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Foreclosures drawing private equity

Private equity firms are jumping into distressed housing as the US government plans to market 200,000 foreclosed homes as rentals to speed up the economic recovery.  GTIS Partners will spend $1 billion by 2016 acquiring single-family homes to manage as rentals, Thomas Shapiro, the fund’s founder said. That followed announcements this month that GI Partners, a Menlo Park private equity fund, expects to invest $1 billion, and Los Angeles-based Oaktree Capital Management LP will spend $450 million on similar housing.  “It’s a massive market,” Shapiro said in a telephone interview from New York. “We’re starting to see this as a billion dollar opportunity to buy rental housing.” Increasing rentals may reduce lenders’ losses on foreclosed and surrendered properties and curb declines in home prices, according to a Federal Reserve study Chairman Ben S. Bernanke sent to Congress on Jan. 4. Private equity funds began focusing on these investments in September, after the administration asked for proposals to sell the government’s inventory of foreclosed homes — about half of all houses seized from delinquent borrowers.

Private sector gains 170,000 jobs

The private sector created 170,000 jobs in January, boosted again by a surge in service-sector employment, according a report from ADP and Macroeconomic Advisors.  With economists looking for signs of life in the jobs market, the ADP number was close to consensus estimates and likely sets the stage for solid though not overwhelming overall growth when the government releases its monthly report Friday.  The private payrolls report showed service jobs growing by 152,000 in January, after rising a revised 241,000 in December.  Goods-producing jobs rose 18,000 while manufacturing added 10,000 and construction gained 2,000 for the month.  The total number of private sector jobs created is a substantial dropoff from December’s report that showed a revised 292,000, revised down from 325,000.  The Labor Department on Friday is expected to report nonfarm payrolls growth of 159,000 and an unchanged unemployment rate of 8.5%, according to StreetAccount estimates. Economists sometimes use the ADP numbers to adjust their projected unemployment estimates.  ADP’s numbers have been running on average 10,000 more than the government, though that number swelled to 92,000 in December, raising caution that seasonal distortions could be influencing the payroll firm’s figures.

November home prices down 3.7% from previous year

The average price of a single-family home fell again in November, with decreases in 19 of the 20 largest metropolitan areas during the month, according to the Standard & Poor’s/Case-Shiller index.  The ratings agency’s 20-city composite index and 10-city index both declined 1.3% from a month earlier. The larger, benchmark index drop 3.7% from November 2010 and the 10-city index for November was 3.6% lower than the year earlier.  S&P said both indices are one-third lower than the peak in the summer of 2006 and home prices are now at levels last seen in the middle of 2003.  Atlanta home prices for November were nearly 12% lower than the prior year, while Detroit at 3.8% and Washington with a 0.5% gain are the only metropolitan areas to post annual increases. Home prices in Atlanta, Las Vegas, Seattle and Tampa, Fla., all reached new lows in November, according to S&P/Case-Shiller.  “Despite continued low interest rates and better real GDP growth in the fourth quarter, home prices continue to fall,” said David Blitzer, chairman of the S&P index committee.  He said Phoenix, one of the hardest-hit areas in recent years, was the only MSA to post an increase in prices from October with a 0.6% gain.  “Annual rates were little better as 18 cities and both composites were negative,” Blitzer said. “The trend is down and there are few, if any, signs in the numbers that a turning point is close at hand.”  Analysts with Toronto-based Capital Economics agreed and said “there are still no signs that house prices are on the verge of turning around,” as the Case-Shiller indices fell for the seventh month in a row.  “But things should be different in six months’ time, when the recent rises in home sales will have helped to put a floor under prices,” the analysts said.

California is broke

California needs to come up with more than $3 billion to avoid burning through its cash by March, according to the state controller, who urged borrowing and delaying some payments.  “Assuming no additional revenue loss, erosion of borrowable internal funds, or significant spikes in spending, $3.3 billion of cash solutions are needed to address California’s liquidity needs during this period,” State Controller John Chiang said in a letter to the chairman and vice chairman of the Joint Legislative Budget Committee released on Tuesday.  Chiang said California does not need to issue IOUs again as it did during a cash crunch in 2009 or delay tax refunds, noting he has developed a plan with the state treasurer’s office and the state’s finance department that would postpone some payments and borrow from external sources and from state accounts to bolster the state’s cash.  “It is not an ideal solution, but it is the best way to manage the challenge without relying on IOUs or delaying tax refunds — actions that can disrupt the delivery of essential public services and slow California’s economic recovery,” Chiang said.  Senator Mark Leno, chairman of the Joint Legislative Budget Committee, said he expects the Senate and Assembly by the end the week will approve borrowing from state funds. Leno said he expects the internal borrowing will raise approximately $850 million.  Chiang noted California’s dwindling cash reflects revenue coming in below forecast in the state’s budget and spending exceeding expectations.

MBA – mortgage applications down

Mortgage applications decreased 2.9% from one week earlier, according to data from the Mortgage Bankers Association’s (MBA) Weekly Mortgage Applications Survey for the week ending January 27, 2012.  The Market Composite Index, a measure of mortgage loan application volume, decreased 2.9% on a seasonally adjusted basis from one week earlier.  On an unadjusted basis, the Index increased 9.0% compared with the previous week.  The Refinance Index decreased 3.6% from the previous week.  The seasonally adjusted Purchase Index decreased 1.7% from one week earlier. The unadjusted Purchase Index increased 17.1% compared with the previous week and was 4.3% lower than the same week one year ago.  The four week moving average for the seasonally adjusted Market Index is up 4.11%.  The four week moving average is up 2.48% for the seasonally adjusted Purchase Index, while this average is up 4.22% for the Refinance Index.

The refinance share of mortgage activity decreased to 80.0% of total applications from 81.3% the previous week. The adjustable-rate mortgage (ARM) share of activity increased to 5.6% from 5.3% of total applications from the previous week.  “The Federal Reserve surprised the market last week by indicating that short-term rates were likely to stay at their current low-levels until the end of 2014.  Longer-term treasury rates dropped in response, and mortgage rates for the week were down slightly as a result,” said Michael Fratantoni, MBA’s Vice President of Research and Economics.  Fratantoni continued, “Although total application volume dropped on an adjusted basis relative to last week, refinance volume remains high, with survey participants reporting that the expanded Home Affordable Refinance Program (HARP) contributed to roughly 10% of their refinance activity.”  In December 2011, Connecticut had the largest increase in refinance applications, increasing by 80.1% from November. Maine saw a 30.8% increase in applications for home purchase, which was the largest state-increase in applications for home purchase. Only 12 states had a decrease in home purchase activity in December, while every state in the US saw an increase in refinance volume.

Europe on life support

The European Central Bank (ECB) has saved the euro zone from a heart attack, but its members face a long convalescence, made worse by the insistence that fiscal starvation is the right remedy for feeble patients.  Last week’s downgrading of its forecasts by the International Monetary Fund (IMF) shows the dangers. The IMF now forecasts a recession in the euro zone this year, with a decline of 0.5 per cent in overall gross domestic product (GDP).  GDP is forecast to fall sharply in Italy and Spain, and stagnate in France and Germany. This is a terrible environment for countries seeking to cut fiscal deficits. Forecasts are far from satisfactory for other high-income countries. But the euro zone is the most dangerous part of the world economy: only there do we see important governments — Italy and Spain — menaced by a loss of creditworthiness.

Elsewhere, governments of high-income countries can continue to support their economies, largely because they possess a central bank and an adjustable exchange rate. This combination has given them the ability to run large fiscal deficits. In post-crisis conditions, such deficits are both the natural counterpart and the principal facilitator of necessary private sector deleveraging.  The euro zone has no such internal mechanisms. When private external financing dried up, as happened to a number of countries, affected members needed both financing — in the short run — and a mechanism for adjusting their external accounts — in the longer run — other than via deep slumps.  The euro zone lacks both capacities. It has turned out, as a result, to have limited ability to cope with the global financial disease. As Donald Tsang, chief executive of Hong Kong, remarked in Davos: “I have never been as scared as I am now.” Astute observers have a sense that little stands between them and a wave of sovereign and banking defaults inside the euro zone, with ghastly global repercussions.

Olick – refinancing to go through FHA

“After announcing during his State of the Union address a new government refinance program for, ‘responsible’ but ‘underwater’ borrowers with privately held mortgages, President Obama is expected to detail the plan today.  It will go through the government mortgage insurer, the Federal Housing Administration (FHA) and could cost between 5 and 10 billion dollars, according to senior administration officials.  The cost of the program, officials say, would be covered by a tax on major lenders, which is likely to make it a no-go in Congress.  It would cover closing fees for borrowers and additional risk to the FHA, which doesn’t insure new loans where the borrower owes more than the home is worth.  Critics will also argue that the FHA, which now has an inordinately, historically large share of the mortgage market, is in no position to take on any more risk. The FHA could be considered ‘underwater’ itself, guaranteeing about $1 trillion in mortgages but sitting on just a $1.2 billion dollar cushion to cover losses.  To that end, officials say they could create a separate fund for these loans, not the regular mutual mortgage insurance fund (MMI). This would be a special risk fund, designed to handle high losses.  ‘In this program we’re talking about extraordinary circumstances,’ says Brian Chappelle of Potomac Partners. ‘People have played by the rules, they made payments in addition to the fact that their house is underwater, they’re paying excessively high rates. It’s a unique homeowner, not somebody looking for a handout.’

To be eligible, borrowers would have to be current on their mortgages, not having missed a payment in at least six months. They need a credit score (FICO) above 580, must be employed, and must have a conforming loan (between $271,050 and $729,750 depending on their location). No appraisal would be necessary, according to officials.  Estimates are that the plan could help 3.5 million borrowers in addition to the 11 million expected to qualify for the existing refinance program for those with Fannie Mae and Freddie Mac loans (HARP). The one sticking point could be the mortgage insurance premiums charged by the FHA. If rolled into the loan, they would put a borrower further underwater.  ‘To use taxpayer dollars to bail out the few who are current and don’t need payment assistance but are underwater is ludicrous and worsens their equity position,’ says JT Smith of Aristar Funding.  The plan would also require lenders to write down the value of the loan if it exceeded 140% of the value of the home. Administration officials say the trade-off for lenders is they get rid of a risky loan.

