Smart Real Estate News & Commentary by Chris McLaughlin July 1, 2011
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Average home price in Manhattan $1.4 million
According to market data compiled by the Corcoran Group the average sale price of a Manhattan apartment rose to $1.39 million during the second quarter, up 5% from $1.32 million in 2010. Separate reports by real estate brokers showed the average sale price of a Manhattan apartment had risen to $1.43 million during the period. The Manhattan market was largely boosted by increased demand for high-end apartments, which comprised a larger share of the market in the latest quarter. More international buyers also entered the scene boosting demand for second homes in the $6 million to $12 million range. The median price, which measures the middle of the market and is less impacted by the high end, rose 4% to $830,000 in the second quarter, up from $800,000 in the previous period, Corcoran said.
According to the other reports, the median price slipped 1% over the past year to $835,000. Still, the Manhattan housing market is considerably off its peak. Back in late 2008, buyers paid an average of about $1,400 a square-foot for a condo or co-op. The average price this year is a little more than $1,000 a square-foot. In addition, the Halstead report noted that buyers paid 96% of the asking price. Although inventory was low, Manhattan apartments spent 130 days on the market during the second quarter compared to 112 days a year ago.
Minnesota shutdown
Minnesota’s state government began a broad shutdown today going into the July 4th holiday, after Democratic Governor Mark Dayton and Republican legislative leaders failed to reach a budget deal. Parts of the government had already begun to shut down on Thursday ahead of the midnight budget deadline, including some websites and dozens of highway rest stops on one of the biggest travel days of the year. The budget impasse means that some 23,000 of the roughly 36,000 Minnesota state employees will be furloughed, and state parks and campgrounds will be closed ahead of what is usually their busiest stretch of the year for the Independence Day holiday. All but the most critical state functions will be suspended while the spending impasse continues into the new fiscal two-year period that starts on Friday, which would make the 2011 shutdown much broader in scope than one in 2005.
Dayton and Democratic legislative leaders Senator Tom Bakk and Representative Paul Thissen met for more than a week with Republican leaders, including House Speaker Kurt Zellers and Senate Majority Leader Amy Koch. The leaders met several times on Thursday in the governor’s office. Neither Dayton nor the Republican leaders gave any indication when they would meet next to discuss the budget. “I deeply regret that the last week of intense negotiations between the Republican legislative leaders and Senator Bakk, Representative Thissen and myself have failed to bridge the divide between us,” Dayton said in a speech. He said his last proposed two-year general fund budget was $35.7 billion, but the differences between his approach and the Republican leaders had not changed since January. The gap between the two sides stood at $1.4 billion, he said.
Olick – excluding distressed sales, are home prices ok?
“Home prices in May were down 7.4% year-over-year, according to a new report from CoreLogic. This is the first of the May numbers, as S&P Case Shiller, which was released earlier this week, looks back two months. CoreLogic’s report is unique, though, in that it gives the big bad number (which was a bigger dip than the 6.7-percent annual drop in April) and then it strips out the distressed sales and comes up with a new number. Distressed sales include foreclosed properties (bank-owned/REO) and short sales, where the home is sold for less than the value of the mortgage to avoid foreclosure.
Without the distressed sales, home prices fell just 0.4% in May, essentially flat. Overall, according to the report, ‘including distressed transactions, the peak-to-current change in the national HPI (Home Price Index, from April 2006 to May 2011) was -32.7%. Excluding distressed transactions, the peak-to-current change in the HPI for the same period was -21.2%.’ So should we consider that home prices are really just fine? After all, they might not be moving up, but they’re not falling, and they’re down far less than the headlines scream. You would have to ignore an awful lot of factors to believe that—number one being that distressed sales make up more than one-third of the current real estate market, and far higher percentages in some of the busiest, albeit most distressed, sales markets.
Secondly, distressed sales might become an even larger share of the market during the next year, as banks are now ramping up the foreclosure process, taking big losses, making deals and cleaning up potential legal obstacles. That in the face of the fact that the pipeline of foreclosures is huge. Read this from Lender Processing Services on Wednesday. Read it a few times, so it really sinks in: ‘With foreclosure sales at 78,676 at month end, the volume of serious delinquencies and foreclosures over-shadowed the number of foreclosure sales by 50:1. In fact, there are still significantly fewer foreclosure sales than there were before foreclosure moratoria were put into place, and foreclosure sales are declining.’
Now tell me if it makes any sense whatsoever to strip the distress out of the numbers and come to the conclusion that home prices are done falling. CoreLogic doesn’t do that, but I’m guessing some folks reading its report might. Home prices are stabilizing in some markets, like here in Washington, D.C., but they are still under pressure in most major and not-so-major markets, not just due to distressed comparables, but because of a tight and expensive mortgage market. And one more thing: Would everyone please stop ignoring the fact that the recent monthly increases in home prices are largely seasonal!”
