short sales

Smart Real Estate News & Commentary by Chris McLaughlin January 17, 2012

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Orlando short sales 12% higher price

The median price of homes sold in Orlando during December 2011 ($118,000) was 12.38 percent higher than the median price in December 2010 ($105,000). During 2011, Orlando’s median price climbed 24.34 percent from a low of $94,900 in January to a high of $118,000 in December. The median price of “normal” sales that closed in December 2011 was $159,900 (representing a decrease of 0.06 percent compared to December 2010). The median price for short sales in December 2011 was $105,000 (an increase of 10.53 percent compared to December 2010), and the median price for bank-owned sales in December was $80,000 (an increase of 6.67 percent compared to December 2010). Orlando Regional Realtor Association (ORRA) members participated in 13.86 percent less home sales in December of this year than in December of 2010: 2,125 and 2,467, respectively. At year’s end, the number of sales for all of 2011 (27,703) was 3.48 less than in all of 2010 (28,701).

In month-over-month comparisons, sales of foreclosed homes declined 56.29 percent in December 2011 compared to December 2010. Short sales and “normal” sales both increased (by 24.41 percent and 14.15 percent, respectively) in December 2011 compared to December 2010. Normal sales (871) accounted for 40.99 percent of all transactions in December 2011, while short sales (785) accounted for 36.94 percent and bank-owned sales (469) made up the remaining 22.07. The Orlando average interest has dropped to a new low once again. Buyers who purchased an Orlando area home in December paid an average interest rate of 3.99 percent, which is the lowest since the ORRA began tracking the statistic in January of 1995. Homes of all types spent an average of 103 days on the market before coming under contract in December 2011, and the average home sold for 92.40 percent of its listing price. In December 2010 those numbers were 97 days and 94.45 percent, respectively.

New York’s factory index up

The New York Fed’s “Empire State” general business conditions index rose to 13.48 from a revised 8.19 in December, topping economists’ expectations of 11.0. It was the highest level since April 2011. New orders climbed to 13.70 from a revised 5.99, while inventories also gained to 6.59 from minus 3.49. The survey of manufacturing plants in the state is one of the earliest monthly guideposts to U.S. factory conditions. Employment gauges showed strength. The index for the number of employees rose to 12.09 from 2.33 and the average employee workweek index climbed to 6.59 from minus 2.33. Manufacturers were also more optimistic about their outlook with the index of business conditions six months ahead rising to its highest level since last January at 54.87 from 45.61.

More failed HAMP trials

Mortgage servicers are putting more failed Home Affordable Modification Program (HAMP) trials through foreclosure than they were one year ago. According to Treasury Department data released last week, 10.6% of the more that 615,000 canceled HAMP trials completed the foreclosure process as of Nov. 1. That’s more than double the 4.4% of failed HAMP trials foreclosed on as of November 2010. While foreclosures are increasing, alternative modifications on these loans are dropping. Of the canceled HAMP trials, 39.7% went through the bank’s own private programs, down from 45.4% over the same time period, according to Treasury data. Foreclosure completions as a percentage of borrowers never accepted into HAMP trials are lower but still increasing as well. Of the 1.8 million borrowers denied a HAMP trial, 7.6% completed the foreclosure process as of Nov. 1, up from 5% one year before. Roughly 26.5% of these borrowers received alternative modifications, which held flat over the last year.

The increase in more foreclosure completions on failed HAMP trials occurred at nearly every large servicing shop participating in the program. Citigroup saw the highest jump. Of the 71,808 HAMP trials it canceled, roughly 13.5% completed the foreclosure process as of Nov. 1, up from 3.1% one year ago. At Ally Financial, the percentage increased to 12.8% from 6.4% over the same period. At JPMorgan Chase, the increase went to 11.3% from 6.2%. And at Bank of America, the largest servicer in the program, 9.3% of failed HAMP trials went through foreclosure compared to just 1.9% the year before. The highest percentage is currently held by OneWest Bank. It foreclosed on more than 19% of its roughly 20,000 failed HAMP trials, up from 10% last year. Interestingly, Wells Fargo has one of the lowest percentages of completed foreclosures on these mods at 6.7%, almost the exact same percentage one year before.