On the flip side, the government would then be backing that same risky loan, but officials argue they would offset some of that risk because in order to get closing fees paid, the borrower has to agree to use the lower interest rate savings on the refinance to pay off principal balance.  The plan faces many headwinds, first and foremost being Congressional approval; borrowers and lenders would also have to agree to all the requirements, as this is not an automatic plan but a voluntary, borrower-initiated deal. It would also rile Wall Street, as hundreds of thousands of loans could ‘pre-pay,’ which means the bondholders lose.  ‘Some say it undermines the value of existing [mortgage] securities, so they would build a premium in,’ notes Chappelle. That could make future loans for other Americans more expensive.”

US to charge European traders

US authorities are preparing to charge four former Credit Suisse employees with criminal and civil fraud related to write-downs on subprime mortgage derivatives at the height of the financial crisis, sources familiar with the matter said.  Credit Suisse will not be charged in the matter, which is being investigated by federal prosecutors and the US Securities and Exchange Commission (SEC), the sources said.  The four people to be charged were former Credit Suisse traders who were fired, another source said, but it was unclear when and for what reason.  The suspected illegal conduct took place roughly four years ago, the source said, adding that the bank had been cooperating with officials.  The investigation stems from $2.85 billion in write-downs that Credit Suisse took on collateralized debt obligations in 2008, said the sources, who spoke on the condition of anonymity.  Credit Suisse revealed those CDO losses in early 2008, and blamed them on a group of rogue traders – who the bank said had deliberately mispriced securities – and on a failure of internal controls.  Credit Suisse, the Federal Bureau of Investigation, the SEC and Manhattan US attorney Preet Bharara declined to comment on the matter.

WSJ – housing’s firmer foundation

The Case-Shiller index is closely watched for a reason. It was quicker than a US government price index to show just how bad things were as housing came off the rails in 2007.  But right now, the connection between what the S&P/Case-Shiller index says and what is actually going on with housing may be lukewarm at best.  The difference: The Federal Housing Finance Agency index includes only homes with mortgages guaranteed by Fannie Mae and Freddie Mac, while the Case-Shiller index includes those backed by jumbo and subprime mortgages.  Many homes that were backed by subprime mortgages are now being sold in foreclosure. They aren’t in nearly as good condition as when they were last bought, and are selling for less than if they had been properly maintained. Because the Case-Shiller index is based on repeat sales, such homes may be biasing it downward.  Moreover, the Case-Shiller index is based on a three-month average of sales, so its November level includes transactions that were completed in October and September. Consider that it takes about two months between a sale and a closing (often longer with mortgage hassles these days), and you are talking about deals agreed on in the summer, when recession fears filled the air. Things now look better. Home prices probably do, too.

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

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

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

Washington state considers short sale protection

Banks could soon be barred from pursuing deficiency judgments against Washington state borrowers after a short sale. A Senate committee in the Washington State Legislature will hold a hearing over H.B. 2718, which states that if a bank “writes off debt from the short sale, they can’t then subsequently collect this debt from the seller. The bill was modeled after similar action passed in Oregon last summer. The bill if passed does not require the lender to accept a short sale offer. It would go into effect with 90 days of being passed. According to a Washington Realtors alert put out late last week, a borrower would report the write off to the Internal Revenue Service and take a tax deduction for the loss. This same amount is also counted as taxable income for the seller. “Providing certainty and consumer protections for short sale sellers is critical in the current real estate market,” the trade group said. “Successful short sales often prevent foreclosures that would harm consumers, tax revenue and economic recovery.” After the Oregon bill took effect in June, REO numbers became choppy and then began to fall at the end of the year. In September, repossessed homes totaled 1,420, according to RealtyTrac. That number increased to 2,057 the following month then slid to 936 in November and 874 in December. Some of that could be due to seasonal trends. Most lenders put repossessions on hold during the holiday season, but the December total was down 29% from the same month one year earlier.

S&P warns of rate cuts over health costs
Ratings agency Standard & Poor’s warned it may downgrade “a number of highly rated” Group of 20 countries from 2015 if their governments fail to enact reforms to curb rising healthcare spending and other costs related to aging populations. Developed nations in Europe, as well as Japan and the United States, are likely to suffer the largest deterioration in their public finances in the next four decades as more elderly strain social safety nets, S&P said in a report. “Steadily rising healthcare spending will pull heavily on public purse strings in the coming decades,” S&P analyst Marko Mrsnik wrote in the report. “If governments do not change their social protection systems, they will likely become unsustainable.” If no reforms are adopted, healthcare-related credit downgrades would likely start within three years, eventually leading to an increase in the number of junk-rated countries as of 2020, the study showed.

Olick – US Treasury forcing principal forgiveness

“Late Friday the US Treasury Department announced a major expansion of its Home Affordable Modification Program (HAMP). The three-year-old program has been largely deemed unsuccessful, as it has provided just about 750,000 borrowers with permanent loan modifications. The initial expectation from government officials was that it would help three to four million borrowers. ‘Clearly the initial program erred on the side of making sure taxpayers were protected, but it didn’t do enough to help the overall economy,’ said Michael Barr, former Asst. Treasury Secretary for Financial Institutions and one of HAMP’s original architects. Now taxpayers will pony up the cash, as Treasury is tripling the financial incentives to lenders and opening the program up to Fannie Mae, Freddie Mac and investors in rental properties. The money would come out of TARP funds, i.e. from the taxpayers. We still don’t know if Fannie and Freddie will participate, since their conservator, the FHFA’s Ed DeMarco, has been actively fighting principal write down for years. A week ago he sent a letter to members of congress explaining the math behind his argument.

But the Treasury may be forcing DeMarco’s hand. He claimed that writing down mortgage principal would cost $4 billion more than the modifications that Fannie and Freddie are doing now. Those involve interest rate reduction and principal forbearance. The newly expanded HAMP, however, with its triple- sized cash incentives, would shore up that $4 billion hole. Funny how he mentioned that hole on Monday, and the Treasury announced the new plan Friday. ‘If he [DeMarco] doesn’t get to yes, then he has no political leg to stand on,’ says FBR’s Ed Mills, who estimates the enhanced program could add one million borrowers to its ranks. Mills says a ‘no’ from DeMarco would enable the Obama Administration to replace him, which it tried to do once before, only to be blocked by members of Congress. ‘It would be an appropriate response for him to do it,’ says Barr of DeMarco. ‘I do think they should participate.’ I asked Barr why the Treasury waited three years to use the TARP funds for principal reduction. The obvious answer is that this is presidential election year, and the housing market is still floundering, but Barr claims the Treasury was just being careful. ‘It’s a use of taxpayer funds, and you want to make sure you’re not providing more of an incentive than is required,’ he said. ‘One person’s successful program is another person’s bailout.’”

Treasury department stirs the pot

The Treasury Department is investigating a report that Freddie Mac, the mortgage giant, bet against homeowners’ ability to refinance their loans even as it was making it more difficult for them to do so, Jay Carney, the White House spokesman, said yesterday. ProPublica and National Public Radio reported that Freddie Mac, which maintained slightly tighter restrictions than Fannie on homeowners’ eligibility to refinance, had a multibillion-dollar investment whose value hinged on borrowers continuing to pay higher interest rates. Beginning in 2010, Freddie bought several billion dollars’ worth of “inverse floater” securities — essentially the interest-paying portion of a bundle of mortgages — for its investment portfolio while selling the far less risky principal portion. Fannie and Freddie are supposed to be decreasing the size of their investment portfolios. There is no evidence that Freddie tailored its refinancing standards to its investing strategy, but “inverse floaters” make less money if the loans they cover refinance to a lower interest rate. Freddie issued a statement yesterday defending its commitment to helping homeowners. “Freddie Mac is actively supporting efforts for borrowers to realize the benefits of refinancing their mortgages to lower rates,” it said. The company said refinancing accounted for 78% of its loan purchases in 2011.

HAMP 2.0
The expansion of the Home Affordable Modification Program (HAMP) by the Treasury Department is expected to benefit special mortgage servicers, mortgage insurers and nonagency mortgage-backed securities holders, while having no material effect on agency MBS, Keefe, Bruyette & Woods said yesterday. Previously, if a borrower’s first-lien monthly mortgage payment was lower than 31% of income, the borrower was ineligible for HAMP. Factoring other debts to the evaluation will expand the pool of borrowers who can now qualify for HAMP. Investors also were given new incentives for accepting principal write-downs, with the financial benefits for such an action increasing from a range of 6 to 21 cents on the dollar to 18 to 63 cents. The Obama administration also extended the HAMP program deadline through December 2013. “We believe that the more flexible debt-to-income ratio and the inclusion of some investor properties will have a positive impact on modification activity,” KBW analysts said in its research note. “The impact of the increased principal reduction incentives remains unclear.

While it should help the nonagency sector, the impact would be far greater if there was GSE participation. The response from FHFA on Friday afternoon suggests that the GSEs might not participate,” according to KBW analysts. The research firm expects the changes to have “no material impact on agency MBS prepayment speeds.” However, special servicers in the mortgage industry are expected to benefit from the modifications. Ocwen Financial Corp. earned $28.3 million in HAMP incentive fees in the first nine months of 2011, and KBW believes other firms also will benefit from an expanded HAMP program. Barclays Capital analysts also see the changes as having no significant impact on agency MBS. “The reason is that the vast majority of debt forgiveness will be on delinquent loans, which are typically already bought out of the agency MBS trust,” Barclays wrote. “The only effect might be from the moral hazard side: if underwater borrowers in agency MBS pools start going delinquent on purpose to qualify for debt forgiveness, speeds will obviously rise. But we think this is unlikely to have a significant effect on agency speeds.”

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

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

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

Home prices fall

According to the CoreLogic Home Price Index (HPI), national home prices, including distressed sales, also declined by 3.9% on a year-over-year basis in October 2011 compared to October 2010.  This follows a decline of 3.8% in September 2011 compared to September 2010.  Excluding distressed sales, year-over-year prices declined by 0.5% in October 2011 compared to October 2010 and by 2.1% in September 2011 compared to September 2010.  Distressed sales include short sales and real estate owned (REO) transactions.

Highlights as of October 2011

-  Including distressed sales, the five states with the highest appreciation were:  West Virginia (+4.8%), South Dakota (+3.1%), New York (+3.0%), District of Columbia (+2.4%) and Alaska (+2.1%).

-  Including distressed sales, the five states with the greatest depreciation were: Nevada (-12.1%), Illinois (-9.4%), Arizona (-8.1%), Minnesota (-7.9%) and Georgia (-7.3%).

-  Excluding distressed sales, the five states with the highest appreciation were: South Carolina (+4.6%), Maine (+3.1%), New York (+3.1%), Alaska (+2.9%) and Kansas (+2.8%).

