Negotiation strategies differ depending on how well the home is priced and who's on the other side. If you're trying to buy a short-sale listing where the lender has to agree to accept less than the amount owed, the seller doesn't have much say in the negotiations about price unless he can contribute money to pay down the loan amount.
Regardless of who you're dealing with, you're more likely to grab a seller's or lender's attention if you are preapproved for the mortgage you'll need and can provide verification of cash for the down payment and closing costs.
Many buyers feel that cash is king. If buyers are willing and able to pay all cash with no mortgage, no hassling with the lender and no appraisal contingency, they feel they're owed a price concession.
Not all sellers agree. Some, who are confident in the value of their home, would rather work with an offer from a well-qualified buyer who needs to obtain a mortgage but who will pay a higher price.
Source: Inman News
Saturday, January 21, 2012
Top 10 US metro areas with steepest home-price cuts in 2011
Metro areas in Michigan and the Southeast experienced the most substantial cuts in for-sale home prices listed on Zillow.com in 2011 compared to 2010. Flint, Mich., and Detroit topped the list at No. 1 and No. 2, respectively, experiencing 13.21 percent and 12 percent price drops on average home listing prices, respectively.
The rest of the top 10 spanned from No. 3 Bakersfield, Calif., with a 9.85 percent price drop in listing price, to No. 10 Gainesville, Ga., at a 9.6 percent drop.
Following the most recent housing market turmoil geographic trends, all of the top 10 metro areas were clustered in north-central Florida, Georgia, Michigan and California.
The Interstate 75 corridor cuts through or near most of the markets on the list, including: Lakeland, Fla.; Ocala, Fla.; Macon, Ga.; Atlanta; and Gainesville, Ga., in the Southeast, and Detroit; Flint, Mich.; and Lansing, Mich., in Michigan. Bakersfield, Calif., and Madera, Calif., in Calfornia's Central Valley, are the exceptions.
Lansing, Mich., at No. 9, was the metro with the lowest average listing price in the top 10, at $56,600. No. 7 Macon, Ga., was not far behind with $57,000. Bakersfield, Calif., at No. 3, had the highest average listing price at $130,300, followed closely by Gainesville, Ga., at $124,500.
Source: Zillow Home Value Index.
The rest of the top 10 spanned from No. 3 Bakersfield, Calif., with a 9.85 percent price drop in listing price, to No. 10 Gainesville, Ga., at a 9.6 percent drop.
Following the most recent housing market turmoil geographic trends, all of the top 10 metro areas were clustered in north-central Florida, Georgia, Michigan and California.
The Interstate 75 corridor cuts through or near most of the markets on the list, including: Lakeland, Fla.; Ocala, Fla.; Macon, Ga.; Atlanta; and Gainesville, Ga., in the Southeast, and Detroit; Flint, Mich.; and Lansing, Mich., in Michigan. Bakersfield, Calif., and Madera, Calif., in Calfornia's Central Valley, are the exceptions.
Lansing, Mich., at No. 9, was the metro with the lowest average listing price in the top 10, at $56,600. No. 7 Macon, Ga., was not far behind with $57,000. Bakersfield, Calif., at No. 3, had the highest average listing price at $130,300, followed closely by Gainesville, Ga., at $124,500.
Source: Zillow Home Value Index.
Friday, January 20, 2012
‘Vanilla Ice’ Serves Up Home Makeover Advice
A former rapper who rose to fame in the early 1990s for his hit single “Ice, Ice Baby” is back, but he’s now turning from rapper to handyman as he renovates and flips foreclosed, abandoned homes on a reality TV show. Robert Van Winkle, better known by his alias Vanilla Ice, shows off his renovation skills in the reality TV show, “The Vanilla Ice Project,” on the DIY Network. The show was renewed for a second season, which starts Jan. 21.
Van Winkle is showing how renovations, even in a depressed housing market, can still make a big impact at resale.
In the show’s first season project, Van Winkle and his team renovated a foreclosed home in Palm Beach, Fla., that was purchased for $400,000. After the renovations, the home ended up selling for $875,000 — more than double the original price.
In the second season, Van Winkle and his team take on another foreclosed home in Florida, which was purchased for $500,000. The team will spend more than $1 million in renovations, but they’ve already received offers for $2 million to $2.3 million.
