Smart Real Estate News & Commentary by Chris McLaughlin July 26, 2010
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New home sales will be up?
According to outlook and commentary services firm Econoday, new home sales should total 310,000 units in June, up from May’s record-low 300,000. The Census Bureau is scheduled to release its monthly new home sales data later this morning. The error ratio, however, could swing the new home sales into negative territory, month-on-month, as the possible range is listed between 280,000 to 350,000 home sales. Months’ supply of new homes on the market surged to 8.5 months in May, from 5.8 months in April, due to the drop in sales, Econoday noted in commentary. But the actual number of new homes on the market was down 1,000 in the month to an adjusted 213,000 — to its lowest level in 40 years, since 1970, the firm said. Econoday noted that lower interest rates are likely to boost sales for the June data. Employment and income growth, however, also have an impact on the decision to buy housing.
More magic numbers from the WH
The numbers, projections, and estimates that come out of the White House under this administration are famous for their inaccuracy and fantasy-like quality, but even it is slowly coming around to reality, admitting that unemployment will stay at or above 9% until 2012. Of course, we can expect the truth to be varnished at least a little bit…well, maybe a lot: it now believes the 10-year deficit will be $58 billion less than projected in February when the budget blueprint was first released, and that the economy will grow by at least 4% in 2011 and 2012. Under the revised estimates, Uncle Sam will ring up $8.474 trillion in deficits between 2011 and 2020, down from the $8.532 trillion estimated in February. In the near-term, the administration expects the 2010 deficit to come in at $1.47 trillion — slightly lower than originally forecast and slightly above last year’s deficit of $1.41 trillion. Meanwhile, the 2011 and 2012 deficits will come in somewhat higher than the White House forecast in February.
“The economy is still weaker than we’d like, and [there is] a medium-term and long-term fiscal situation that requires attention,” outgoing White House Budget Director Peter Orszag said in a call with reporters. In terms of taxes, the administration now expects that the Treasury will take in $402 billion less over the next 10 years than originally expected, but at the same time will also spend $461 billion less than was forecast. The tax revenue collected will average 18.7% a year, slightly above the 40-year historical average. Federal spending, however, will average 23.2%, above the 20.7% historical average. When asked what accounted for the White House’s relatively optimistic growth estimates relative to other economists’ forecasts, Christina Romer, who chairs the president’s Council of Economic Advisers, said the administration believes rapid growth in business investment and an emphasis on U.S. exports is “what we think makes these numbers completely reasonable.” In other words she has no real basis for any of it…business as usual.
Freddie’s mortgage and issuance $179bn in H110
Mortgage purchase and issuance at Freddie Mac rose to $30.9 billion in June, from $25.1 billion in May, bringing the year-to-date total to $179 billion for the first half of 2010 (HI10), according to a monthly volume summary. Freddie’s total mortgage portfolio decreased at an annualized rate of 0.9% in June. Total guaranteed Participation Certificates (PCs) and structured securities issued fell at an annualized rate of 0.6%. The monthly contraction in the portfolio arrives after Freddie wrapped up an initiative announced in February to purchase essentially all the single-family mortgages delinquent by 120 or more days out of its PC pools. The single-family delinquency rate decreased to 3.96% in June from 4.06% in May, and the multifamily delinquency rate fell to 0.28% from 0.32%. Refinance-loan purchase and guarantee volume was $19.1 billion in June, up from $17.1 billion in May. Freddie reported 21,367 modifications in June, for a total 93,558 in the first six months of 2010. The aggregate unpaid principal balance of the mortgage-related investments portfolio slipped by $8.6 billion.
Soak the rich
Treasury Secretary Timothy Geithner said yesterday that the economy is not likely to slip back into recession, but letting tax cuts for the wealthiest Americans expire is necessary to show commitment to cutting budget deficits. “We think that’s the responsible thing to do because we need to make sure we can show the world that (we’re) willing as a country now to start to make some progress bringing down our long-term deficits,” he said on ABC’s “This Week” program. In other words, pretend the economy is great, soak the people most likely to invest in private enterprise, and call it “responsible.” Geithner said only 2 to 3 percent of Americans — those making $250,000 or more a year — will be affected when tax cuts enacted under former President George W. Bush end on schedule this year.
