, or $1.03 a share, compared with a loss of $255.9 million, or $3.30, a year earlier, KB Home said in a statement. Michael Rehaut, an analyst at JP Morgan, said the result was worse than expected, and was “in sharp contrast” to the prior quarter’s order growth. Builders such as KB Home are competing with foreclosed homes up for sale. According to RealtyTrac, foreclosure filings, including default and auction notices as well as property seizures, rose 18% in May from a year earlier. Jeffrey Mezger, chief executive of KB Home, was cautiously optimistic. “Although key economic indicators remain mixed, we are beginning to see signs that some negative housing market trends may be moderating at both the local and national levels,” said Mezger.
McMansions lose their sheen
Homebuyers are losing interest in McMansions – oversized homes with 3,000 to 5,000 square feet of living space – amid the recession, and are moving towards smaller sized homes. Smaller homes are cheaper to buy, furnish, and maintain, say homebuyers; particularly those buying a home for the first time. “Entry-level buyers are coming out of rentals and coming out of apartments, and they are not looking for 3,000 or 4,000 (square) feet,” said Steve Hilton, chief executive of Meritage Homes. Homebuilders, in order to cater to the change in customer preference, are going along with the trend. The median new-home size, which grew from less than 1,000 square feet in the 1950s to over 2400 square feet in 2004, has been falling in the last couple of years. In 2008, the median home size was 2,200 square feet. The current recession is bringing it down further. According to a survey conducted by the American Institute of Architects (AIA), Americans are increasingly looking at smaller homes and lower ceilings, in part because of energy costs. “Home sizes have been trending down recently,” said AIA chief economist Kermit Baker. “The era of the ‘McMansion’ could well be over.”
Big banks renew interest in “jumbo” mortgage lending
Jumbo mortgages, which are loans for purchase of expensive, high-end homes, are not bought or guaranteed by Fannie Mae and Freddie Mac, the government-controlled mortgage companies. Jumbo loans, including refinancing as well as debt for home buyers, dropped to $98 billion in 2008 from $348 billion in 2007, according to Inside Mortgage Finance, an industry publication. Jumbo loans amounted to $11 billion in the fourth quarter of last year; the lowest quarterly amount since 1990. Now it looks as though things are looking up. Banks such as JPMorgan and Citigroup have started showing interest in jumbo loans once again. JPMorgan, which had halted purchasing jumbo loans in March this year, resumed buying new jumbo loans made by other lenders this month. Citigroup too is offering jumbo loans through independent mortgage brokers. “I’m actually starting to see a lot of community banks asking for jumbo loans,” said Grant Stern, owner of Morningside Mortgage.
Consumer confidence rises to its highest level in over a year
The Reuters/University of Michigan Surveys of Consumers are monthly surveys which provide a gauge of consumer anticipation of changes in the economic environment. According to the latest survey results, the Index of Consumer Sentiment (ICS) rose from a reading of 68.7 in May to a 70.8 in June; this equals the reading in February 2008. The Index of Consumer Expectations, which is a sub-index of ICS, moved lower to 69.2 in June from 69.4 in May. “Over the past four months, sentiment has improved moderately, suggesting that consumers’ attitudes about the economy are improving,” said Steven Wood, chief economist at Insight Economics. “However, they remain very cautious. Nevertheless, these data do suggest consumers are no longer shell shocked.” ICS has gained 15.5 points since a low of 55.3 last November. “Such a sizable gain has usually indicated that an end to the economic downturn is on the horizon, as consumers begin to increase their spending on houses, vehicles, and large household durables,” the Reuters/University of Michigan Surveys of Consumers said in a statement.
Swiss banks losing interest in American customers
According to new regulations, Swiss banks must register with the Securities and Exchange Commission (SEC) in order to provide banking services to Americans. The largest of Swiss banks, UBS and Credit Suisse Group, have asked their American customers to move their money to the banks’ newly created units in the U.S. or close their accounts. Many small Swiss banks are closing accounts held by Americans. “My bank doesn’t want to do that, so we wouldn’t accept an investment account for a U.S. person,” said Pierre Mirabaud, chairman of Mirabaud & Cie., a Swiss bank, while commenting on the requirement to register with the SEC.
Analysts believe over 5 million Americans living abroad are likely to be impacted by the new requirement. Registration with the SEC means clients don’t enjoy the protection of Swiss banking secrecy laws, which disallow money managers to disclose the names of clients without their consent. The Internal Revenue Service, in its efforts to recoup an estimated $50 billion in unpaid taxes, is seeking information on offshore bank accounts. Charles Adams, managing partner at the law firm Hogan & Hartson LLP in Geneva, said: “American citizens are starting to feel like they’re Typhoid Mary. The Swiss simply don’t want American customers because it requires so much infrastructure and hassle that they don’t make any money.”
Now on to our real estate investor education section…
How to Get the SBA to Finance Your Short Sales Empire
In yet another display of support for the short sales concept, the Small Business Administration recently announced breakthrough changes to the 504 Loan Program in conjunction with the American Recovery and Reinvestment Act of 2009. Small business owners (defined as those that do less than $5 million in business each year) will be eligible to refinance existing loans that were used to buy real estate or other assets. Even better, the 504 program also provides funding to allow small business owners to purchase real estate as well as fixed assets…including short sale real estate.
This is no small boon for those short sale investors searching for a way to obtain financing in a tough market or wishing to expand their short sale empire through the acquisition of additional types of properties. Keep in mind, small business loans may be interested in acquiring many different types of properties including residential real estate, commercial real estate, retail, storage or many other forms of distressed property.
The enhancement of the 504 Loan program to include refinancing and funding for new acquisitions is especially timely for those short sale investors who have taken steps to incorporate their business or who would like to purchase short sale properties as part of their existing small business. Forming a subsidiary or acting like a holding company is one way to allow your small business to cash in on short sale profits and broaden your bottom line holdings with the bank.
In addition to expanding the scope of new and existing financing options, the program has also increased the guarantee level to 90 percent while correspondingly reducing fees and transactions costs. ARC loans have also been made available to companies facing immediate financial hardship.
Eligibility Requirements:
“Expansion” includes any project that involves the acquisition, construction or improvement of land, building or equipment for use by the small business. The following are some of the conditions under which borrowers will be eligible for refinancing:
• The debt being refinanced was incurred to acquire land, to construct a building or to purchase equipment. The assets acquired must be eligible for financing under the 504 program.
• The existing debt is collateralized by fixed assets.
• The existing debt was incurred for the benefit of the small business.
• The new financing provides a substantial benefit to the borrower when prepayment penalties, financing fees, and other financing costs are taken into account.
• The borrower has been current on all payments of existing debt for one year prior to the date of refinancing.
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See you at the top!
Chris McLaughlin
http://www.shortsalesriches.com
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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 nearly
450 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
* Add me on Twitter: http://twitter.com/mclaughlinchris
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