"Even during an uncertain economy, it's about inspiring people to get out there and get to work and make their houses a real home,” Van Winkle told AOL Real Estate about the show. “Even though they may not get the money back out of the house or flip the house, [the show] motivates them to live that dream of having your own home and fixing it up, and it's a great feeling."
And when making renovations, make the kitchen the top area of focus. “It's the most cost-efficient improvement you can make,” Van Winkle told AOL Real Estate. “The kitchen is the main focus of the house. ... So Formica's gotta go. I'm sorry, it's gotta go — the '70s aren't coming back like that."
For home owners who can’t afford a total gut job, go subtle, like painting the cabinets or swapping out Formica for granite or limestone countertops, he suggests.
Source: “Ice’s Advice: What Vanilla Ice Wants Home Owners to Know,” AOL Real Estate (Jan. 19, 2012)
Van Winkle is showing how renovations, even in a depressed housing market, can still make a big impact at resale.
In the show’s first season project, Van Winkle and his team renovated a foreclosed home in Palm Beach, Fla., that was purchased for $400,000. After the renovations, the home ended up selling for $875,000 — more than double the original price.
In the second season, Van Winkle and his team take on another foreclosed home in Florida, which was purchased for $500,000. The team will spend more than $1 million in renovations, but they’ve already received offers for $2 million to $2.3 million.
"Even during an uncertain economy, it's about inspiring people to get out there and get to work and make their houses a real home,” Van Winkle told AOL Real Estate about the show. “Even though they may not get the money back out of the house or flip the house, [the show] motivates them to live that dream of having your own home and fixing it up, and it's a great feeling."
And when making renovations, make the kitchen the top area of focus. “It's the most cost-efficient improvement you can make,” Van Winkle told AOL Real Estate. “The kitchen is the main focus of the house. ... So Formica's gotta go. I'm sorry, it's gotta go — the '70s aren't coming back like that."
For home owners who can’t afford a total gut job, go subtle, like painting the cabinets or swapping out Formica for granite or limestone countertops, he suggests.
Source: “Ice’s Advice: What Vanilla Ice Wants Home Owners to Know,” AOL Real Estate (Jan. 19, 2012)
Rising Rents Make Home Buying a Better Choice
Fallen home prices and record-low mortgage rates have pushed housing affordability to a 40-year high. Meanwhile, rental prices are continuing to rise at a fast pace, according to a new report released by Hotpads.com, a rental listing service.
Rental prices in 20 of the largest metro areas increased 3.75 percent in 2011, and prices are expected to continue to rise in 2012. Meanwhile, home prices fell by 1.83 percent in 2011, according to the report.
"In a lot of cases it's getting to a point where it makes more sense for people to buy because rent has been going up significantly faster, while home prices have been falling," Paul Gleger, author of the report, told AOL Real Estate.
According to the report, New York has the highest rental prices, with a two-bedroom apartment’s median rent at $2,653. Other cities posting some of the highest median rents in the country: Boston ($1,929), Miami ($1,748), San Francisco ($1,607), Los Angeles ($1,717) and Chicago ($1,552).
Source: “U.S. Rental Market Stays Hot in 2011,” Hotpads.com (January 2012) and “Rental Prices Climb, Buying Remains More Affordable,” AOL Real Estate News (Jan. 18, 2012)
Rental prices in 20 of the largest metro areas increased 3.75 percent in 2011, and prices are expected to continue to rise in 2012. Meanwhile, home prices fell by 1.83 percent in 2011, according to the report.
"In a lot of cases it's getting to a point where it makes more sense for people to buy because rent has been going up significantly faster, while home prices have been falling," Paul Gleger, author of the report, told AOL Real Estate.
According to the report, New York has the highest rental prices, with a two-bedroom apartment’s median rent at $2,653. Other cities posting some of the highest median rents in the country: Boston ($1,929), Miami ($1,748), San Francisco ($1,607), Los Angeles ($1,717) and Chicago ($1,552).
Source: “U.S. Rental Market Stays Hot in 2011,” Hotpads.com (January 2012) and “Rental Prices Climb, Buying Remains More Affordable,” AOL Real Estate News (Jan. 18, 2012)
Record Rates Push Housing Affordability Higher
The 30-year fixed-rate mortgage hit another all-time low this week, marking the seventh straight week it has averaged below 4 percent, Freddie Mac reports in its weekly mortgage market survey.