According to the Office of the Comptroller of the Currency, 17% of the 108,000 HAMP modifications began in the second quarter of 2010 went 60 or more days delinquent within one year. That’s compared to a 31% redefault rate for other private programs. D. Corwyn Jackson, whose company The Corwyn Group helps to train housing counselors for foreclosure prevention, said servicers are getting mixed signals from the government-sponsored enterprises Fannie Mae, which administers HAMP, Freddie Mac and other stakeholders across the country. “The servicers are mandated to stick to the agreed upon foreclosure time lines by state,” Jackson said. “But other stakeholders such as nonprofit housing counseling agencies across the nation are requesting servicers during the negotiation to exhaust their loan workout options before starting the foreclosure process.”

The GSEs charge servicers for taking too long to complete the foreclosure process under specific, state-by-state guidelines. Servicers are expected to still consider the borrower for the GSE programs, but time is of the essence. BofA, for example had to pay Fannie and Freddie $1.3 billion in foreclosure delay penalties in the first nine months of 2011. GSE policies and the failed HAMP trial foreclosure rates is beginning to show in the overall economy. Over the same time period covered by the Treasury data, the shadow inventory of homes in foreclosure or on the verge it has been declining. According to CoreLogic, roughly 1.6 million homes sit in this inventory, down from 2.1 million in November 2010.

DOJ steps up ratings probe

The Justice Department (DOJ) has stepped up its investigation of Standard & Poor’s (S&P) mortgage bond ratings during the financial crisis, the Wall Street Journal reported today. At least five former S&P analysts have been contacted by federal prosecutors in recent weeks, after some had not heard from investigators for more than six months, the newspaper said. The McGraw-Hill Cos Inc unit disclosed in September it had received a Wells notice from the Securities and Exchange Commission indicating it could face civil charges for its ratings of a 2007 mortgage bond deal called Delphinus 2007-1. It has not yet disclosed any investigation by the DOJ, which the WSJ reported is a civil probe. Prosecutors are examining whether S&P managers pushed to weaken standards the company had set for rating the mortgage deals, and whether the company followed its established criteria in assigning ratings. The recent interviews lasted two to three hours, and the former employees were told they would likely by contacted again, the Wall Street Journal said.

DSNews.com – vacant foreclosures cost money

A recent study from the Government Accountability Office (GAO) found that non-seasonal vacant properties across the United States rose 51 percent over the span of a decade, from nearly 7 million in 2000 to 10 million in April 2010. Ten states saw vacancies go up by 70 percent or more as a result of high foreclosure rates. Those with the largest increases over the last decade were Nevada (126 percent), Minnesota (100 percent), New Hampshire (99 percent), Arizona (92 percent), and Florida (90 percent). Georgia, Michigan, Colorado, Rhode Island, and Massachusetts also experienced increases above 70 percent. The elevated number of vacant homes carries with it a hefty price tag for lenders that must resume ownership after foreclosure. GAO found that in 2010, Fannie Mae and Freddie Mac reimbursed servicers and vendors over $953 million for property maintenance costs. However, it’s local governments, many of which are already dealing with depleted funds, that are feeling “significant” pressures from the rise in home vacancies, according to GAO.

The agency notes that other studies have concluded vacant foreclosed properties may reduce prices of nearby homes by as much as $17,000 per property. As a result, municipalities report being out millions of dollars in lost tax revenues. That’s in addition to extra expenditures to put staff, systems, and programs in place to ensure local property ordinances are met, as well as costs associated with addressing public safety issues posed by extended periods of vacancy or improper property maintenance. GAO says the localities it studied are all engaged in multiple strategies to try to minimize the costs and other negative impacts that vacant properties create for their communities.

Efforts range from simple data-gathering to more precisely identifying vacant properties, to acquisition and rehabilitation or, in some cases, demolition of abandoned properties. In addition, some local governments have tasked servicers with additional responsibilities for maintaining properties, amended their code enforcement rules to establish greater incentives for property maintenance, and established specialized housing courts to address vacant property and other housing issues. These strategies, however, face various challenges, particularly the lack of financial support to effectively address such a large-scale problem, according to GAO. As a result, governments in many of the communities GAO examined are reaching out to members of the community – including neighborhood groups and private developers – in an attempt to leverage all available resources. In addition, local governments have called for increased federal funding and greater attention by federal regulators to servicers’ role in managing vacant properties.