Republicans want to extend the tax cuts and Democrats are divided but Geithner said reductions for top earners should end. There’s another way to be responsible, of course, and that’s by not driving the country into the wall at exactly the wrong time with programs we can’t afford, but no one in the administration has stumbled on that idea yet. “I think the most likely thing is you’ll see an economy that gradually strengthens over the next year or two, you’ll see job growth start to come back, investments expanding … but we’ve got a long way to go still,” Geithner said. Indeed. In fact, for some reason this administration is intent upon making it as long as possible…
DSNews.com – GSEs next?
Now that the Obama administration is finished “fixing” financial regulatory reform, it’s setting its sights on restructuring the housing finance system, namely the GSEs. The White House says it will put forth a formal proposal by early next year, and some say its focus will be a departure from the age-old adage of homeownership as everyone’s “American Dream,” and shift support for the housing market from Fannie Mae and Freddie Mac to the private sector. There’s no doubt change is coming for the nation’s two largest mortgage companies. Many were disconcerted that the Dodd-Frank Wall Street Reform and Consumer Protections Act didn’t include a new blueprint, or at least new rules, for Fannie and Freddie.
Rep. Darrell Issa (R-California), ranking member of the House Oversight and Government Reform Committee, called the president’s signing of the Dodd-Frank bill a “charade” on true reform, particularly in light of Issa’s recent investigation that revealed former executives at both Fannie Mae and Freddie Mac accepted so-called sweetheart loans from subprime mortgage lender Countrywide before it imploded. Since the federal government took control of the GSEs in September 2008, the two companies have had to draw $146 billion in federal funding to stay afloat, giving taxpayers an 80 percent ownership stake in the mortgage financiers. Fannie and Freddie’s rescue has become the costliest of all the government bailouts, making the fact that the two companies were never mentioned in a bill that promises to end “too-big-to-fail” even that much more ironic. Recent estimates from the Congressional Budget Office (CBO) put the tab for subsidizing Fannie and Freddie at $389 billion, when all is said and done.
Now for our real estate education section…
Bills, Bills, Bills – How Reform is Changing the Face of Real Estate
Whether you like him or not, one thing everyone can agree upon is that President Obama has indeed kept his promise to bring change to the nation. From healthcare reform to finance reform, some of the most radical changes in decades have come to pass with profound implications for the future of real estate.
Although superficially healthcare reform may not seem to have a direct impact on real estate, upon closer examination it becomes clear additional taxes (including the 3.8 percent premium on investment earnings for high net worth individuals, the upcoming requirement to send 1099’s to every company or service provider which you do more than $600 of business with annually and other upcoming changes) required to fund the measure will indeed directly affect investors. Finance reform presents a myriad of new taxes, decreased write-offs and stringent lending regulations likely to transform the mortgage and banking industry for decades.
But the worst may be yet to come in the form of the upcoming energy bill. “What energy bill?” you ask…the one that has been in the works since the Supreme Court ruled that carbon dioxide is a poison which must be cleaned up. As an environmental pollutant, the ruling gave the EPA (Environmental Protection Agency) oversight that directly affects business and industry throughout the nation with or without a new bill. However, experts and politicians alike expect an energy bill to be put through sooner rather than later.
What possible implications could this hold for the future of real estate?
Apparently a lot especially when “Carbon credits” are taxed into the equation of a new home, roads and other improvements. The cost of electricity and other fuel based services are also likely to increase…along with the cost of goods which use fuel or electricity.
What other areas should savvy short sale and real estate investors keep an eye on? How about VAT taxes, Cap & Trade modifications, Climate bill, Privacy bill and a new living wage bill just for starters. In fact, even proposed revisions to the “No Child Left Behind” law is expected to impact real estate since one of the major predictors of home value and neighborhood desirability is related to school performance. Under the proposed changes, a single federal formula will be used to calculate and report high school graduation rates and other statistics…including the federal funding and ability of parents to remove children from schools or obtain vouchers….all of which are likely to impact the desirability of any given home or neighborhood.
See you at the top!
Chris McLaughlin
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About the author:
Chris McLaughlin is widely known as America’s top
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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.