-  Excluding distressed sales, the five states with the greatest depreciation were: Nevada (-8.8%), Arizona (-7.0%), Minnesota (-5.7%), Delaware (-3.9%) and Georgia (-3.6%).

-  Including distressed transactions, the peak-to-current change in the national HPI (from April 2006 to October 2011) was -32.0%.  Excluding distressed transactions, the peak-to-current change in the HPI for the same period was -22.4%.

-  Of the top 100 Core Based Statistical Areas (CBSAs) measured by population, 78 are showing year-over-year declines in October, two fewer than in September.

Citigroup plans layoffs

Citigroup is cutting 4,500 jobs worldwide, Chief Executive Vikram Pandit said on Tuesday, becoming the latest large bank to trim staff.  Pandit, speaking at the Goldman Sachs Financial Services Conference, said the bank would record a $400 million charge in the quarter for severance and other expenses related to the layoffs.  The cuts are equal to about 2% of Citi’s workforce of 267,000 employees at the end of third quarter 2011.  Pandit said the cuts would be completed over “the next few quarters” and would come from a range of businesses.  Citi joins other banks worldwide that have cut more than 120,000 jobs as regulations have imposed tighter industry rules and the economy remains weak.  Pandit said Citi’s reductions would involve its proprietary trading units, which are being wound down.  The 2010 Dodd-Frank financial reform law features a provision known as the Volcker Rule that limits banks from betting their own capital in the market.  Pandit also said Citi’s expense previously disclosed expense reduction program generated $1.4 billion in savings so far this year, nearly 4% of the bank’s $37.72 billion of operating expenses in the first three quarters.

MBA – mortgage applications increase

Mortgage applications increased 12.8% from one week earlier (which included the Thanksgiving holiday), according to data from the Mortgage Bankers Association’s (MBA) Weekly Mortgage Applications Survey for the week ending December 2, 2011.   The Market Composite Index increased 12.8% on a seasonally adjusted basis from one week earlier. On an unadjusted basis, the Index increased 60.2% compared with the previous week. The Refinance Index increased 15.3% from the previous week. The seasonally adjusted Purchase Index increased 8.3% from one week earlier to its highest level since August 5, 2011. The unadjusted Purchase Index increased 47.2% compared with the previous week and was 0.8% lower than the same week one year ago.  “Coming out of the Thanksgiving holiday, applications increased significantly as mortgage rates dropped to their lowest levels in about two months,” said Michael Fratantoni, MBA’s Vice President of Research and Economics. “In particular, refinance applications increased sharply, with some lenders seeing refinance volume double. Despite this surge, aggregate refinance activity is still below levels reported two weeks ago. Some lenders indicated they are beginning to see an increase in HARP loans, but that increase is still a small portion of the move this week.”

The four week moving average for the seasonally adjusted Market Index is down 3.20%. The four week moving average is up 3.33% for the seasonally adjusted Purchase Index, while this average is down 5.13% for the Refinance Index.  The refinance share of mortgage activity increased to 76.0% of total applications from 73.9% the previous week. The adjustable-rate mortgage (ARM) share of activity decreased to 5.7% from 5.8% of total applications from the previous week.  In November 2011, among refinance borrowers, 52.9% of applications were for fixed-rate 30-year loans, 26.2% for 15-year fixed loans, and 5.8% for ARMs. The share of refinance applications for “other” fixed-rate mortgages with amortization schedules other than 15 and 30-year terms was 15.1% of all refinance applications. The shares for 30-year fixed and the “other” fixed category increased from the previous month, while the 15-year fixed and ARM shares decreased from last month.  For applications for home purchase, 85.5% were for fixed-rate 30-year loans, 6.8% for 15-year fixed loans, and 5.9% for ARMs. This is the second lowest ARM share for purchases since January 2011.

Stock market in for a beating?

Robert Prechter, founder and president of Elliott Wave International, says there’s a big storm coming our way.  Prechter compares the current phase of the market to the late stages of the 1929 – 1933 period in US history; a time marked by extreme volatility eventually ending in tears.  “One of the things that happened in 1929 was that a consortium of the biggest banks in the country tried to stop the market from going down,” notes Prechter. Those banks failed of course, just as Prechter says they did when the Central Banks tried to prevent the coming financial meltdown in 2008 by offering essentially free credit.  The timing is only different, he says, because “banks these days are much bigger than they were in 1929.” In the 20′s institutions were reliant on client money to lead their bailout attempts. Today Central Banks have the ability to call on future, often overstated, tax revenues and are unencumbered by anything such as a gold standard when attempting to ward off the human desire to hide under the covers, financially speaking.

Prechter also draws parallels to April of 1930, 1937, and other periods in which relatively brief recoveries dissolved. Pick a tool, any tool, and Prechter says it suggests a stock market going lower. “Patterns, sentiment indicators, or momentum are all saying the same thing: This is a bear market rally.”  According to Prechter, not all the Central Banks in the world trump international trends towards a cautious, negative mood already impacting all things financial. This trend, the inverse of those giddy days of the 1990′s when all things seemed possible (even Internet stocks and the Euro!), causes predictable behaviors in the masses. They tend to sell stocks, stop spending, and start revolting against current leadership; all of which should sound familiar to those who read the newspaper.  It’s an environment confounding to bulls and bears alike. At the beginning of 2011, Prechter notes, the bulls were betting on a sharp recovery in stocks and “got hurt quite a bit.” Commodities were a bad bet, hurting “hyper-inflationist” bears.  Let’s remember that real estate isn’t in the stock market.

Olick – two housing markets?

“As we head toward the end of the year, for some reason the drumbeat to claim that housing has bottomed is growing louder.  There were a few positive indicators in September, rising housing starts and rising home sales, that gave some analysts fodder for optimism, but the readings on prices are far less rosy, and alas far more complicated.  Two reports out today show home prices are falling again after seeing some gains in the Spring and Summer. Lender Processing Services says they’re down 3.7% annually in September, erasing the gains of the Spring, and they say all of the 13,500 zip codes it tracks are in the negative.  Meanwhile CoreLogic says prices fell 3.9% in October, but when you take out foreclosures and short sales (the latter when the home is sold for less than the value of the mortgage), home prices are down just 0.5% annually. The vaunted S&P/Case-Shiller home price index was down 3.9% in September, and that’s a three month running average including distressed and non-distressed property sales.

So why are analysts now predicting a house price recovery?  Goldman Sachs put out a report late last week predicting that S&P/Case-Shiller would drop 2.5% further and then bottom, probably in the summer of 2012. This when the S&P/Case-Shiller folks themselves predict a 3.5% drop and a bottom later in 2012. The Goldman theory is based on some kind of ‘equilibrium’ price model for each market. They also claim that homes no longer appear ‘expensive.’ when you look at price/rent ratios, and that historical models suggest that income and population, as always, will drive improved demand.  Then this week analysts at Barclays Capital honed in on the difference in price drops between distressed and non-distressed properties. They claim the non-distressed market is stabilizing, so that must mean that a foreclosure or short sale is, ‘increasingly being seen as a poor substitute for a non-distressed home,’ according to analyst Stephen Kim. He claims the disparity will in fact widen over time.

So are we just supposed to ignore the distressed market? What about the fact that in some cities more than half of the properties selling are distressed? And what about the fact that there are more distressed properties coming to market, as the banks ramp up the long-stalled foreclosure process? And how about appraisers using distressed properties as comps to non-distressed properties?  I realize many of you think I’m too bearish on housing’s recovery, but trust me, nobody’s more sick of reporting the same lousy numbers than I am. The problem is that while sales are improving slightly, and consumer sentiment may be settling a bit, the mess left to clean up from the past is still weighing heavily on the future. The economy may be improving slightly, buyers may be considering getting back in, but we are barely half way through the overhang of distress, and any change in the economy could set us back even further.  I am in no way claiming that housing is in for a quadruple dip nor that we are going to see more big losses. Frankly I think we’re going to be flat in housing for a long time, which is not a very interesting story to tell from a reporter’s perspective. While there may be two types of properties (distressed and non-distressed), there is just one housing market, and you cannot negate one to inflate or deflate the other.”

Small business more optimistic, maybe

Optimism of small business owners remained flat in November at 53%, according to a new scorecard by SurePayroll, the leading online payroll service for small businesses with less than 100 employees. That’s fairly good news after optimism rebounded by 20% in October from an all-time low of 33% in September.  The report, which measures the current health of small business in America, also showed hiring was down from October, but wages on the other hand did tick up slightly. Still both remain down 3% and 0.5% year-to-date, respectively.  Small businesses make up 99.7% of all employer firms and employ more than half of private sector workers in this country, according to the US Small Business Administration, which describes a small business as having fewer than 500 employees.

While 53% of small business owners are optimistic about the state of the economy and the health of their business, one must not forget roughly the same amount of are just as pessimistic. Alter says most of SurePayroll customers describe themselves as “cautiously optimistic” and that sentiment rests heavily upon what happens in Washington.  Next year one of the biggest factors to impact the decisions made by small businesses is the Supreme Court’s ruling over the constitutionality of Obama’s health care law, according to SurePayroll’s November scorecard. By a ratio of 2 to 1, the small business owners surveyed are hopeful the Supreme Court finds the health care legislation unconstitutional. If that were to happen, hiring and wages would likely see a boost, says Alter.  Another big factor to impact small businesses is whether Congress will act to extend the employee payroll tax credit and if so, who will have to foot the bill. Passing an extension would provide many Americans with an extra $1000 dollars in discretionary spending, which would be good for business, says Alter. But, if it is businesses who have to cover the expense of that credit, that would certainly hurt hiring and wages.

WSJ – delinquent CMB loans declines

The share of delinquent commercial mortgages that were bundled together and sold as securities declined modestly during the third quarter for the first time since the property downturn began four years ago, according to a survey released yesterday by the Mortgage Bankers Association.  The share of loans at least 30 days past due fell to 8.92% from 9.02% in the second quarter for commercial and multifamily loans in mortgage-backed securities. Those loans have had the worst performance among all commercial mortgages originated during the boom, and the delinquency rate was still above the 8.52% mark of one year ago.

Commercial mortgages held by US banks had a 90-day delinquency rate of 3.75% at the end of the third quarter, down from 3.94% in the second quarter. Delinquencies on bank-held commercial loans have fallen or remained flat in each of the past four quarters.  Delinquencies posted small increases on multifamily mortgages held by Fannie Mae and Freddie Mac, but the increases came from very low absolute levels. Freddie Mac has a delinquency rate of just 0.33%, or around one-tenth of the level of delinquencies of commercial banks. That was up from 0.31% in the second quarter but down from 0.36% in the first quarter.  Nearly 0.57% of Fannie Mae multifamily mortgages were delinquent at the end of September. That was up from 0.46% at the end of the June, but down from 0.71% at the end of 2010.