See you at the top!
Chris McLaughlin

**************

Copyright Loss Mitigation Institute LLC 2011.
All Rights Reserved.

http://www.shortsalesriches.com

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http://www.reomillionaireclub.com

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http://www.smartrealestatenews.com

(subscribe to this newsletter)

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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

* Join my Facebook Fan Page: http://www.mclaughlinchris.com

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.

See you at the top!

Chris McLaughlin

**************

Copyright Loss Mitigation Institute LLC 2011.

All Rights Reserved.

http://www.shortsalesriches.com

http://www.shortsalescoach.com

http://www.sixfigurebpo.com

http://www.reomillionaireclub.com

http://www.youtube.com/shortsalesriches

http://www.smartrealestatenews.com

(subscribe to this newsletter)

*************************************************

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

* Join my Facebook Fan Page: http://www.mclaughlinchris.com

Smart Real Estate News & Commentary by Chris McLaughlin October 19, 2011

Forward this e-mail to your friends!

Then they can subscribe directly at the following link:

http://www.smartrealestatenews.com/

*** Join Chris’ Facebook Fan Page–>

http://www.mclaughlinchris.com

*** Follow Chris on Twitter–>

http://www.twitter.com/mclaughlinchris

************************************************************

Short sales spike in Los Angeles

Foreclosed homes and short sales are making up an increasingly large chunk of the housing market in Los Angeles, moving toward 50% in Glendale, according the latest real estate figures.  Sales of distressed homes made up 47.5% of total sales in Glendale in September. In Burbank, the ratio was almost 34%.  The figures were far higher than a year ago, when distressed homes made up about 36% of total sales in Glendale and nearly 16% in Burbank.  The trend started in August as banks ended their self-imposed foreclosure moratoriums.  Short sales saw the most dramatic rise in Burbank, skyrocketing from about 4% in September last year to almost 18% last month.  In Glendale, the sale of bank-owned properties jumped from a little less than 11% in September 2010 to about 21% last month.  Average home sale prices continued to tumble in September with Burbank taking the biggest hit, dropping $87,530 when compared to September 2010.  The average price in Burbank was $446,655, a 19.6% slide from $534,185 in September 2010.  The number of new home sales also took a hit in September, decreasing from 74 a year ago to 56 last month. There were 63 new listings in September, dipping from 67 in September 2010.  Glendale fared better, though it was still in decline. The average home sale price was $504,244, a 7.1% decrease from $540,258.  New home listings decreased by 15, from 102 in September 2010 to 87 last month. New sales dropped slightly from 64 to 61.  In La Cañada Flintridge, the average home sale price was about $1 million in September, a 2.7% drop from roughly $1.1 million the same month last year.   In the La Crescenta-Montrose area, the bright spot was the number of new home sales, which came in at 37, up from 29 last year. But the average home sale price was $516, 621, about a 1% dip from $520,964 last year.

Real debt battle looming in 2012

Dec. 23, 2011, is the legal deadline for Congress to approve at least $1.2 trillion in savings over 10 years to avoid an equal amount of across-the-board spending cuts, as part of a deal reached during debt talks in August.  But a series of even more important events will dovetail following the November 2012 presidential election to create what some are calling a “perfect storm” for the nation’s economic affairs.  “A whole lot of things happen in late 2012 and early 2013,” said James Horney, a fiscal policy expert with the liberal Center on Budget and Policy Priorities.  Looming at the top of the list is the scheduled expiration of sweeping Bush-era tax cuts that in 2001 and 2003 lowered taxes across the board. President Barack Obama has called for extending these cuts for families earning less than $250,000 while taxing everyone else.  Also by the end of 2012, Congress will have to decide on fixing a glitch in the Alternative Minimum Tax so that middle-class Americans are not forced to pay a tax that originally was aimed only at the upper middle class.  Taken together, the future of these two tax policies could make for a multi-trillion-dollar swing for the Treasury, either in the way of higher revenues or more rapidly escalating debt.