Here’s a closer look at rates for the week ending Jan. 19:
30-year fixed-rate mortgages: averaged 3.88 percent, with an average 0.8 point, a new all-time low and dropping from last week’s previous record of 3.89 percent. A year ago at this time, 30-year rates averaged 4.74 percent.
15-year fixed-rate mortgages: averaged 3.17 percent, with an average 0.8 point, up slightly from last week’s record low of 3.16 percent. Last year at this time, 15-year rates averaged 4.05 percent.
5-year adjustable-rate mortgages: averaged 2.82 percent, with an average 0.7 point, the same as last week’s average. Last year at this time, 5-year ARMs averaged 3.69 percent.
1-year ARMs: averaged 2.74 percent, with an average 0.6 point, dropping from last week’s 2.76 percent average. Last year at this point, the 1-year ARM averaged 3.25 percent.
Source: Freddie Mac
Here’s a closer look at rates for the week ending Jan. 19:
30-year fixed-rate mortgages: averaged 3.88 percent, with an average 0.8 point, a new all-time low and dropping from last week’s previous record of 3.89 percent. A year ago at this time, 30-year rates averaged 4.74 percent.
15-year fixed-rate mortgages: averaged 3.17 percent, with an average 0.8 point, up slightly from last week’s record low of 3.16 percent. Last year at this time, 15-year rates averaged 4.05 percent.
5-year adjustable-rate mortgages: averaged 2.82 percent, with an average 0.7 point, the same as last week’s average. Last year at this time, 5-year ARMs averaged 3.69 percent.
1-year ARMs: averaged 2.74 percent, with an average 0.6 point, dropping from last week’s 2.76 percent average. Last year at this point, the 1-year ARM averaged 3.25 percent.
Source: Freddie Mac
Appraisers: Don't Blame Us
“Don’t shoot the messenger,” is the message the Appraisal Institute has for those in the real estate industry. Appraisers have been taking heat the last few months over low home values, with critics arguing that values aren’t matching a home listing or contract’s price and valuations are unfairly weighing distressed properties into the equation.
“Appraisers don’t set the real estate market; they reflect what’s happening in the market,” Sara W. Stephens, the Appraisal Institute’s president, said in the handout. “Obviously, the market is depressed — home prices have fallen far below the values of a few years ago. Many homes simply aren’t worth what their owners think they are.”
Appraisers say their main goal is to protect lenders against entering into a risky mortgage, not justifying the sales price for a buyer or seller. But the report emphasizes: Appraisers are independent, third-party experts and serve as an unbiased source of information.
Buyers and sellers “shouldn’t assume an appraisal is somehow ‘wrong’ if it doesn’t match the listing or contract price,” Stephens says. “There’s no reason to assume the contract price is the ‘correct’ price simply because it’s higher than the appraisal.”
A lot of the criticism over appraisals recently has centered on appraisers using distressed sales in their comparables — comparing an abandoned foreclosure to a lived-in home that may not have the maintenance issues that the foreclosed home might have.
“Appraisers know what adjustments to make, if any, when using distressed sales as comparables,” Stephens notes. “In some markets, distressed sales are so prevalent that it would be improper not to use them as comparables.”
Source: “Don’t Shoot the Messenger,” Appraisal Institute (January 17, 2012) and “Don’t Shoot the Messenger; Appraisers Not at Fault for ‘Low’ Home Values,” RISMedia (Jan. 19, 2012)
“Appraisers don’t set the real estate market; they reflect what’s happening in the market,” Sara W. Stephens, the Appraisal Institute’s president, said in the handout. “Obviously, the market is depressed — home prices have fallen far below the values of a few years ago. Many homes simply aren’t worth what their owners think they are.”
Appraisers say their main goal is to protect lenders against entering into a risky mortgage, not justifying the sales price for a buyer or seller. But the report emphasizes: Appraisers are independent, third-party experts and serve as an unbiased source of information.