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

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

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

Foreclosure crisis only halfway over?

A new analysis suggests that the tide of home foreclosures isn’t going to recede soon.  The report from the Center for Responsible Lending, “Lost Ground, 2011,” finds that at least 2.7 million mortgages loaned from 2004 through 2008, or about 6%, have ended in foreclosure and that nearly 4 million more home loans (roughly 8%) from the same period remain at serious risk.  Put another way, “The nation is not even halfway through the foreclosure crisis,” says the report, which analyzed 27 million mortgages made over the five years.  Across the country, low- and moderate-income neighborhoods and neighborhoods with high concentrations of minorities have been hit especially hard, the report found.  The report also noted that certain types of loans have much higher rates of completed foreclosures and serious delinquencies. They include loans originated by brokers; hybrid adjustable-rate mortgages, option ARMs, loans with prepayment penalties and loans with high interest rates (subprime). African Americans and Latinos were more likely to receive a high-cost mortgage with risky features, regardless of their credit. For example, among borrowers with good credit (a FICO score of over 660), African-Americans and Latinos received a high-interest-rate loan more than three times as often as white borrowers.

Jobless claims jump back over 400,000

Weekly applications for unemployment benefits rose 6,000 to a seasonally adjusted 402,000, the Labor Department said Thursday. Applications had been below 400,000 for three straight weeks.  The four-week average, a less volatile measure, was mostly unchanged at slightly below 400,000.  The average fell to a seven-month low two weeks ago. Weekly applications had been declining for two months.  Applications would need to stay below 375,000 consistently to push down the unemployment rate significantly. They haven’t been at that level since February.  The report comes one day before the government reports on job growth in November. Economists project that employers added a net 125,000 jobs, while the unemployment rate stayed at 9% for the second straight month.  While the job growth would be an improvement from October, when the economy added just 80,000 jobs, it’s still barely enough to keep pace with population growth.  Some economists are more optimistic after payroll provider ADP said Wednesday that companies added 206,000 workers last month, the most this year. That survey doesn’t include government agencies, which have been cutting jobs.

WSJ – home prices decline

Home prices declined in September and are poised for a grim winter as banks step up their efforts to take back and sell foreclosed properties.  Prices fell 0.6% from August, according to the widely watched Standard & Poor’s/Case-Shiller index of 20 major metropolitan areas, breaking a five-month run of increases during the spring and summer, when higher sales volumes typically firm up prices.  For the third quarter, prices were down 3.9% nationwide compared with a year earlier, a slight improvement from the 5.8% annual decline recorded at the end of June, according to the Case-Shiller National Index.

Prices remain under pressure as the housing market continues to digest high volumes of foreclosed and other “distressed” properties that tend to sell at a discount. Though sales picked up at the end of the summer, analysts said buyers were only closing deals they perceive as a bargain, which could help explain why prices are sliding again.  “Buyers don’t want to tell their friends ‘I bought a home.’ People look at you sideways. But if it’s a foreclosure, they pat you on the back,” said John Burns, president of a home-building consulting firm in Irvine, Calif. “People need to feel like they’re getting a great deal.”  Prices fell in September from the previous month in all but three of the 20 cities, with a 1.2% gain in Washington, D.C., and 0.1% gains reported in New York and Portland, Ore. For the year, prices were up in just two markets: Detroit reported a 3.7% gain, while Washington posted a 1% increase.  A different home-price index, released Tuesday by the Federal Housing Finance Agency, found that prices in September were up 0.9% from August on a seasonally adjusted basis but were down by 3.7% from year ago. The FHFA index captures mortgages financed by Fannie Mae and Freddie Mac.

Black Friday boosts retail

With a strong start to the holiday season, most retailers were reporting better-than-expected same-stores sales in November.  According to Thomson Reuters, analysts on average are expecting sales at stores open at least 12 months to rise 3.1% from a year ago. But retailers are up against strong performances last year, when they gained, on average, 5.5% during the month.  Macy’s, Costco Wholesale, Limited Brands, and teen retailer Buckle all reported sales gains that topped Wall Street’s estimates.  At Costco, same-store sales rose 9% topping analysts’ estimates of 6.5% growth.  Although the warehouse club operator was helped by higher gasoline prices, even without that boost same-store sales were strong. Without fuel, same-store sales rose 7%.  The Limited, the parent of Victoria’s Secret and Bath & Body Works, said same-store sales rose 7%, comfortably outpacing analysts’ estimates, which called for a 4.4% gain.  However, there were some notable shortfalls. Discount retailer Target said its same-store sales rose 1.8%, short of analysts’ estimates, which called for 2.8% gain, according to Thomson Reuters.

Olick – average foreclosure time sets a record

“Foreclosures are setting new records again, this time not in their overall numbers, but in the time it is taking for all of these properties to be processed through the legal system. The average loan in foreclosure has now been delinquent a record 631 days, according to a new report from Florida-based Lender Processing Services.  The after effects of the so-called ‘robo-signing’ foreclosure paperwork scandal, now more than a year old, continue to plague states which require these cases to go before a judge.  The differences in processing times are blatant when you compare judicial versus non-judicial states. Non-judicial state foreclosures inventories are less than half those of judicial states, and foreclosure sale rates in non-judicial states are four to five times that of judicial states. Judges are starting to ramp up the process.  Bank repossessions actually surged in October in many judicial states, up 48% in New Jersey and up 73% in Indiana month-to-month, according to RealtyTrac. Still the backlog is still enormous. Overall foreclosure inventory is at an all-time high, 4.29% of all active loans, according to LPS.  ‘The discrepancy will go on in perpetuity, as there always has been a difference between judicial and non-judicial timelines,’ said Kyle Lundstedt, managing director of LPS Applied Analytics. ‘Even prior to the worst of the crisis, loans were 4-5 months more delinquent in judicial states at time of foreclosure sale. The number today is more like 8 months, but will return to the 4-5 month difference depending on when and how fast foreclosure sales occur.’

A record-high inventory of foreclosures in process does not bode well for the near future of the housing recovery. All those distressed properties will sell at a deep discount, likely bringing down the prices of surrounding homes.  They will also add to already historically high existing home inventories, while demand is still weak. While there is considerable investor demand for distressed properties, new foreclosures are still outnumbering foreclosure sales by over 3:1.  In addition to the ‘robo-signing’ delays, we are now beginning to see the effects of ineffective loan modifications. Repeat foreclosures made up nearly 45% of new foreclosures in October. Of the 2.1 million modifications since the start of 2008 more than 10% were in foreclosure with another 27.4% delinquent 30 or more days, as of the end of the third quarter of this year, according to the Office of the Comptroller of the Currency.  Lundstedt said foreclosure moratoria, process/documentation reviews, evaluation for loss mitigation and bankruptcies make up the rest of the repeat foreclosures.  As the mortgage market continues to work through the backlog of troubled loans, looking forward, loans originated in 2010 and 2011 are now the best performers on record, thanks to tighter credit requirements.  Of course that begs the question: Did the pendulum swing farther than necessary to the conservative side? Is underwriting now unnecessarily restrictive?”

Troops foreclosures investigated

The US Treasury Department is investigating whether Bank of America, Wells Fargo and eight other major banks may have illegally foreclosed on 4,500 active-duty servicemen and women.  Bank of America has agreed to review more than 2,400 foreclosures of homeowners who indicated they were eligible for relief under a federal law called the Service members Civil Relief Act, according to the Treasury’s Office of the Comptroller of the Currency.  Wells Fargo has agreed to review 871 foreclosures of homeowners who indicated they were eligible under the act. The law is intended to postpone or suspend certain civil obligations to allow active-duty service members to devote their full attention to their military duty.  The other banks being investigated are Aurora Bank, Citibank, EverBank, HSBC, MetLife Bank, OneWest, Sovereign and US Bank.  Bank of America spokesman Rick Simon said it’s unlikely that there will be a large number of improper foreclosures. Wells Fargo officials say the investigation doesn’t mean anything improper was done.

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

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

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

WSJ – now is the best time to buy

The Wall Street Journal’s third-quarter survey of housing-market conditions in 28 of the nation’s largest metropolitan areas found that home values declined in all but five markets compared with the second quarter, according to data from Zillow Inc. Meanwhile, rent levels have risen briskly across the country and mortgage rates, hovering around 4%, are the lowest in six decades.  As a result, monthly mortgage payments on the median priced home—including taxes and insurance—are lower than the average rent levels in 12 metro areas, according to data compiled for The Wall Street Journal by Marcus & Millichap, a real-estate brokerage that tracked 27 metro areas. It remains less expensive to rent than to buy in 15 cities. In Atlanta, which had the most favorable values for owning versus renting, the monthly payment on the average home was $539 assuming a 20% down payment during the third quarter. By contrast, the average asking rent stood at $840, according to the Marcus & Millichap data.

Other cities where owning is now cheaper than renting include Detroit, Minneapolis, Orlando, Las Vegas, Miami, St. Louis, Chicago and Phoenix.  Home ownership is also looking more affordable because after several years of declines, apartment rents will rise by around 4% this year, says Mr. Nadji. He says rents are poised “to pick up even more momentum across the country next year.”  Even cities where it is still cheaper to rent than own have seen big boosts in affordability. In San Diego, the monthly cost of owning a home has averaged around 83% more than renting over the past two decades. During the third quarter, owning was 22% more expensive than renting, according to John Burns Real Estate Consulting.

Mortgage rates are a big reason why affordability continues to improve. In 1991, a $1,700 mortgage payment allowed a borrower to take out a $200,000 mortgage. Today, it gets that homeowner a $350,000 loan, a 77% increase in borrowing power, says Dan Green, a loan officer with Waterstone Mortgage, in Cincinnati. Affordability could continue to improve as prices slide even lower in coming months. Price declines are likely because the share of “distressed” sales, including bank-owned foreclosures, tend to rise in the winter, when traditional sales activity cools. Banks are often much quicker to cut prices to unload properties quickly, which means that the greater the share of “distressed” sales, the more prices tend to fall.