By the end of 2012, Congress and Obama likely will need to increase the government’s borrowing authority. A battle over the US credit limit nearly led to a government default on its debt in August. Republicans used the debt limit increase as leverage to win $917 billion in spending cuts over 10 years.  The Nov. 6, 2012, elections, when the United States will elect a president, all members of the House of Representatives and one-third of the Senate, are a big wild card, with the outcome likely to influence the outgoing Congress. It will sit until the new Congress is sworn in the following January.  “At that point,” said Horney, the United States might “be in a better situation (than this year) to get some kind of an agreement” on fiscal matters.

WSJ – lack of attractive inventory

The housing market, which has struggled with an oversupply of homes for years, is facing a new problem: a lack of attractive inventory.  There were more than 2.19 million homes listed for sale at the end of September, down 20% from a year earlier, according to a new report from the real-estate website Realtor.com. That is the lowest level since the company began its count in 2007.  The report is the latest sign of how the US housing market can’t seem to catch a break. While falling inventories are typically a sign of health, because reduced competition can boost prices, that isn’t the case right now.  Instead, real-estate agents say, people are pulling their homes off the market rather than try to sell them at today’s discounted prices. At the same time, banks have been more slowly moving to take back properties through foreclosure ever since processing irregularities surfaced last fall, temporarily reducing the supply of foreclosed properties. The shrinking supply isn’t driving up prices because demand is soft.

Yet there is still a substantial “shadow” supply of foreclosures and other distressed homes, estimated to be more than one million, that is likely to stream onto the market in the coming years. The pent-up supply is another constraint on any of the price gains that might normally occur when supply falls.  The decline in inventory also suggests that there are fewer opportunities for buyers and sellers to strike deals. That can further chill sales, as buyers become afraid to overpay while sellers are similarly cautious about under-pricing their homes.  In Detroit, the inventory of homes for sale was down by 28% from a year earlier, according to Realtor.com. Listings were down by 49% in Miami, by 48% in Phoenix and by 46% in Orlando, Fla. Housing inventory was down from one year earlier in all 146 markets tracked by Realtor.com except for Denver and El Paso, Texas.  The Realtor.com data include only single-family homes, townhouses and condominiums listed for sale on more than 900 multiple-listing services across the country. They don’t include unsold homes listed as “for sale by owner” or other properties that don’t find their way onto the multiple-listing services.

Manufacturing slows

The New York Fed’s “Empire State” general business conditions index was little changed, up a hair at minus 8.48 from minus 8.82 the month before. Economists polled by Reuters had expected a reading of minus 4.0.  The survey of manufacturing plants in the state is one of the earliest monthly guideposts to US factory conditions. Manufacturing has helped support the economic recovery, though the pace of growth has slowed this year and some regions have contracted.  New orders rose to 0.16 from minus 8.0, while inventories were up at minus 8.99 from minus 11.96. Despite the flat reading, new orders were still at the highest level since May, hinting some stabilization may be underway.  Employment gauges were mixed. The index for the number of employees rose to 3.37 from minus 5.43, but the average employee workweek index fell to minus 4.49 from minus 2.17.  The outlook for the coming months worsened, with the index of business conditions six months ahead dropping to its lowest level since February 2009 at 6.74 from 13.04 last month.

Soft outlook for homebuilders

Fitch Ratings believes homebuilders could face negative rating actions in the coming months as the economy slugs through a weak recovery.  Fitch analysts issued the negative rating warning at a time when weak employment and consumer confidence are pummeling the housing market, keeping homebuyers on the sidelines.  Robert Curran, managing director and lead homebuilding analyst for Fitch, said for the first time in a long time, housing “is not fulfilling its role as a key impetus to the early stages of an economic recovery.”   Curran said the pressures have already prompted Fitch to downgrade Beazer, KB Home and Pulte in recent weeks.  “The outlook does not look promising either with home prices likely to remain soft over at least the next few quarters,” said Curran. “Stagnant employment and declines in real income may also pile on the already formidable pressure homebuilders are feeling.”  Curran said analysts will be watching several key indicators closely—namely balance sheets, land deals, development and liquidity.  Yet, on the more positive side, Toll Brothers posted a third-quarter profit of $42.1 million, or 25 cents a share, on revenue of $394.3 million. The luxury homebuilder earned $27.3 million, or 16 cents a share, for its year-ago fiscal third quarter.  In the first half, homebuilder PulteGroup spent $640 million acquiring land and executing development activities. The company expects to spend nearly $1.1 billion on land and development this year, up from $980 million in 2010.