Buyers and sellers “shouldn’t assume an appraisal is somehow ‘wrong’ if it doesn’t match the listing or contract price,” Stephens says. “There’s no reason to assume the contract price is the ‘correct’ price simply because it’s higher than the appraisal.”
A lot of the criticism over appraisals recently has centered on appraisers using distressed sales in their comparables — comparing an abandoned foreclosure to a lived-in home that may not have the maintenance issues that the foreclosed home might have.
“Appraisers know what adjustments to make, if any, when using distressed sales as comparables,” Stephens notes. “In some markets, distressed sales are so prevalent that it would be improper not to use them as comparables.”
Source: “Don’t Shoot the Messenger,” Appraisal Institute (January 17, 2012) and “Don’t Shoot the Messenger; Appraisers Not at Fault for ‘Low’ Home Values,” RISMedia (Jan. 19, 2012)
December Existing-Home Sales Show Uptrend
Existing-home sales continued on an uptrend in December, rising for three consecutive months and remaining above where they were a year ago, according to the National Association of REALTORS®.
The latest monthly data shows total existing-home salesrose 5.0 percent to a seasonally adjusted annual rate of 4.61 million in December from a downwardly revised 4.39 million in November, and are 3.6 percent higher than the 4.45 million-unit level in December 2010. The estimates are based on completed transactions from multiple listing services that include single-family homes, townhomes, condominiums and co-ops.
Lawrence Yun, NAR chief economist, said these are early signs of what may be a sustained recovery. “The pattern of home sales in recent months demonstrates a market in recovery,” he said. “Record low mortgage interest rates, job growth and bargain home prices are giving more consumers the confidence they need to enter the market.”
For all of 2011, existing-home sales rose 1.7 percent to 4.26 million from 4.19 million in 2010.
Affordability Conditions
According to Freddie Mac, the national average commitment rate for a 30-year, conventional, fixed-rate mortgage fell to another record low of 3.96 percent in December from 3.99 percent in November; the rate was 4.71 percent in December 2010; recordkeeping began in 1971.
NAR President Moe Veissisaid more buyers are expected to take advantage of market conditions this year. “The American dream of homeownership is alive and well. We have a large pent-up demand, and household formation is likely to return to normal as the job market steadily improves,” he said. “More buyers coming into the market mean additional benefits for the overall economy. When people buy homes, they stimulate a lot of related goods and services.”
Total housing inventory at the end of December dropped 9.2 percent to 2.38 million existing homes available for sale, which represents a 6.2-month supply at the current sales pace, down from a 7.2-month supply in November.
Available inventory has trended down since setting a record of 4.04 million in July 2007, and is at the lowest level since March 2005 when there were 2.30 million homes on the market.
“The inventory supply suggests many markets will see prices stabilize or grow moderately in the near future,” Yun said.
Who’s Buying What
Foreclosures sold for an average discount of 22 percent in December, up from 20 percent a year ago, while short sales closed 13 percent below market value compared with a 16 percent discount in December 2010.
The national median existing-home price for all housing types was $164,500 in December, which is 2.5 percent below December 2010. Distressed homes — foreclosures and short sales — accounted for 32 percent of sales in December (19 percent were foreclosures and 13 percent were short sales), up from 29 percent in November; they were 36 percent in December 2010.
All-cash sales accounted for 31 percent of purchases in December, up from 28 percent in November and 29 percent in December 2010. Investors account for the bulk of cash transactions.
Investors purchased 21 percent of homes in December, up from 19 percent in November and 20 percent in December 2010. First-time buyers fell to 31 percent of transactions in December from 35 percent in November; they were 33 percent in December 2010.
Contract failures were reported by 33 percent of NAR members in December, unchanged from November; they were 9 percent in December 2010. Although closed sales are holding up better than this finding would suggest, contract cancellations are caused largely by declined mortgage applications and failures in loan underwriting from appraised values coming in below the negotiated price.
Single-family home sales increased 4.6 percent to a seasonally adjusted annual rate of 4.11 million in December from 3.93 million in November, and are 4.3 percent higher than the 3.94 million-unit pace a year ago. The median existing single-family home price was $165,100 in December, which is 2.5 percent below December 2010.
Existing condominium and co-op sales rose 8.7 percent to a seasonally adjusted annual rate of 500,000 in December from 460,000 in November but are 2.0 percent below the 510,000-unit level in December 2010. The median existing condo price was $160,000 inDecember, down 3.0 percent from a year ago.