One hopeful sign is that inventories have fallen from their bloated levels of one year ago. All 28 cities in The Wall Street Journal’s latest survey saw homes listed for sale fall from one year ago, when markets were reeling with a substantial overhang of properties amid a big drop in demand. Visible inventory was down sharply in several markets, including by almost half in Miami and 40% in Phoenix.  Low inventories have spurred more bidding wars at the low end of the market as investors compete for homes that they can convert into rentals. In Sacramento, it would take just 2.5 months to sell the listed inventory at the current sales pace. Las Vegas has a 4.3 month supply of inventory, according to John Burns Real Estate Consulting. But the potential supply of homes is much bigger because banks have yet to process hundreds of thousands of potential foreclosures.

Black Friday sales boom

Sales rose an estimated 6.6% to a record $11.4 billion on Black Friday, typically the busiest shopping day of the year for Americans, while the traffic at stores rose 5.1%, according to ShopperTrak.  The day’s sales growth was the strongest percentage gain since 2007, when sales rose 8.3% on the day after Thanksgiving, said Ed Marcheselli, chief marketing officer at ShopperTrak, which monitors retail traffic.  As usual on Black Friday, retailers used deep discounts on popular items such as toys and televisions to lure shoppers as the holiday shopping season began. Some started sales as early as Thanksgiving night to get a jump on their rivals.  While the Black Friday rise was a “positive indicator for the holiday season,” Marcheselli cautioned it is just one day.  ShopperTrak has estimated that sales for all of November and December will rise about 3 to 3.3%.  The National Retail Federation, an industry trade group, expects 152 million people to hit stores this weekend, up 10.1% from last year. But it expects sales for the full November-December holiday season to rise just 2.8%, well below the rise of 5.2% in 2010.

DSNews.com – mortgage rates down

The 30-year fixed-mortgage rate has averaged at or below 4% for four consecutive weeks now. For the week ending November 23, Freddie Mac’s study puts the average 30-year rate at 3.98% (0.7 point). That’s down from 4.00% the week prior.  The only time Freddie has recorded a lower 30-year rate average was for the week of October 6, 2011, when it came in at 3.94%.   The 15-year fixed-rate mortgage posted an average of 3.30% (0.7 point) in Freddie Mac’s latest survey. It was 3.31% last week.  The 5-year ARM is averaging 2.91% (0.6 point), down from 2.97% last week. The 1-year ARM slipped from 2.98% to 2.79% (0.6 point) this week. Rates for both ARM terms are the lowest ever recorded by the GSE.  “Mortgage rates eased slightly this week with fixed-rate loans hovering above all-time lows and ARMs reaching a new nadir,” commented Frank Nothaft, Freddie Mac’s chief economist.  He says the high-degree of home-buyer affordability in recent months translated into a 1.4% pickup in existing home sales during October, as measured by the National Association of Realtors.  Nothaft noted, however, that the trade group also reported a sharp increase in contract cancellations in October, with a third of its members seeing at least one contract fall through during the month. This “restrained sales from achieving a stronger rebound,” according to Nothaft.

Morgan Stanley cuts growth forecast

The continuing uncertainty over debt troubles in Europe and the US has increased the downside risks to global growth, according to Morgan Stanley. The bank downgraded its forecast for global growth next year to 3.5% from 3.8%, just three and a half months after it cut its forecast from 4.5%.  “Our economics team in Europe now expects a recession in Europe while the US economy is expected to continue growing below its trend,” said Morgan Stanley.  It also cut its 2012 growth estimate for Asia ex-Japan to 6.9% from 7.3%.  “Since we downgraded our regional growth outlook in August 2011, we have been constantly worried about the increasing downside risks to growth. In addition to further evidence of weakening domestic demand, the external environment in Europe has made us more concerned about the region’s growth outlook,” economists at Morgan Stanley said in a research note today.

Even Asia, which has so far escaped the global slowdown is likely to be dragged down, according to Morgan Stanley.  The bank noted that the regions’ deep trade and financial linkages with the rest of the world made it vulnerable to deep shocks in the global economy. “The prospects of further fiscal tightening and weaker domestic demand in Europe will translate into weaker external demand growth for the region,” it said. “The slowdown in final demand in the developed world will likely be amplified on the region’s cross-border production network, leading to a significant slowdown in export growth across the region in 2012.”  Morgan Stanley noted this was already starting to happen. Asian exports, which “have been flat on a sequential basis since Mar 2011, have also begun to decline on a sequential basis in the last two months.” Asia’s domestic indicators, such as auto, retail and property sales as well as manufacturing activity (PMI) were also pointing to a deceleration, the bank said.

Home prices to fall another 6%?

Analysts with JPMorgan claim home prices will fall another 4% by year-end, resulting in a 35% peak-to-trough decline once a bottom is reached.  When looking at just non-agency residential mortgage-backed securities, the report says “market volatility, lack of liquidity and stagnant fundamentals” will remain drags on the entire segment in 2012. In non-agency residential mortgage-backed securities, the authors also noted slowing activity on the modification front. “We continue to recommend fixed-rates and select seasoned hybrids,” the report said.  The JPMorgan report also is careful when forecasting the performance of commercial mortgage-backed securities in 2012.  “Our outlook for 2012 is cautiously optimistic, as market conditions continue to weigh on what we believe remains cheap fundamental credit risk. Private label and agency CMBS supply should reach $35 billion and $32 billion, respectively,” the report 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

(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

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

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

New foreclosure plan

Big investors are showing interest in an evolving Obama administration plan to sell off foreclosed homes, although the government will have to make the offer sweet enough to coax private funds. The White House is assessing how best to encourage private companies and investors to snap up foreclosed properties held by the government and convert them into rentals. Officials want private partners to take over as much as $30 billion in single-family properties that are currently on the books of government-run Fannie Mae, Freddie Mac and the Federal Housing Administration. Several money managers with large fixed income funds are interested, according to sources, and a request for ideas on how to construct a program received nearly 4,000 responses. The foreclosure conversion program would come as the next step to complement other government supports for housing, including an expanded refinance program announced on Monday.

The main question for prospective investors, which include broker-dealers and firms already overseeing similar rental programs, is the type of financing the government will make available—an issue officials are still struggling with. “In order to get a better bid, there has to be some incentive involved to get qualified investors involved,” said Ron D’Vari, co-founder and chief executive of NewOak Capital. “The reality is not a lack of interest, but so far it looks like a lack of financing.” Incentives could include low interest rates, tax benefits or some type of rental assistance, said D’Vari, a portfolio adviser who has been involved in mini-bulk auctions of real estate-owned properties, or REOs, in California. REO properties are those acquired by a lender, whether a bank or the government, after an unsuccessful auction attempt. Fannie Mae, Freddie Mac and the FHA own about 250,000 properties, close to a third of the country’s REO pool.

One key challenge would be finding big enough blocks of properties in specific geographic areas that could be sold at one time. Analysts say this is what it would take to make the program attractive to large institutional investors. The transaction and liability costs property managers will face as they try to bring deserted units back up to code also pose a hurdle. The government also needs to determine how it will protect taxpayers, and it might explore ways to pair up with investors and allow Fannie Mae, Freddie Mac and FHA to keep some type of an ownership stake in the rental properties. A public-private partnership, somewhat along the lines of a program the Treasury tried to use to soak up toxic bank assets during the financial crisis, would allow the government to gain from the sales. Fannie Mae, Freddie Mac and the FHA have already undertaken some small efforts to reduce the backlog of foreclosed homes. They have donated a few vacant properties for demolition and have held some small auctions. Having already received $141 billion in taxpayer support since being seized by the government in 2008, Fannie Mae and Freddie are under enormous pressure to make sure they maximize the returns from the properties they hold. “This has got to be thought out. Fannie and Freddie would need to assess if they are getting the return they need from a rental,” said Ken H. Johnson, a real estate professor at Florida International University. Johnson said one way to get over the hurdle would be for the two agencies to be given an explicit mission of market stabilization.

2.5% growth, jobless claims hold steady

US economic growth increased at its fastest in a year in the third quarter as consumers and businesses set aside fears about the recovery and stepped up spending, creating momentum that could carry into the final three months of the year. At the same time, slightly fewer people sought unemployment benefits last week, though level remains elevated above 400,000. Though part of the increase came from the reversal of temporary factors that had restrained growth, the expansion was a welcome relief for an economy that looked on the brink of recession just weeks ago. U.S. gross domestic product expanded at a 2.5% annual rate in the third quarter, the Commerce Department said in its first estimate on Thursday. That was a big acceleration from the 1.3% pace in the April-June quarter and matched economists’ expectations. Consumer spending in the last quarter was the strongest since the fourth quarter of 2010, while business investment spending was the fastest in more than a year. Even though consumer spending was stronger, businesses were slow in stocking up their warehouses. The peppier spending and a slower pace of inventory accumulation by businesses will lay a base for a solid fourth quarter, but a slowdown in Europe and the exhaustion of pent-up U.S. demand could leave a weak spot early in 2012. And the recovery’s pace is still too weak to lower a jobless rate that has been stuck above 9% for five straight months.

Olick – new sales increase, prices tank

“Sales of newly built homes in September came in well over expectations, and stocks of the big builders took a little tick up on the news. They then dropped off pretty precipitously, as analysts weighed in on what is behind that nice headline number. First of all, these particular monthly numbers are based on signed contracts to buy a home, not closings, which provide the numbers for existing home sales. This data set is extremely volatile due to how small the survey pool is. And then of course you have these huge seasonal adjustments, which are important given housing’s distinct seasonality, but they can really skew the reality. So, the headline number is that sales (signed contracts) rose 5.7% from a seasonally adjusted annualized rate of 296,000 in August to 313,000 in September. Take out the seasonal adjustment, and don’t annualize (the expectation of how many homes will sell this year based on the monthly rate) and according to the report, builders sold 25,000 homes in August and 25,000 homes in September. No change. The good news is that builders usually sell fewer homes in September than August, and they sold the same, hence the seasonal bump up, the bad news is that 25,000 is a pitifully low number of sales, actually tying a record low.

We can haggle over sales numbers ’til the cows come home (if their home isn’t in foreclosure), but we really need to focus on the pricing numbers. The price of a newly built home fell 10.4% in September year over year to $204,400.00, which is about $200 higher than the low of 2003. Builders are being forced to compete with existing home sale prices, one third of which are distressed properties (foreclosures and short sales). The median existing home sale price in September was $165,400, so that’s still a pretty big premium. Unfortunately, given the high cost of materials these days and difficulty in obtaining construction loans, builders take every dollar drop pretty hard. ‘The pricing issue would generally hit everyone and would result in lower margins (and some additional impairments),’ notes Dan Oppenheim at Credit Suisse. Of course the pricing numbers also have noise in them. ‘Those particular price figures are not adjusted for the mix of new homes being built, so the rate of decline probably also reflects the switch to building smaller homes rather than the so-called ‘McMansions’ that were popular during the boom years,’ writes Paul Ashworth at Capital Economics, who says a turnaround in the new home market may still be a couple of years away.”