Sales up, confidence down

A strange economic trend appears to be emerging with American consumers. Retail sales have been trending higher while consumer confidence is at a 30-year low.  Retail sales grew 1.1% in September, the fastest pace since February, we learned on Friday. Even excluding strong auto purchases, the figures were better than expected. Data for earlier in the summer was also revised for the better. All this, even in the midst of stock market tumult and fears of another recession.  Meanwhile, those same economic concerns are still weighing on confidence. Consumer confidence plunged more in October than expected, according to the Thomson Reuters/University of Michigan index. It’s now at the lowest measure since May 1980.

How is this contradiction possible? Howard Davidowitz, president of Davidowitz & Associates says it’s simple. “We have got a bifurcation that keeps getting bigger and bigger,” he explains to Aaron and Henry in the accompanying clip.  What accounts for the increase in sales is the top earners in the country are doing fine. “Ten% of the consumers account for 40% of the spending,” he says. This group is primarily made up of college graduates who are not suffering from massive unemployment. In fact, unemployment for that segment of the population is under 5%.  But there’s another larger group that’s struggling to get by, which explains the consumer worry. “Eighty% of consumers are in a depression,” says Davidowitz.  It’s this growing gap between the haves and have-nots that is responsible for the Occupy Wall Street movement, says Davidowitz.

CMBS market stalls

The market for bonds backed by commercial real estate recovered over the last 18 months but growth in the third quarter has stalled, said property market researchers Friday.  “There’s been a little bit of a stumble in the third quarter,” said Ben Thypin, director of market analysis for Real Capital Analytics, a commercial real estate research firm, in a presentation at the Appraisal Institute’s annual fall conference in San Francisco.  He said he’s expecting little growth in the issuance of commercial-mortgage-backed securities in the third quarter, and that total volume this year will likely end up around $35 billion. New CMBS issuance will likely remain at that rate through 2012, he said.  Still, that’s a big improvement over a couple of years ago.

The dollar volume of CMBS deals in just the first half of 2011 was more than twice what it registered in 2010, increasing to $25.7 billion from $12.7 billion in all of 2010, according to Matt Anderson, managing director of  Trepp, a provider of commercial mortgage information, analytics and technology.  “There were hopes that volume might reach $50 billion this year,” he said, but those have been tempered by the shakiness of European economies and concerns that the US could enter a double-dip recession.  Especially considering that commercial banks, which usually lend about half their capital for commercial real estate markets, are on the retreat, the CMBS market is a linchpin to CRE recovery, according to Anderson.  The number of banks with a concentration of investment in commercial real estate was more than 2,500 in the first quarter of 2007, but by the first quarter of this year had fallen to about 900 “and that’s probably headed lower,” he said.

Still, CRE markets are past the worst in terms of delinquencies and distressed properties, and the volume of properties in trouble has remained fairly steady over the last year or more, he said.  While CRE sales volume has fallen to less than half its level in 2007, all segments of the market have clocked gains over the past year, according to data from Real Capital Analytics.  Senior living properties saw more than a fourfold increase in sales volume in the first half compared with the first six months of 2010, followed by hotel and multifamily properties. About $23.1 billion in apartment properties in changed hands in the January-June period.  Apartments exist in a “parallel universe” from other CRE properties because of their access to Fannie Mae and Freddie Mac financing, said Thypin.  “The foreclosure crisis in the single-family market has helped the apartment market,” he said.  Both Thypin and Anderson agreed that the state of the economy will be crucial in determining how the market moves in the coming months.  “We’re looking at a fragile recovery in commercial real estate markets,” said Anderson. “It’s very much capital driven, not so much fundamentals-driven.”  The market is going to be fairly rocky in the short term, but compared to other assets, commercial real estate is a good buy, he said.

See you at the top!

Chris McLaughlin

**************

Copyright Loss Mitigation Institute LLC 2011.