Around the Country
Regionally, existing-home sales in the Northeast jumped 10.7 percent to an annual pace of 620,000 in December and are 3.3 percent above a year ago. The median price in the Northeast was $231,300, which is 2.7 percent below December 2010.
Existing-home sales in the Midwest rose 8.3 percent in December to a level of 1.04 million and are 9.5 percent above December 2010. The median price in the Midwest was $129,100, down 7.9 percent from a year ago.
In the South, existing-home sales increased 2.9 percent to an annual level of 1.76 million in Decemberand are 3.5 percent above a year ago. The median price in the South was $146,900, down 1.1 percent from December 2010.
Existing-home sales in the West rose 2.6 percent to an annual pace of 1.19 million in December but are 0.8 percent below December 2010. The median price in the West was $205,200, up 0.3 percent from a year ago.
Source: NAR
The latest monthly data shows total existing-home salesrose 5.0 percent to a seasonally adjusted annual rate of 4.61 million in December from a downwardly revised 4.39 million in November, and are 3.6 percent higher than the 4.45 million-unit level in December 2010. The estimates are based on completed transactions from multiple listing services that include single-family homes, townhomes, condominiums and co-ops.
Lawrence Yun, NAR chief economist, said these are early signs of what may be a sustained recovery. “The pattern of home sales in recent months demonstrates a market in recovery,” he said. “Record low mortgage interest rates, job growth and bargain home prices are giving more consumers the confidence they need to enter the market.”
For all of 2011, existing-home sales rose 1.7 percent to 4.26 million from 4.19 million in 2010.
Affordability Conditions
According to Freddie Mac, the national average commitment rate for a 30-year, conventional, fixed-rate mortgage fell to another record low of 3.96 percent in December from 3.99 percent in November; the rate was 4.71 percent in December 2010; recordkeeping began in 1971.
NAR President Moe Veissisaid more buyers are expected to take advantage of market conditions this year. “The American dream of homeownership is alive and well. We have a large pent-up demand, and household formation is likely to return to normal as the job market steadily improves,” he said. “More buyers coming into the market mean additional benefits for the overall economy. When people buy homes, they stimulate a lot of related goods and services.”
Total housing inventory at the end of December dropped 9.2 percent to 2.38 million existing homes available for sale, which represents a 6.2-month supply at the current sales pace, down from a 7.2-month supply in November.
Available inventory has trended down since setting a record of 4.04 million in July 2007, and is at the lowest level since March 2005 when there were 2.30 million homes on the market.
“The inventory supply suggests many markets will see prices stabilize or grow moderately in the near future,” Yun said.
Who’s Buying What
Foreclosures sold for an average discount of 22 percent in December, up from 20 percent a year ago, while short sales closed 13 percent below market value compared with a 16 percent discount in December 2010.
The national median existing-home price for all housing types was $164,500 in December, which is 2.5 percent below December 2010. Distressed homes — foreclosures and short sales — accounted for 32 percent of sales in December (19 percent were foreclosures and 13 percent were short sales), up from 29 percent in November; they were 36 percent in December 2010.
All-cash sales accounted for 31 percent of purchases in December, up from 28 percent in November and 29 percent in December 2010. Investors account for the bulk of cash transactions.
Investors purchased 21 percent of homes in December, up from 19 percent in November and 20 percent in December 2010. First-time buyers fell to 31 percent of transactions in December from 35 percent in November; they were 33 percent in December 2010.
Contract failures were reported by 33 percent of NAR members in December, unchanged from November; they were 9 percent in December 2010. Although closed sales are holding up better than this finding would suggest, contract cancellations are caused largely by declined mortgage applications and failures in loan underwriting from appraised values coming in below the negotiated price.
Single-family home sales increased 4.6 percent to a seasonally adjusted annual rate of 4.11 million in December from 3.93 million in November, and are 4.3 percent higher than the 3.94 million-unit pace a year ago. The median existing single-family home price was $165,100 in December, which is 2.5 percent below December 2010.