Will the super-committee slow spending this Christmas?
The Super Committee has been negotiating behind closed doors since September, and they have until Nov. 23 — that’s the day before Thanksgiving — to reach an agreement on at least $1.2 trillion in deficit reduction measures. Some retail experts fear that further political gridlock in Washington will make American consumers even more hesitant to spend during the busiest shopping period of the year. When the Super Committee was forged out of the debate on whether to raise the debt ceiling, consumers reigned in spending. One of the problems plaguing retailers is a lack of exciting new products to inspire consumers to shop, says Marshal Cohen, chief industry analyst at NPD Group. “There is almost nothing new…to get the consumer excited beyond just the traditional holiday categories,” Cohen says. Against this backdrop, the political discussions could create a big distraction for consumers. And that’s something retailers don’t want when most analysts, including Cohen, expect marginal growth at best this holiday season. It also may be yet another reason for consumers to be downbeat. Numerous consumer surveys have shown that consumers are worried about the economy and about their rising household expenses. One of the latest, a survey conducted by Deloitte, showed that two-thirds of consumers expect the economy to stay the same or weaken next year. As a result many consumers reported that they would be trimming their gift list and 42% said they planned to spend less this year.

Underwater mortgages in Las Vegas fall further

The September median home price in Las Vegas fell 11.5% from one year ago and remains 63% below the peak, according to analytics firm DataQuick. A home that sold for $312,000 during the peak of the housing bubble in November 2006 is now worth $115,000. September was the 12th straight month the median home price fell from the year before. The decline has fallen to levels not seen since the mid-1990s, DataQuick said. “This can be attributed to several factors: home price depreciation; robust sales of low-cost foreclosures; robust sales to investors, who mainly target low-cost properties; extraordinarily low new-home sales (new homes tend to sell for more than resale homes); and higher-than-usual condo resales (condos tend to be the least expensive homes),” DataQuick said.

President Obama gave a speech Monday in Vegas, promoting changes to help more underwater borrowers refinance announced the same day. The Federal Housing Finance Agency will waive some representation and warranty risk, appraisal requirements, and negative equity caps for the Home Affordable Refinance Program. How effective the program is remains in question for the nearly 4 million Fannie Mae and Freddie Mac borrowers underwater. In Vegas, 80% of the local homeowners owe more on their mortgage than the home is worth, according to RealtyTrac. Principal reduction remains the largest tool yet to be taken up by the largest banks or by any government agency on a large scale to combat the negative equity problem in the U.S.

Department of Housing and Urban Development Secretary Shaun Donovan said principal reduction will be a major function of the still pending attorneys general settlement with the largest mortgage servicers. Many Republican AGs and lawmakers say such lengths would only promote strategic default, not entice more people to stay current on their mortgage. Meanwhile, the number of default notices in Vegas increased 190% from July to August, according to DataQuick. More than 4,700 default notices were filed, led by Bank of America, the same findings states along the West Coast found. “It is unclear whether the higher levels of NODs seen in August and September are the beginning of a longer-term upward trend in default filings, which could mean far more distressed properties on the market and more downward pressure on home prices,” DataQuick 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

(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

Forward this e-mail to your friends!

Then they can subscribe directly at the following link:

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http://www.mclaughlinchris.com

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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

(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

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

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

MBA – mortgage applications up

Mortgage applications increased 1.3% from one week earlier, according to data from the Mortgage Bankers Association’s (MBA) Weekly Mortgage Applications Survey for the week ending October 7, 2011.   The Market Composite Index, a measure of mortgage loan application volume, increased 1.3% on a seasonally adjusted basis from one week earlier.  On an unadjusted basis, the Index increased 1.3% compared with the previous week.  The Refinance Index increased 1.3% from the previous week.  The seasonally adjusted Purchase Index increased 1.1% from one week earlier. The unadjusted Purchase Index increased 1.2% compared with the previous week and was 2.9% lower than the same week one year ago. The increases were driven mainly by the government loan category, with the Government Purchase index up 2.4% and Government Refinance index increasing 9.9%. The Conventional Purchase and Refinance indexes increased 0.1% and 0.2%, respectively.

The four week moving average for the seasonally adjusted Market Index is up 1.56%.  The four week moving average is down 0.51% for the seasonally adjusted Purchase Index, while this average is up 2.15% for the Refinance Index.  The refinance share of mortgage activity remained unchanged at 79.1% of total applications from the previous week. The adjustable-rate mortgage (ARM) share of activity decreased to 6.0% from 6.4% of total applications from the previous week.  The average loan size of all loans for home purchase in the US was $210,863 in September 2011, down from $212,736 in August 2011. The average loan size for a refinance was $237,632, down from $241,323 in August.  The largest purchase loans were made in the Pacific region at $ 302,110. The largest refinance loans were also made in the Pacific region at $ 339,592.

Pennsylvania state capital declares bankruptcy

The Harrisburg, Pa., city council passed a resolution Tuesday night authorizing a Chapter 9 bankruptcy filing, a city official said today.  Harrisburg faces a $300 million debt crises tied to a project to revamp its incinerator and has been plagued with cash flow problems.  Mark Schwartz, the council’s attorney in this matter, said on Wednesday that the bankruptcy filing would give the city ”bargaining power” with its creditors and with the state, which is considering a takeover plan.  The bankruptcy court for the middle district of Pennsylvania confirmed on Wednesday it had received a faxed bankruptcy petition from Harrisburg, but that it has not been filed yet.

The state legislature is considering a bill that would call for an eventual takeover of the city and the forced implementation of a fiscal rescue plan.  In July, the city council rejected a state-approved rescue plan, which called on it to renegotiate labor deals, cut jobs, and sell or lease its most valuable assets, including the incinerator and parking garages.  In August, the council rejected a similar plan that had been crafted by Mayor Linda Thompson, saying that both plans were overly burdensome for Harrisburg residents and did not ask enough of the county, bondholders, and the bond insurer, Assured Guaranty.

MBA issues housing forecast

The Mortgage Bankers Association (MBA) expects to see mortgage originations fall from an estimated $1.2 trillion in 2011 to $900 billion in 2012. The drop will be driven by a significant decline in refinance originations, while purchase originations will increase only slightly. The economy will see another year of anemic growth in 2012, and then will grow somewhat faster in 2013. Refinance originations are expected to fall despite low mortgage rates as economic uncertainty lingers and fewer eligible borrowers remain.  Following are the key points of the latest MBA forecast:

-  Real GDP growth will be 1.3% in 2011, which began with a dismal 0.4% growth in the first quarter and 1.3% growth in the second quarter. We expect the second half to average around 1.8%, but even that is on shaky ground, with a weak labor market, volatile financial markets, and looming risks of a spillover from the European debt crisis. We expect 2012 to continue in a similar fashion, showing growth of around 1.7%, as Europe enters a recession of its own and the US economy flirts with a shallow recession until midway through 2012. There should be a modest recovery in 2013 with growth reaching 2.4% for the year.
-  The unemployment rate will increase slowly until the second quarter of 2012, hitting 9.3%, from the current level of 9.1%. It is expected to be around 9.1% for 2011, 9.3% for 2012, and 9.1% for 2013. Even though both economic and job growth are in positive territory, they are still insufficient to lower the unemployment rate in the near term.
-  Fixed mortgage rates are expected to remain low by historical standards, finishing 2011 at around a 4.5% average for the year, falling slightly to 4.4% for 2012 and climbing back up to 4.9 by 2013.
-  Total existing home sales will stay around the 4.9 million unit pace for 2011 and 2012, before increasing slightly to 5.2 million units in 2013 as the broader economy recovers. The recovery in the new home sales will have a comparably slow start, and may well be slow for most of 2012, but will show some meaningful increases in 2013.
-  Home price measures that exclude distressed transactions have stabilized, and certain markets are showing year-over-year appreciation. FHFA’s national repeat transactions home price measure, which does not distinguish between distressed and non-distressed sales, will continue to decline before starting a reversal in mid to late 2012, but will vary by state and home value.
-  Purchase originations will likely decrease in 2011 from 2010, totaling $400 billion from an estimated $472 billion in 2010. Seeing as 2012 will likely be another year of slow economic growth, purchase originations will increase to slightly around $412 billion for the year. As the economy picks up a little more speed in 2013 and home sales and home prices also start to increase, purchase originations are expected to increase to $770 billion for the year.
-  Despite lower mortgage rates towards the end of the year, refinance originations in 2011 will be lower than in 2010, falling to $783 billion from an estimated $1.1 trillion, as there were fewer eligible borrowers left to refinance. We expect this “burnout” to continue through 2012 and 2013, even as rates remain below 5%, with refinance originations falling steadily to $495 billion and then $332 billion, respectively.

Oil up

Oil prices inched up above $86 a barrel Wednesday, supported by a weaker dollar even as concerns persisted about the sovereign debt crisis in Europe and the International Energy Agency slightly lowered its demand growth forecasts.  By early afternoon in Europe, benchmark crude for November delivery was up 70 cents at $86.51 a barrel in electronic trading on the New York Mercantile Exchange. The contract rose 40 cents to settle at $85.81 in New York on Tuesday.  In London, Brent crude was up $1.23 to $111.96 a barrel on the ICE Futures exchange.  The euro gained on the dollar after the release of fresh data showing that industrial production in the 17 countries using the common European currency rose unexpectedly in August, easing concerns that the region was heading back into recession in the third quarter.

A weaker dollar tends to lift the price of commodities such as oil by making it cheaper for investors holding other currencies.  The euro was up to $1.3806 from $1.3669 late Monday in New York, while the dollar weakened to 76.58 yen from 76.66 yen.  The Paris-based IEA said it was now expecting global demand to rise to 89.2 million barrels a day this year — 1 million barrels more than in 2010 — and to 90.5 million barrels a day in 2012. Compared with last month’s forecasts, these revisions were lower by 50,000 barrels a day for 2011 and by 210,000 barrels a day for 2012.

DSNews.com – west coast foreclosures fall

New foreclosure actions in states along the country’s West Coast returned to levels in line with prior months during September, according to ForeclosureRadar, a California-based company that tracks every foreclosure in its five-state coverage area.  The leveling off in September follows a strong surge in foreclosure starts during the month of August in the western states of Arizona, California, Nevada, Oregon, and Washington, and puts new foreclosure tallies far below the numbers seen at the peak of each state’s foreclosure activity.

