Smart Real Estate News & Commentary by Chris McLaughlin August 24, 2010
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Existing home sales plunge 27%
Today’s report from the National Association of Realtors (NAR) shows that purchases of existing homes plunged 27.2 percent to a 3.83 million annual rate. The pace compares with the median forecast of a 4.65 million rate, according to a Bloomberg News survey. The number of previously owned homes on the market rose 2.5 percent to 3.98 million. At the current sales pace, it would take 12.5 months to sell those houses, the highest since at least 1999 and compared with 8.9 months in June. The months’ supply of single-family homes at 11.9 months was the highest since 1983, NAR said. Sales last month fell in all four U.S. regions. Foreclosures are boosting the so-called shadow inventory, and competing with owners trying to sell properties.
Home seizures increased almost 4 percent in July from the previous month, with 325,229 properties last month getting a notice of default, auction or bank repossession, RealtyTrac Inc. said Aug. 12. Residential real estate may keep struggling for the rest of this year, while into “2011 and beyond, it is difficult to determine,” Richard Dugas, chief executive officer at Pulte Group Inc., said in an Aug. 20 interview with Bloomberg Television. Pulte is the largest U.S. homebuilder by revenue. “Demand is low across the country,” Dugas said. “You have record-low interest rates and excellent pricing, but consumer confidence eased. We really need the economy to improve and job creation to take hold before people feel comfortable stepping into a home.”
Credit card fees up
According to the market research company Synovate, the average interest rate on existing cards jumped to 14.7% last quarter, up from 13.1% a year earlier. The jump created a dramatic spread of 11.45 percentage points between the average credit card interest rate and the prime rate — the largest margin in 22 years, according to Synovate. Synovate study director Lauren Guenveur said the increase in interest rates was driven primarily by the Credit Card Accountability Responsibility and Disclosure Act of 2009. She said the so-called CARD Act gave credit card companies a limited amount of time to raise rates, “before they could no longer do so freely.” This put pressure on issuers to aggressively raise rates, she said. Guenveur added that the recession and nation’s high unemployment were also driving the increase, because it was causing the default rate to go up.
“This is largely due to consumers still charging on their credit cards, but being unable to pay,” she said. “Default rates should remain high as long as unemployment remains high.” Synovate reported that credit spending has increased, on average, by 6% in the first half of 2010 to $1,559, but still falls short of third quarter 2008 numbers, which Synovate describes as “the quarter prior to the financial meltdown.” Offers for new cards reached a fever pitch last quarter. U.S. households received 640.3 million credit card offers in the second quarter, a surge of 83% from 349.1 million offers during the same period last year. “Issuers are desperate to lock-in customers with good credit, so they will mail many offers to these households in order to gain their attention,” Guenveur said.
Real estate rip-off?
Many condo and townhouse dwellers are already familiar with resale fees — a fee due to the condo association or community when an owner sells. These charges fund common-area maintenance or provide a boost to reserve funds, which benefits the association’s homeowners. But now, in some new developments, homebuilder contracts are including a 1% fee to be paid to them every time the house is sold — for 99 years. And the money doesn’t go for improvements or upkeep: It’s just money in the builders’ pockets. That has the real estate industry and consumer protection groups up in arms.
“It’s of no benefit to consumers,” said Kathleen Day, of the Center for Responsible Lending. “It’s another innovative way to price gouge. Every extra dollar they suck out of people’s wallets takes away from other spending. It’s not good for the economy.” The issue has attracted the attention of Washington, where Rep. Brad Sherman, D-Calif., is leading a charge against the fees. “Consumers are not in a position to deal with another level of complexity, one that pits plain vanilla homes against ones that come with fees,” he said. A coalition of real estate industry organizations and community groups recently sent a letter to Treasury Secretary Tim Geithner recommending that he not allow Freehold’s securitization plan to go forward.
It’s time to put grownups in charge
U.S. House Republican leader John Boehner is calling for the resignation of President Barack Obama’s entire economic team, including Treasury Secretary Timothy Geithner and White House economic adviser Larry Summers. “It’s time to put grown-ups in charge. It’s time for people willing to accept responsibility,” Boehner declared in remarks prepared for delivery in a speech in Cleveland. “President Obama should ask for—and accept—the resignations of the remaining members of his economic team, starting with Secretary Geithner and Larry Summers, the head of the National Economic Council.”