Existing condominium and co-op sales rose 8.7 percent to a seasonally adjusted annual rate of 500,000 in December from 460,000 in November but are 2.0 percent below the 510,000-unit level in December 2010. The median existing condo price was $160,000 inDecember, down 3.0 percent from a year ago.
Around the Country
Regionally, existing-home sales in the Northeast jumped 10.7 percent to an annual pace of 620,000 in December and are 3.3 percent above a year ago. The median price in the Northeast was $231,300, which is 2.7 percent below December 2010.
Existing-home sales in the Midwest rose 8.3 percent in December to a level of 1.04 million and are 9.5 percent above December 2010. The median price in the Midwest was $129,100, down 7.9 percent from a year ago.
In the South, existing-home sales increased 2.9 percent to an annual level of 1.76 million in Decemberand are 3.5 percent above a year ago. The median price in the South was $146,900, down 1.1 percent from December 2010.
Existing-home sales in the West rose 2.6 percent to an annual pace of 1.19 million in December but are 0.8 percent below December 2010. The median price in the West was $205,200, up 0.3 percent from a year ago.
Source: NAR
Don’t Lag on Winter Home Maintenance
Homes may require some extra attention when it comes to maintenance to protect itself against the cold, harsh weather.
A recent article at Realty Times offers up some maintenance tips for the winter months:
Keep out drafts. Twice a year check your windows and doors for any air leaks, and add caulking, if needed. If extra caulking won’t suffice and you don’t have the money for a replacement, consider adding a storm door to keep out drafts or at least purchasing a draft blocker, which lies at the bottom of your door to block out the cold air.
Check the heating system. “Central heat and air units need to be checked over,” the Realty Times article notes. “When a unit is well-serviced it will save you fuel and thus money.”
Assess the ductwork. Make a trip to the attic to ensure that any parts haven’t become disconnected as well as a critter hasn’t chewed through any duct work.
Clean the gutters. Gutters can become clogged of leaves or other debris. When that happens, they can hold water, which can eventually rot away the siding or roof of your home. Make sure to keep the gutters clean.
Prevent freezing pipes. “When the weather drops below freezing you need to keep your pipes from freezing,” the Realty Times article notes. “Let faucets drip and unhook all outdoor hoses.”
Read more winter maintenance tips at Realty Times. NAR's consumer site HouseLogic.com also has thorough tips and information for seasonal maintenance that you can provide to your customers and clients.
Source: “Winter Home Maintenance,” Realty Times (Jan. 19, 2012)
A recent article at Realty Times offers up some maintenance tips for the winter months:
Keep out drafts. Twice a year check your windows and doors for any air leaks, and add caulking, if needed. If extra caulking won’t suffice and you don’t have the money for a replacement, consider adding a storm door to keep out drafts or at least purchasing a draft blocker, which lies at the bottom of your door to block out the cold air.
Check the heating system. “Central heat and air units need to be checked over,” the Realty Times article notes. “When a unit is well-serviced it will save you fuel and thus money.”
Assess the ductwork. Make a trip to the attic to ensure that any parts haven’t become disconnected as well as a critter hasn’t chewed through any duct work.
Clean the gutters. Gutters can become clogged of leaves or other debris. When that happens, they can hold water, which can eventually rot away the siding or roof of your home. Make sure to keep the gutters clean.
Prevent freezing pipes. “When the weather drops below freezing you need to keep your pipes from freezing,” the Realty Times article notes. “Let faucets drip and unhook all outdoor hoses.”
Read more winter maintenance tips at Realty Times. NAR's consumer site HouseLogic.com also has thorough tips and information for seasonal maintenance that you can provide to your customers and clients.
Source: “Winter Home Maintenance,” Realty Times (Jan. 19, 2012)
Builders Feel the Most Upbeat in More Than 4 Years
Builder confidence is at its highest level since June 2007, yet another sign that things are finally perking up in the new-home market, which has faced some of its darkest days on record this past year.
For the fourth consecutive month, builder sentiment for newly built, single-family homes was on the rise, according to the National Association of Home Builders and Wells Fargo Housing Market Index. The index measures builder sentiment on current and future sales conditions and buyer traffic.
The latest increase in the January index is “universally represented across every index component and region,” said Bob Nielsen, NAHB chairman.