China owns more US Treasuries than it’s supposed to
When the U.S. Treasury Department revamped its rules for participating in government bond auctions two years ago, officials said they were simply modernizing outdated procedures. The real reason for the change, a Reuters investigation has found, was more serious: The Treasury had concluded that China was buying much more in U.S. government debt than was being disclosed, potentially in violation of auction rules, and it wanted to bring those purchases into the open – all without ruffling feathers in Beijing. Treasury officials then worked to keep the reason for the auction-rule change quiet, with the acting assistant Treasury secretary for financial markets instructing subordinates to not mention any specific creditor’s role in the matter, according to an email seen by Reuters. Inquiries made at the time by the main trade organization for Treasury dealers elicited the explanation that the change was a “technical modernization,” according to a document seen by Reuters. There was no mention of China.
The incident calls into question just how clear a handle the Treasury has had on who is buying U.S. debt. Chinese entities hold at least $1.115 trillion in U.S. government debt, and are thought to account for roughly 26 percent of the paper issued by Washington, according to U.S. government data released on June 15. China’s vast Treasury holdings are both a lifeline and a vulnerability for Washington – if the Chinese sold their Treasuries all at once, it could undermine U.S. markets and the economy by driving interest rates higher very quickly. Scenarios of this sort have been discussed in Washington defense-policy circles for at least a year now. Not knowing the full extent of these holdings would make it even more difficult to assess China’s political leverage over U.S. finances. The Treasury has long said that it has a diversified base of investors and isn’t overly reliant on any single buyer to digest new U.S. Treasury issuance. Evidence that China was actually buying more than disclosed would cast doubt on those assurances.
WSJ – mortgage rates mixed
Mortgage rates in the U.S. were mixed over the past week amid conflicted readings on the strength of the U.S. economy, according to Freddie Mac’s weekly survey of mortgage rates. The 30-year fixed-rate mortgage was basically flat at 4.51% for the week ended Thursday, compared with 4.50% the previous week and last year’s rate of 4.58%. Rates on 15-year fixed-rate mortgages held at 3.69%, the same as last week, yet were down from 4.04% a year ago. Freddie Mac Chief Economist Frank Nothaft noted that interest rates on 30-year fixed mortgages have hovered around 4.5% for four straight weeks, despite sluggish consumer spending. Mr. Nothaft pointed to some signs of improvement in the U.S. housing market, including a May rebound in pending home sales. Five-year Treasury-indexed hybrid adjustable-rate mortgages hit a new record low at 3.22%, down from 3.25% last week and 3.79% a year ago. One-year Treasury-indexed ARM rates ticked down to 2.97%, from 2.99% in the prior week and 3.80% in the prior year. To obtain the rates, fixed-rate mortgages required an average payment of 0.7 point, while adjustable rate mortgages required an average 0.6 point payment. A point is 1% of the mortgage amount, charged as prepaid interest.
Greenspan – stimulus didn’t work
The Federal Reserve’s massive stimulus program had little impact on the U.S. economy besides weakening the dollar and helping U.S. exports, Federal Reserve Governor Alan Greenspan said today. In a blunt critique of his successor, Fed Chairman Ben Bernanke, Greenspan said the $2 trillion in quantitative easing over the past two years had done little to loosen credit and boost the economy. “There is no evidence that huge inflow of money into the system basically worked,” Greenspan said in a live interview. “It obviously had some effect on the exchange rate and the exchange rate was a critical issue in export expansion,” he said. “Aside from that, I am ill-aware of anything that really worked. Not only QE2 but QE1.” Greenspan’s comments came as the Fed ended the second installment of its bond-buying program, known as QE2, after spending $600 billion. There were no hints of any more monetary easing—or QE3—to come. Greenspan said he “would be surprised if there was a QE3″ because it would “continue erosion of the dollar.”
Don’t be fooled by May home sales
Pending home sales may have grown 8.2% between April and May, but a housing recovery remains a ways off, real estate analytics firm Radar Logic said this week. Radar Logic picked apart the latest pending home sales report, saying 8.2% month-over-month sales growth does not equate to a recovery when sales are down 20.4% from last year when consumers rushed to buy to take advantage of federal tax credits. Instead, Radar Logic concluded that May’s pending home sales remain “essentially flat.” Furthermore, an influx of distressed properties, including many that are still waiting to come online, remain a constant threat to market confidence and home prices, according to the report. “Regardless of what may happen to sales contract activity in any given month, the fact remains that the inventory of homes for sale and in the foreclosure pipeline far outstrips current demand,” Radar Logic said. “Potential buyers are cognizant of this fact and the negative impact it will have on future home price appreciation, and are therefore choosing to stay out of the market. As long as the supply overhang persists it will weigh on housing demand.”
Radar Logic said even though the S&P/Case-Shiller indices for April experienced their first gains in 8 months, that’s not enough to suggest the tide has turned when considering the presence of distressed home sales. “As real estate owned (REO) by lenders and servicers and homes sold at foreclosure auctions sell at a significant discount (39% as of April), the decline in such sales as a percentage of total helped to buoy home price indices beyond the actual appreciation in the prices of individual homes,” Radar Logic said.
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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
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