Smart Real Estate News & Commentary by Chris McLaughlin October 19, 2011
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Short sales gaining popularity
US home prices may get a boost from an unlikely source: a pickup in sales of properties in default before they reach the stage where they are repossessed by the bank and sold. There has been a “dramatic shift” in banks’ willingness to sell a property for less than the mortgage balance to avoid foreclosing, said Ron Peltier, chairman and chief executive officer of HomeServices of America Inc. The short sales typically change hands at a discount of about 20% to homes not in financial distress, compared with a 40% price cut for bank-owned homes, according to RealtyTrac Inc. Short sales jumped 19% in the second quarter from the prior three months while foreclosure sales were flat, the data seller said. “Banks have become much more supportive of short sales,” said Peltier, whose Minneapolis-based company is a unit of Warren Buffett’s Berkshire Hathaway Inc. “That’s better for the lenders, who have smaller losses on a short sale, and it’s going to be better for homeowners, who won’t have as much psychological distress as a foreclosure.”
Distressed sales brokered by HomeServices used to be 60% foreclosures and 40% short sales, Peltier said in an interview. Now, that ratio has flipped, according to the CEO. “There’s a huge backlog of homes in default that the banks want to get rid of,” said Thomas Popik, research director for Campbell Surveys in Washington. “They don’t want to be homeowners.” Banks are being more agreeable to short sales as foreclosures slow following a yearlong probe of so-called robo- signing, or pushing through unverified default documents. Foreclosure filings have fallen for 12 straight months through September as banks work through a backlog of paperwork, according to RealtyTrac. Almost a third of all home transactions in August were foreclosures or short sales, according to the National Association of Realtors.
Goldman Sachs posts loss
Goldman Sachs posted a loss that was even worse than expected of 84 cents a share on a 33% drop in investment banking revenue from a year ago. Wall Street had expected the company to post only the second quarterly loss since Goldman went public in 1999, but estimates were for just 16 cents a share in the red. Shares, though, rebounded from earlier losses after company officials insisted the firm was well-positioned after the economy recovers and financial markets stabilized. Goldman stock rose 1% in premarket trading. Goldman posted $3.59 billion in revenue, a decrease from $8.90 billion a year ago when it posted a profit of $2.98 a share. Analysts had expected revenue of $4.29 billion. Investment banking revenues came in at $781 billion, a one-third fall from the third quarter in 2010 and a 46% drop from the previous quarter. Financial advisory revenues were $523 million, up a bit from the same quarter last year. Goldman’s loss-driver was its Investing & Lending division, which holds stocks, bonds, loans and private equity assets as long-term investments. The division reported negative revenue of $2.48 billion as the value of those assets dropped sharply. Goldman’s stock investment in Industrial and Commercial Bank of China alone generated more than $1 billion of paper losses. Goldman was also hurt by big declines in bond trading and investment banking revenue. Its fixed income, currency and commodities client trading business reported $1.73 billion in revenue, a 36% decline from a year earlier.
Federal officials and banks try to hammer out a mortgage deal
Officials and big banks are working on a plan that would make refinancing available to some borrowers whose houses are worth less than their loans, so long as they are current on mortgage payments, the Wall Street Journal reported. Such borrowers typically are not able to refinance because they lack equity in their homes. The plan would apply only to mortgages owned by the banks, the Journal said, citing people familiar with the matter. Federal officials have been trying to broker a settlement with the five largest mortgage servicers — Ally Financial, Bank of America, Citigroup, J.P. Morgan Chase and Wells Fargo — the Journal said. It is not clear how many borrowers would qualify for help, the paper added. Officials are pushing for a plan in a bid to break a legal impasse with big banks over alleged foreclosure abuses and ease problems in the housing market, the paper said. Discussions are still fluid and any final outcome is uncertain. Talks between government officials and the banks are expected to continue this week.
Oil down
Oil fell for a second day in New York after China said its economy grew at the slowest pace in two years and US crude stockpiles were forecast to increase. Futures dropped as much as 0.5%, extending yesterday’s 0.5% decline, after China’s statistics bureau said the economy grew at 9.1% in the third quarter, less than predicted. An Energy Department report tomorrow may show US crude inventories climbed for a second week, according to a Bloomberg News survey. Technical indicators indicate prices may have advanced too fast to be sustainable. “The number from China is getting a bit worse than before,” said Ken Hasegawa, an energy trading manager at broker Newedge Group in Tokyo, who forecasts prices will decline $5 a barrel. “If the recovery of the economies in Europe and the US is getting worse, then the economies of China and Asia will show some damage.” Crude for November delivery fell as much as 40 cents to $85.98 a barrel in electronic trading on the New York Mercantile Exchange. It was at $86.10 at 2:45 p.m. Singapore time. Yesterday, the contract lost 42 cents to $86.38, the lowest settlement since Oct. 13. Prices are down 5.8% this year. Brent oil for December settlement on the London-based ICE Futures Europe exchange dropped as much as 45 cents, or 0.4%, to $109.71 a barrel. The European benchmark contract was at a premium of $24 to US futures. The difference narrowed 16% yesterday, the most since June 16.
Rentals surge
Despite the most affordable buying market in decades, households across the country are slowly choosing rentals versus homeownership, signaling a positive economic trajectory for the multifamily sector, according to Freddie Mac’s October 2011 economic outlook report released Monday. In the year ending June 2011, the Census Bureau reported a net increase of 1.4 million households that moved into rental housing, a 4% rise in the number of tenant households. The US homeownership rate fell about 1.5% over the past year, according to Freddie Mac’s report. Hessam Nadij, managing director of research and advisory services for Marcus & Millichap, said in the August issue of HousingWire magazine that “apartments, which are considered part of the commercial real estate sector, are well ahead of retail, office properties and industrial properties in the recovery because of the release of pent up demand.” Much of the rental demand is from household heads under 30 years old who have decided to postpone homeownership in favor of renting during uncertain economic times, according to the report. Owner rates for those under 25 years old fell 4.4% to 21.9% while rates for those 25 to 29 years old fell 7% to 34.7%.
Bank of America Merrill Lynch estimated a net decline of 1.2 million homeowners since 2007, alongside a net increase of 3.4 million renters. Americans expect home prices to continue to fall, according to a recent Fannie Mae National Housing Survey. Another Fannie survey released in August also predicted a rise in renters. Financing for rental housing is becoming more readily available. Frank E. Nothaft, Freddie Mac vice president and chief economist, attributed the rise in lending to low mortgage rates, improving apartment-sector economics and the return of traditional lenders that had curtailed activity during the recession. Nothaft said this year’s multifamily loan origination volume is “stronger” than last year’s. Texas is the hottest market for apartments this year. A majority of the growth is coming from the Dallas-Fort Worth metro area, according to, a unit of RealPage, Inc. The North Texas region started more than 7,300 new units, according to the firm’s mid-year data.
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Chris McLaughlin
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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 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
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