ForeclosureRadar reports California has seen a drop in activity of 56% since its peak, from 58,623 notice of default filings in March of 2009 to 25,778 today.  Arizona shows a similar swing in notice of trustee sale filings, from 14,722 in March of 2009 to 5,982 filings last month – a decrease of 59.4%.  Washington has experienced the greatest decline of all, with 71.5% fewer notice of trustee sale filings today than at their peak in June of 2009.

Foreclosure sales were mixed last month, with declines in Arizona, California, and Nevada, while Oregon and Washington both showed increases.  Despite declines in three of the five states, ForeclosureRadar notes that the percentage of foreclosure sales that went to third parties, typically investors, was at or near peak levels.  In California, third parties purchased a record 27.4% of all foreclosure sales last month.  In Arizona, that number was even higher at 38.3%, also a record.  Nevada was just shy of its record, set in August at 29.1%.  Sales to third parties in Washington were up 15.6%, a record for this year.  Oregon was the only state to show a decrease, down from 15.5% in July to 6.0% last month.  “While foreclosure activity returned to its normal course in September, we fully expect to see more volatility like we saw in August as banks continue to work in fits and starts through robo-signing and other issues,” said Sean O’Toole, founder and CEO of ForeclosureRadar.  “It’s almost unfathomable that four years into this crisis there would still be so much uncertainty on how to best deal with the trillions in bad mortgage debt that was created during the credit bubble,” O’Toole added.

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

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

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

20 city home price index up?

The Standard & Poor’s/Case-Shiller 20-city composite home price index, which will be released on Tuesday, likely rose 1.2% in July from the previous month, a Zillow Inc. forecast showed. The Case-Shiller, a key housing price index that covers 20 US metropolitan areas, likely fell 4% in July from the year-ago period, Zillow said. The S&P/Case-Shiller 10-city index is expected to show the same month-over-month increase compared to June, while also registering a decline of 3.4% from a year earlier. “The market is full of conflicting signals right now with August consumer confidence down by 25%, July pending homes slipping, and the four-week moving average of mortgage applications also dipping,” said Zillow Chief Economist Stan Humphries in a statement.

Humphries’ expectations for the Case-Shiller index were initially much weaker, but were bolstered recently by two indicators. The Zillow home value index, a key factor in its Case-Shiller forecast, rose 0.12% in July, and August home sales rose 7.7%, well ahead of expectations. Still, uncertainty is plaguing the market and will exert a drag on housing, according to Humphries. “I still believe that the continued fears about a Greek default, weak employment growth and low consumer confidence will ultimately translate into weaker housing performance in the back half of this year,” he said. “Looking ahead, expect fading monthly momentum in Case-Shiller.”

Gold to fall much further?

The price of gold, which has fallen in recent weeks as part of a broader market sell-off, has even further to fall, Marc Faber, author of the Gloom Boom, and Doom Report, said Monday. “We overshot on the upside when we went over $1,900,” said the fund manager, who has 25% of his portfolio in gold. “We’re now close to bottoming at $1,500, and if that doesn’t hold it could bottom to between $1,100-$1,200.” US gold suffered its biggest daily drop in more than five years on Friday. John Woods, Chief Investment Officer at Citi Private Bank, said that he believes gold will fall to around $1,400 before continuing its long-term rise. “It was massively over-bought in the last couple of weeks and now it will get over-sold,” he said. “I don’t think the long-term trend is broken.” While the spotlight has been on Greece and the euro zone in recent weeks, Faber believes that the sell-off is actually being prompted by a slowdown in China. “Asian markets are weak, Asian currencies are weak and economically sensitive stocks are weak because there’s a more meaningful slowdown in China,” he said. Some observers have warned that the true scale of China’s debt is much larger than official statistics suggest, as much is held at the local government level after a huge stimulus following the post-Lehman slowdown.

Housing permits up

CreditSights notes a 3% rise in single-family housing permits in August that could be cause for a small sign of hope. In its monthly housing monitor report, the independent research firm said housing “continues to hover on the sidelines with minor shifts up and down.” The firm doesn’t expect meaningful upticks until the country sees improved employment, more consumer confidence and mortgage market changes. Construction activity remains anemic with starts slipping 5% to a seasonably adjusted and annualized rate of 571,000 in August. The decline was driven by a 12% drop in multifamily units, but single-family home construction also slowed by one percentage point.

The rise in building permits — a forward-looking economic indicator — gives a glimmer of hope that more construction activity is on the way. Still, the big national homebuilders have been reticent to add to the housing stock with most stepping away from any aggressive building. Lennar Corp. recently said weak demand coupled with tight lending puts the housing market in a holding pattern. KB Home on Friday reported a wider third-quarter loss on fewer deliveries, but also noted orders are up. In August, homebuyers closed on a seasonally adjusted annualized rate of 5.03 million homes. Existing homes sales rose 7.7% for the month. CreditSights said some home purchases may have been pulled forward as buyers seek to close purchases before flood insurance and conforming loan limits expire at the end of September.

Investors remain a key part of the market with 22% of transactions in August, and 29% of all transactions were cash deals that avoided the mortgage market altogether. Investors looking for good deals in the distressed market helped push the median price of homes down for the second consecutive month to $168,000, the CreditSights report said. The firm predicts more housing price declines, but notes “the fact that sales were up at all is surprising against a back drop of extreme weakness in the financial markets during the month of August.” The cancellation rate jumped to 18% from 16% as appraisals coming in below the agreed selling price and mortgage qualification issues become typical.

SEC considers charges against S&P

The staff of the Securities and Exchange Commission is considering recommending civil legal action against the Standard & Poor’s debt ratings agency over its rating of a 2007 collateralized debt offering. S&P has been under fire for its recent downgrade of US debt, as well as several bad calls it made leading up to the financial crisis and economic meltdown that began in 2008. The unit’s president stepped down last month. McGraw-Hill Cos., which owns S&P, said Monday that it received a Wells Notice from the SEC’s staff on Thursday. In issuing Wells notices, the SEC enforcement staff gives companies the chance to make the case why charges are unwarranted. That means a formal decision by SEC commissioners to file charges may not occur. S&P said it has been cooperating with the commission and plans to continue cooperating on the matter.

WSJ – interest rates lower still

The 30-year fixed-rate mortgage dipped below 4%, possibly triggering a refinancing boom for many of the same borrowers who already have taken advantage of rock-bottom interest rates. According to a survey by Credit Suisse on Thursday, lenders were offering an average rate of 3.91% on 30-year fixed-rate mortgages to borrowers who paid “points,” or fees, worth 1% of the loan balance. Wells Fargo & Co. advertised on its website Friday afternoon a 3.875% rate on a 30-year fixed-rate mortgage, with fees of 1% on the loan. Lou Barnes, a mortgage banker in Boulder, Colo., refinanced four borrowers on Thursday into 30-year fixed-rate mortgages at 3.875%. “At this point, the only people being helped are those who need it the least,” he said. For the home-sales market, low rates will help make homes more affordable, but may not boost home buying if consumers are worried about the economy. “Today, the buyers’ concern is the falling value of homes,” said Mr. Barnes. “I’ve had potential buyers say: ‘I don’t care if rates are zero if prices are going to fall again.’”

Geithner warns about Europe

US Treasury Secretary Tim Geithner warned Saturday that the sovereign debt and banking crisis in Europe represents “the most serious risk now confronting the world economy.” In an official statement to the International Monetary Fund, Geithner also discussed the need to both support the US economy in the short term and take steps to lower the nation’s long-term deficits. But his strongest comments were directed at Europe, where the specter of a default by the Greek government has upset financial markets around the world. The nation’s long-standing debt problems are threatening to spill over into the European banking system, with possible repercussions for the fragile US economy. While he praised the actions European leaders have taken so far, Geithner said more needs to be done to create a “firewall against further contagion.” “The threat of cascading default, bank runs, and catastrophic risk must be taken off the table, as otherwise it will undermine all other efforts, both within Europe and globally,” the Treasury chief said. “Decisions as to how to conclusively address the region’s problems cannot wait until the crisis gets more severe.”

Christine Lagarde, the newly appointed managing director of the IMF, urged policymakers in developed nations to take urgent and coordinated action to address what she called a “crisis of confidence” in the global economy. The US government must act now to reduce long-term deficits while being careful not to hurt the nation’s fragile economy by cutting spending too aggressively, she said.

Olick – FHFA under fire

“Given that the conservator of Fannie Mae and Freddie Mac, the Federal Housing Finance Agency (FHFA) has been wielding incredible power of late in deciding how much the two mortgage giants can and cannot charge in guarantee fees and whom they can and cannot refinance, it was particularly disturbing to learn the that same FHFA has been deemed, dare I say it, incompetent, at least in one of its oversight capacities. The FHFA’s Office of Inspector General has released a scathing report that points to understaffing and inefficiency at the mortgage giants’ regulator. ‘FHFA-OIG has identified shortfalls in the Agency’s examination coverage, particularly in the areas of Real Estate Owned (REO) and default-related legal services,’ the report begins. Translation: ‘Robo-signing’ paperwork issues. ‘FHFA has too few examiners overall to ensure the efficiency and effectiveness of its examination program,’ the report continues. Apparently just about a third of the FHFA’s 120 non-executive examiners are accredited federal financial examiners, and there is nothing in the works there to ‘improve this condition.’

But wait, there’s more: ‘FHFA, to its credit, has sought to address these challenges. Although this is a positive response, FHFA has expressed concern that its current hiring initiative will neither enable it to overcome its examination capacity shortfalls nor ensure the effectiveness of its 2011 reorganization.’ So the FHFA is having trouble getting new examiners, because, logically why would anyone want to go work for an agency that regulates two entities that are supposed to be eliminated over the next five years? Still, it’s not exactly comforting to hear that there’s no one, or at least too few people, minding the store…the store which finances more than half of the nation’s home mortgages. Fannie Mae had no comment.”

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

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

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

MBA – applications increase

Mortgage applications increased 0.6% from one week earlier, according to data from the Mortgage Bankers Association’s   Weekly Mortgage Applications Survey for the week ending September 16, 2011.  The Market Composite Index, a measure of mortgage loan application volume, increased 0.6% on a seasonally adjusted basis from one week earlier. On an unadjusted basis, the Index increased 25.2% compared with the previous week, which included the Labor Day holiday. The Refinance Index increased 2.2% from the previous week. The seasonally adjusted Purchase Index decreased 4.7% from one week earlier. The unadjusted Purchase Index increased 17.1% compared with the previous week.