All Rights Reserved.

http://www.shortsalesriches.com

http://www.shortsalescoach.com

http://www.sixfigurebpo.com

http://www.reomillionaireclub.com

http://www.youtube.com/shortsalesriches

http://www.smartrealestatenews.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 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

* Join my Facebook Fan Page: http://www.mclaughlinchris.com

Smart Real Estate News & Commentary by Chris McLaughlin October 12, 2011

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Short sale incentives

Bank of America is testing Florida’s foreclosure waters with an incentive program for defaulting homeowners to “short sell” their homes instead of enduring a foreclosure, which can take years.  Guidelines for Bank of America’s new Florida Enhanced Short Sale Relocation Assistance program state that a borrower may use the incentive to pay off existing liens or for relocation expenses. FHA, Ginnie Mae, VA and USDA loans are not eligible. Details are available by calling 1-866-880-1232.

Short-sale incentives are an outgrowth of earlier, “cash for keys” programs offered by lenders and real-estate companies. Also, the US Treasury Department has tried to boost the number of short sales with its Home Affordable Foreclosure Alternatives program, which provides $3,000 for borrower-relocation assistance, $1,500 for servicers to cover administrative and processing costs, and as much as $2,000 for investors who meet certain requirements.

Other programs currently available:

-  Wells Fargo offers incentives of $10,000 to $20,000 to certain homeowners who opt for a short sale or who transfer a home’s title back to the bank. The program is aimed at properties in Florida and other states known for protracted, judicial foreclosures. The money is available only on first-lien loans that the company owns, which is about 20% of its portfolio. Details: 1-800-678-7986.

-  JPMorgan Chase has not reported how much it offers for short-sale incentives, though real-estate agents have reported sellers getting $20,000. The lender also has declined to specify how it determines the amount of its incentives. Details: 407-248-3945.

-  Citibank has reported it offers an average of $12,000 for borrowers when it owns the mortgage. The amount is determined upfront and varies depending on a borrower’s financial circumstances and mortgage-payment history. The money is disbursed when the short sale closes. Details: 1-866-272-4749.

More regulations on the way

US regulators on Tuesday are set to give nervous insurance companies, mutual funds and other big players in financial markets a better idea of whether they will be tapped for the same type of additional government scrutiny facing large US banks.  On Tuesday, the Financial Stability Oversight Council is scheduled to release a new proposal on how it will determine which non-bank firms are important enough to the financial system that they merit greater oversight by the Federal Reserve.  Also on Tuesday, banking regulators are scheduled to vote on a proposal banning most proprietary trading done by banks, known as the Volcker rule.  Both rules are parts of the 2010 Dodd-Frank financial oversight law.  Companies that are tapped for greater Fed supervision will be designated systemically important financial institutions (SIFIs), and will be subject to new capital and liquidity rules.  They will also be required to draft detailed plans on how they could be broken up if the company falters and is seized by the government.

Olick – where to find demand

“Given record low interest rates and still-falling home prices, you would think housing demand would be surging, but these are strange, strange times. Difficult credit conditions, combined with a steep drop in consumer confidence have cancelled out housing’s positives. Most concerning is a generational shift in housing demand.  While the overall home ownership rate fell a little more than one percentage point over the last decade, the numbers were much worse for younger Americans.  ‘Particularly hard hit were households headed by those age 25 to 54, who experienced homeownership rate declines ranging from 3.5 to 3.9 percentage points,’ according to a Fannie Mae analysis of new Census data.  The change in home ownership has been geographically widespread.  As home prices seem to be taking a turn for the worse again now, potentially a triple dip, consumer confidence in housing has fallen right in line.  Fannie Mae’s September housing survey, ‘showed a marked deterioration in consumer expectations of home prices over the next year—their weakest outlook since monthly tracking began in June 2010,’ said Doug Duncan, vice president and chief economist of Fannie Mae.  This even as negative headlines over the potential US debt crisis abated in September. Oddly, this pessimism came at the same time that the share of consumers expecting mortgage rates to go up dropped sharply to the lowest level recorded. That is further evidence that even record-low mortgage rates are having a minimal effect on any housing recovery.