Bad U.S. economic data last week heightened concerns about a return to recession. Claims for new unemployment claims rose to a nine-month high and manufacturing activity in the U.S. mid-Atlantic region unexpectedly contracted. Boehner has been a leading critic of Obama’s agenda, including his overhaul of the U.S. healthcare system, tightening of regulation on the financial industry and what Republicans’ denounce as his failed economic stimulus plan. If Republicans take control of the House, he is in position to be elected as speaker, a post that would make him the chamber’s presiding officer and in charge of setting its agenda.
Stay away from MBS
Bank of America Merrill Lynch (BofAML) recommends investors remain underweight in agency mortgage-backed securities (MBS) although a widening of the option adjusted spread indicates otherwise. Chris Flanagan, MBS/ABS strategist at Bank of American Securities, said the “continued bull flattening of the yield curve is the elephant in the room for agency MBS.” Normally a widening of the option adjusted spread “makes the sector appear attractive,” but Flanagan said this “does not account for the substantial risk that we are on the cusp of a classic Fed-induced refinancing wave, where the magnitude of the wave once again surprises the MBS market to the upside and mortgages underperform.” And an early indicator of this risk is this week’s break above 4000 in the Mortgage Bankers Association’s (MBA) refinancing index, according to BofAML.
“Moves higher would be slower and more gradual than in the past, but we think investors should not underestimate the potential to move higher,” Flanagan wrote in the firm’s MBS: Securitization Weekly Overview. Flanagan said with the Fed indicating the current ZIRP rate will remain in place for awhile, any flattening in the yield curve would require “a further, and still major, back-end rally.” And “by major, we mean something on the order of at least 100-150 bps,” he said. “While we can think of a few, very good reasons that this scenario might play out,” Flanagan wrote. “We need to be clear that we are not making a rate call here. We are simply highlighting this as an asymmetric risk scenario for mortgages.”
Now for our real estate education section..
Does Your Marketing Use a Microphone or Megaphone?
Let’s face it, if you are like most real estate agents or investors, chances are your Internet marketing efforts either resemble a microphone or a megaphone. Both get the word out, but one does it a lot more effectively than the other. Find out if your message is loud and clear with this quick quiz:
1.Hub versus business card. Is your website a one stop shop for everything related to real estate in the area or a glorified business card?
Tip: A glorified business card may be sufficient for some endeavors but real estate is all about relationships. Even if someone isn’t able or willing to do business today, they might be tomorrow. Even more importantly, they probably know someone else who is ready to wheel and deal. Make your online presence felt by providing the information and tools needed to establish a long term relationship; become a central hub for communication.
2. Look Who’s Talking. What you say isn’t as important as what others are saying about you!
Tip: Find out what your reach is with social media and other websites. What good does it do to have a website if people aren’t sharing information with others? Make it simple to share and take the time to monitor what is being said about you from time to time.
3. Check the Pulse. Does your website even have a pulse?
Tip: Many people have no idea where their website or blog ranks, how many visitors they have or even who bothers to visit. Sign-up for some basic tracking software that provides some insight into who is visiting, when and what they are reading…then provide some more of it to keep them coming back. Add an RSS or other feed to allow users to get automatically updates without having to repeatedly visit.
4. What’s Your Grade?
Tip: If you have no idea where you measure up, visit www.website.grader.com (free) and www.37signals.com to see important details about your site or find terrific tools that are simple to use and have already been evaluated by others. Remember, the actual number of visitors isn’t as important as the sharing of information and long term relationships built online.
Make it easy for prospective clients to find you by expanding your total reach through a combination of blogs subscribers, social media websites, links to your site and of course…city specific keyword content.
See you at the top!
Chris McLaughlin
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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
* Follow me on Twitter: http://twitter.com/mclaughlinchris
* Join my Facebook Fan Page: http://www.mclaughlinchris.com
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