The four week moving average for the seasonally adjusted Market Index is down 3.15%. The four week moving average is down 0.54% for the seasonally adjusted Purchase Index, while this average is down 3.91% for the Refinance Index.  The refinance share of mortgage activity increased to 78.3% of total applications from 76.8% the previous week. The adjustable-rate mortgage (ARM) share of activity decreased to 6.7% from 7.3% of total applications from the previous week.  During the month of August, the investor share of applications for home purchase was at 5.7%, a slight increase from 5.5% in July. This change was led by an increase in the Pacific region. In addition, the share of purchase mortgages for second homes increased to 6.0% in August from 5.9% in July.

Weak holiday season for retailers?

A new forecast by the research firm ShopperTrak indicates that sales will likely not be as high as last year and that shoppers won’t be hitting the stores as much.  Retail sales for the November and December period are expected to rise 3% during what is traditionally the most critical period of the year for retailers.  That would be below last year’s 4.1% sales rise.  Shoppers have been cautious about spending through 2011, faced with uncertain economic conditions, rising gas prices and high unemployment.  This means many consumers are still seeking out bargains, buying essential goods over discretionary items and curtailing purchases for themselves.  Another reason retailers may not be jolly this year is that a measure of customer traffic in the stores is expected to be down 2.2% over the holidays. With shoppers hitting stores less frequently or deciding to make online purchases instead, this means retailers will be under even more pressure to get consumers to buy when they are out at the malls.  Holiday sales and traffic traditionally make up about 20% of annual retail activity, according to ShopperTrak.

ShopperTrak says specialty shops that sell low-end clothing and accessories may feel the need to cut prices to compete with discount chains, but that upscale stores will likely be able to cash in on consumers looking for goods they feel will hold up over long-term use.  The retail analyst expects clothing and accessories sales to rise 2.7% over the holidays, but for its traffic to dip 1.1% compared with a year ago.  Electronics and appliance sales are expected to rise 1.2% from the previous year, but traffic is predicted to fall 4.9%. ShopperTrak says the category will likely be hurt as consumers do comparison shopping and then buy online, as well as the lack of any “hot” holiday product that will draw in more shoppers. The demise of many of the nation’s consumer electronics chains, such as Circuit City, has also left consumers with fewer places to shop.

Olick – spec building is back, with a catch

“With consumer confidence weak and getting weaker, and demand for housing showing no signs of resuscitation, home builders today are not only changing their building models, they’re changing their business models; that includes returning to a practice that brought many of the builders down in the first place.  During the heydays of the housing boom, builders put up as many homes as they could finance, with little regard to future demand because there were plenty of buyers milling about their model homes. They built on spec (speculative), assured that they could sell easily, and they could, until they couldn’t.

Over the past few years, spec building was close to non-existent, especially for small to mid-sized private builders. For one thing, they couldn’t get the financing for it, for another, they had no assurance that they could sell the properties in a timely, cost-efficient manner. But now the pendulum may be swinging back again, not due to demand, but due to the new consumer in today’s market.  ‘A lot of the buyers today are not comfortable contracting on a home and then going back and putting their house on the market,’ says Bruno Pasquinelli, a private builder in Dallas, Texas. ‘They are afraid they can’t sell their home, so what they do is put their home on the market, wait until it’s under contract and then they go out and find a house that’s nearly ready for occupancy, so if you don’t have finished inventory on the ground, or close to being finished, you are going to lose a large segment of demand.’

Pasquinelli’s CBJENI Homes is focusing mostly on spec townhomes, as single family are more risky, but he’s gone from about 10-15 homes 2 and a half years ago to 70-80 homes today. He is dependent on private equity, as the banks are still too skittish, but his business is coming back steadily.  ‘It’s important which neighborhoods you build spec housing in,’ Pasquinelli cautions. ‘It should be an ‘A location’ where you know there’s demand. I choose to do it where I’m not competing against publics.’  The publics continue to suffer, but their size and ability to move cash and cut costs, helps them weather downturns like this one.  ‘The one good thing about our business is you can control cash flow by how much land you buy, so we’ll adjust accordingly,’ said Hovnanian CEO Ara Hovnanian. ‘We know the market is concerned, but we’re comfortable, and we absolutely don’t think we will run out of cash at the end of 2012.’  Since 1998, roughly four million more homes were built than needed,’ according to Paul Dales at Capital Economics. That means builders will have to try new strategies to stay in play. Spec is clearly one that targets skittish move-up buyers, like Bill Muros, who already has an existing home to sell.  ‘We don’t want to carry two houses. Our home is paid for, but we don’t want to own two houses, doesn’t make sense.’”

Middle class down this decade

The first decade of the 21st century will go down in the history books as a step back for the American middle class.  Last week, the government made gloomy headlines when it released the latest census report showing the poverty rate rose to a 17-year high. A whopping 46.2 million people (or 15.1% of the US population) live in poverty and 49.9 million live without health insurance.  But the data also gave the first glimpse of what happened to middle-class incomes in the first decade of the millennium. While the earnings of middle-income Americans have barely budged since the mid 1970s, the new data showed that from 2000 to 2010, they actually regressed.  For American households in the middle of the pay scale, income fell to $49,445 last year, when adjusted for inflation, a level not seen since 1996. And over the 10-year period, their income is down 7%.

Unlike the richest Americans, middle class families have most of their wealth tied up in the equity of their homes, which took a beating in the recession. And high unemployment has left many people with little or no other income at all.  At the same time that Americans had less cash to spend, they were also being hit with rising prices for some crucial items. Even accounting for inflation, it still costs more to buy a home, fill your gas tank, go to the doctor and put food on the table than it did only 10 years ago.  And not only is it more expensive to live a middle-class life, it costs more to get there too. The price of a college education — still considered the ticket to higher wages and a better lifestyle — has surged over the last decade, even in spite of the recession.  Facing these burdens, the American Dream is undergoing stark changes, with fewer people choosing to buy homes and more young people postponing their own independent lives. The census data showed about 14.2% of all young people ages 25 to 34 are still living in their parents’ homes this year, compared to about 11.8% before the recession began in 2007.

A tale of two housing markets

In America, it’s starting to feel as if there are two housing markets. One for the rich and one for everyone else.  Consider foreclosure-ravaged Detroit. In the historic Green Acres district, a haven for hipsters, a pristine, three-bedroom brick Tudor recently sold for $6,000 — about what a buyer would have paid during the Great Depression.  Yet just 15 miles away, in the posh suburban enclave of Birmingham, bidding wars are back. Multi-million-dollar mansions are selling quickly. Sales this August were up 21% from the previous year. The country club has ended its stealth discounts on new memberships. And Main Street’s retail storefronts are full.  In the housing market inhabited by most Americans, prices have fallen 30% or more since the peak in 2007. That’s a steeper decline than during the Depression. Some people have had their homes on the market for a year without a single offer.  Almost a quarter of American homeowners owe more on their house than it’s worth. Another quarter have less than 20% equity. About half of homeowners couldn’t get a mortgage if they applied today, says Paul Dales, senior US economist for Capital Economics.

But then there is the other housing market, occupied by 1.5% of the US population, according to Zillow.com. The one with outdoor kitchens and in-home spas; with his-and-her boudoirs and closets the size of starter houses. The one that is not local but global, with international buyers bidding in all cash. And where the gyrations of the stock market are cause for conversation, not cutting expenses.  In this land of luxury properties, the Great Recession seems over. Prices of $1 million-plus properties have risen 0.7% since February, according to Zillow. Prices of houses under $1 million have fallen more than 1.5%.  Normally, these two segments of the housing market rise and fall together. But now, they’re moving in opposite directions.  “Luxury is the best performing segment of the housing market right now,” says Zillow.com chief economist Stan Humphries.

Across the country, prices on high-end homes fell after the subprime crash in the fall of 2008. The price on the $25 million mansion became $20 million, then $15 million. Such “bargains” are pushing more luxury buyers to commit to more deals.  There are other factors, too. In Detroit, a recovering auto industry is helping propel high-end sales. All those car executives who have helped turnaround the American auto industry used to rent. Now they are using their performance bonuses to buy homes.  Wall Street’s recovery has brought back the market for mansions in the Hamptons, on Long Island, where the number of closings has returned to the 2007 level, and for luxury co-ops in New York City. And because of social-network riches in Silicon Valley, twice as many homes have sold for $5 million or more this year than last.  But in the other housing market, an apartment tower built in 2007 in San Jose, Calif., recently converted to all-rental. The building had not sold a single unit. In Miami, a city that exemplifies the foreclosure epidemic, idled cranes dot the skyline. Unemployment shot up again this summer from 12% to 14%, a level not seen since the energy crisis in 1973. There are so many two-bedroom condos in gated communities with golf courses, private pools and rustic jogging paths that you can pick one up for $25,000, 66% off the price five years ago. But luxury condos priced at $1 million or more are selling as rapidly as they did during the boom.  “In the 20 years that I have been in South Florida real estate, I have never seen a greater divide between those who have and those who have not,” says Peter Zalewski, founder of the real estate firm Condo Vultures.

Delinquencies down

Mortgage loan delinquencies fell almost 12% in August from a year earlier, according to data released Tuesday by Lender Processing Services Inc.  That reading comes on the heels of news barely three weeks ago that the combined delinquency rate on mortgages held by major banks fell to 6.68% in the second quarter, the lowest level since the third quarter of 2009, according to Federal Deposit Insurance Corp. data.  The FDIC insures deposits at 7,513 national banks.  The total U.S. delinquency rate, indicating loans more than 30 days past due but not in foreclosure, dipped to 8.13% last month, according to the LPS data.  That was a 2.5% decline from July, when the delinquency rate registered 8.34%, according to month-end mortgage performance statistics from LPS’s database of some 40 million mortgage loans.  About 4.25 million properties were at least 30 days delinquent but not yet in foreclosure in August, with 1.9 million of those at least 90 days past due.  Meanwhile, the foreclosure pre-sale inventory rate, which measures the number of properties that have entered the foreclosure process but not yet been sold, rose 8.2% from a year earlier, to 2.15 million properties.  Florida, Mississippi, Nevada, New Jersey and Illinois had the highest percentage of loans in delinquency or foreclosure. The states with the lowest rates of non-current loans were Montana, Wyoming, Alaska, South Dakota and North Dakota.

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