If housing demand cannot be spurred by low interest rates, low prices or even a slightly brighter economic picture, then where can we find it? For now, it’s with investors.  Investors do not rely on credit as much as the general population and the potential revenue stream from increased rental demand can overcome fears of any further declines in home values.  As leaders in the industry and government mull potential new housing incentives and fixes, they should focus more on investors. With little newly-built rental inventory coming to market and still-surging rental demand, investors can help on many levels, sopping up distressed supply and providing more housing to limit the surge in rent rates.”

60% chance of recession

The bond market indicator that has predicted every US recession since 1970 shows that the economy has about a 60% chance of contracting within 12 months.  The so-called Treasury yield curve, adjusted for distortions caused by the Federal Reserve’s record low zero to 0.25% target interest rate for overnight loans between banks, shows that two-year notes yield 20 basis points, or 0.20 percentage point, less than five-year notes, according to Bank of America Corp. research. The unadjusted gap of 79 basis points at the end of last week indicates the chance of recession at about 15%.

Short-term rates have been higher than longer-term yields, or inverted, before each of the seven recessions since 1970. Unemployment has held at or above 9% every month except two since May 2009, including a reading of 9.1% in September. “The adjusted curve is giving a powerful signal for an upcoming US recession,” said Ruslan Bikbov, a fixed-income strategist in New York at Bank of America, one of the 22 primary dealers of US government securities that trade with the Fed. “If that happens, the Fed’s target rate could remain near zero beyond 2014,” more than a year longer than the central bank has indicated, he said in an interview on Oct. 3.

Bank of America’s research is sending the same message as the Economic Cycle Research Institute and Bill Gross, manager of the world’s biggest bond fund, which say the US may be headed into a decline. Fed Chairman Ben S. Bernanke said last week in testimony to Congress that the central bank can take further steps to sustain a recovery that’s “close to faltering” after almost three-years of near-zero interest rates and $2.35 trillion of bond purchases.  The Organization for Economic Cooperation and Development cut its forecasts for the US last month, saying the $15 trillion economy likely grew 1.1% in the third quarter and will expand just 0.4% in the fourth.

WSJ – US gambles with mortgage retreat

Three years after virtually nationalizing the US mortgage market, the government has embarked on a pullback to see whether private industry picks up the slack.  Some people in the housing industry worry that Washington’s move will cause fresh pain in many regions where demand has yet to recover amid the sluggish economy.  At issue are the loan limits that Congress expanded in 2008, allowing Fannie Mae and Freddie Mac to buy mortgages that exceeded the national cap of $417,000.  When the mortgage market melted down four years ago and sent private mortgage investors fleeing, interest rates rose sharply on “jumbo” mortgages—those too large for backing by Fannie, Freddie or agencies such as the Federal Housing Administration. That accelerated home-price declines in high-end markets throughout California and the Northeast, where many pricey homes couldn’t be bought with a government-backed loan.

To stem the fallout in prices, Congress raised the loan caps to as high as $729,750 in markets such as Los Angeles and New York. It then passed a series of one-year extensions to keep the higher limits in place. But this year, Congress and the Obama administration opted against an extension.  As a result, the limits in hundreds of counties fell by 10% or more on Oct. 1. For loans backed by Fannie and Freddie, the limits declined to between $417,000 and $625,500 in about 200 counties.  More worrisome to real-estate agents are declines in the FHA limits, which fell to between $271,050 and $625,500 in 600 counties. Those changes are causing heartburn because the FHA allows buyers to make down payments of just 3.5%, and it has financed as many as half of all home purchases in recent quarters.

Policy makers allowed the limits to fall because they want private companies to hold more mortgage risk, and dialing down loan limits is one way to carve out space for those investors. Fannie, Freddie, and the FHA currently back nine in 10 new mortgages. Taxpayers already are on the hook for $141 billion in losses at Fannie and Freddie, and the FHA’s reserves have plunged to razor-thin levels.  Mortgages that don’t qualify for government backing typically have higher borrowing costs, including interest rates around 0.75 percentage point above conforming loans. Mortgage rates currently are very low, but jumbo loans also require bigger down payments—at least 20%—and can have tougher qualification rules.  “The net-net here is that the available pool of credit for housing is shrinking. Prices will have to decline,” said Christopher Whalen, co-founder of risk-management consultant Institutional Risk Analytics.

On one side of the debate are mortgage investors who say the government needs to give the private sector more room to compete if a vibrant market for nongovernment-backed loans is to re-emerge. “The banking industry, flush with excess deposits, will fund those loans,” said Mike McMahon of Redwood Trust, a real-estate investment firm in Mill Valley, Calif.  Assuming a 20% down payment, the new limits still allow homeowners in parts of California to qualify for a government-backed mortgage on a $780,000 home. Critics say there’s little public policy rationale to subsidize loans for those borrowers, who need substantial incomes.  On the other side are real-estate agents and some economists who say sellers are in for a nasty surprise when they find that fewer potential buyers qualify to purchase their properties. They say the changes also could hamstring “trade-up” buyers who typically used home equity, which has plunged during the bust, as their down payment to move to a bigger residence.  The loan limits wouldn’t appear to have much of an impact on the overall housing market. In 2009, about 1.5% of home-purchase loans backed by government entities wouldn’t have been eligible under the new limits, according to a study by the Furman Center for Real Estate and Urban Policy at New York University.  But the same study emphasized the outsize local impact. Some 9% of purchases would have been affected in San Jose, Calif., and 5% in San Diego.

Meanwhile, banks would have to increase the number of jumbo loan originations by 56% to make up the gap, “which the private sector could be hard pressed to fill,” said Mark Willis, one of the study’s authors. “If you want to get the market moving, why would you decrease the availability of credit for any part of it?”  Ultimately, the loan-limit issue shows the broader challenge in bringing back private capital and reducing taxpayer exposure: Housing markets are shaky, and the government is still offering better terms than private lenders.  Steps that raise borrowing costs could attract private investors, but if that pushes home prices down in the process, it may do more harm to the economy and to individual housing markets still reeling from the real estate bust.

“Systemic risk” in Europe?

European Central Bank President Jean-Claude Trichet warned of threats to the financial system as the conflict among political leaders intensified over how to extricate Europe from the debt crisis.  “The crisis has reached a systemic dimension,” Trichet told European lawmakers in Brussels today. “Sovereign stress has moved from smaller economies to some of the larger countries. The crisis is systemic and must be tackled decisively.”  European officials are toiling to meet an end-of-month deadline set by French President Nicolas Sarkozy to get to grips with the crisis, which has propelled Greece to the brink of default, shaken world markets and fueled speculation that the 17-nation currency might not survive in its current form.  Trichet’s message coincides with a shift in the focus of Europe’s crisis response today to Slovakia, where the government may struggle to achieve a majority of lawmakers needed to ratify the euro region’s retooled bailout fund. The country is the only member of the 17-nation euro area that hasn’t ratified the measure agreed between leaders on July 21 to fight turmoil that has spread from Greece to larger nations including Italy.  In many ways, what happens in Europe impacts what happens in the US.

Americans expect further house declines

Americans believe home prices will drop another 1.1% over the next year while mortgage rates maintain record low levels, Fannie Mae said in its September national housing survey.  Fannie Chief Economist Doug Duncan said the September survey showed a marked deterioration in consumer expectations for home prices, making it the weakest month on record over the last 18 months.  “Despite a decline in negative economic headlines during September — in contrast to their ubiquity during the debt ceiling debate in August — consumers continue to demonstrate very negative attitudes,” Duncan said. “At the same time, the share of consumers expecting mortgage rates to go up dropped sharply to the lowest level we have recorded, likely influenced by the news that the Federal Reserve will attempt to keep interest rates low for years to come. All these factors together do not bode well for the housing market.”  In fact, pessimism abounds in the housing market, with one-third of respondents expecting mortgage rates to go up in the next year. And for the fourth consecutive month, most Americans taking the Fannie survey said they expect home prices to decline from year-ago levels.  About 68% of those surveyed said it’s a good time to buy a home, while only 10% believe it’s a good time to sell a house.

See you at the top!

Chris McLaughlin

**************

Copyright Loss Mitigation Institute LLC 2011.

All Rights Reserved.

http://www.shortsalesriches.com

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http://www.reomillionaireclub.com

http://www.youtube.com/shortsalesriches

http://www.smartrealestatenews.com

(subscribe to this newsletter)

*************************************************

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

* Join my Facebook Fan Page: http://www.mclaughlinchris.com