“This good news comes on the heels of several months of gains in single-family housing starts and sales, and is yet another indication of the gradual but steady improvement that is beginning to take hold in an increasing number of housing markets nationwide,” Nielsen said.
Coming Off a Dismal 2011
The Commerce Department reported Thursday that for the third straight month, single-family home construction rose 4.5 percent in December. However, overall housing starts for the month dropped 4.1 percent, with gains in the single-family sector offset by a nearly 28 percent drop in apartment construction in December.
The latest news wraps up a dismal year for new-home building, with 2011 marking the fewest number of single-family homes built in half-century. In all, builders started about 606,900 homes in 2011 — that’s half the 1.2 million economists consider healthy for the sector.
Nevertheless, despite the mostly sluggish year for the sector, building did start to pick up in the last part of 2011 and housing analysts are upbeat that will continue. "We expect further sustained gains in starts and permits over the next few months; a real recovery is getting started," Ian Shepherdson, chief U.S. economist at High Frequency Economics, told the Associated Press.
Threats to Recovery Remain
NAHB Chief Economist David Crowe warns that “caution remains the word of the day as many builders continue to voice concerns about potential clients being unable to qualify for an affordable mortgage, appraisals coming through below construction cost, and the continuing flow of foreclosed properties hitting the market.”
Source: National Association of Home Builders and “December Ends Worst Year for Single-Family Home Construction,” Associated Press (Jan. 19, 2012)
For the fourth consecutive month, builder sentiment for newly built, single-family homes was on the rise, according to the National Association of Home Builders and Wells Fargo Housing Market Index. The index measures builder sentiment on current and future sales conditions and buyer traffic.
The latest increase in the January index is “universally represented across every index component and region,” said Bob Nielsen, NAHB chairman.
“This good news comes on the heels of several months of gains in single-family housing starts and sales, and is yet another indication of the gradual but steady improvement that is beginning to take hold in an increasing number of housing markets nationwide,” Nielsen said.
Coming Off a Dismal 2011
The Commerce Department reported Thursday that for the third straight month, single-family home construction rose 4.5 percent in December. However, overall housing starts for the month dropped 4.1 percent, with gains in the single-family sector offset by a nearly 28 percent drop in apartment construction in December.
The latest news wraps up a dismal year for new-home building, with 2011 marking the fewest number of single-family homes built in half-century. In all, builders started about 606,900 homes in 2011 — that’s half the 1.2 million economists consider healthy for the sector.
Nevertheless, despite the mostly sluggish year for the sector, building did start to pick up in the last part of 2011 and housing analysts are upbeat that will continue. "We expect further sustained gains in starts and permits over the next few months; a real recovery is getting started," Ian Shepherdson, chief U.S. economist at High Frequency Economics, told the Associated Press.
Threats to Recovery Remain
NAHB Chief Economist David Crowe warns that “caution remains the word of the day as many builders continue to voice concerns about potential clients being unable to qualify for an affordable mortgage, appraisals coming through below construction cost, and the continuing flow of foreclosed properties hitting the market.”
Source: National Association of Home Builders and “December Ends Worst Year for Single-Family Home Construction,” Associated Press (Jan. 19, 2012)
10 Housing Markets Getting the Most Web Traffic
Chicago continues to garner the most Web traffic at Realtor.com, taking the No. 1 spot once again for the highest search ranking in December at Realtor.com.
Based on rankings of 146 metro markets, here are the cities that had the highest search rankings for December 2011 at Realtor.com:
1. Chicago
Median list price: $189,000
2. Detroit
Median list price: $80,000
3. Los Angeles-Long Beach, Calif.
Median list price: $324,900
4. Phoenix-Mesa, Ariz.
Median list price: $165,000
5. Atlanta
Median list price: $150,000
6. Tampa-St. Petersburg-Clearwater, Fla.
Median list price: $139,900
7. Philadelphia, Pa.-N.J.
Median list price: $224,950
8. Dallas
Median list price: $190,000
9. Las Vegas
Median list price: $120,000
10. Orlando, Fla.
Median list price: $155,000
By Melissa Dittmann Tracey for REALTOR® Magazine’s Daily News
Based on rankings of 146 metro markets, here are the cities that had the highest search rankings for December 2011 at Realtor.com:
1. Chicago
Median list price: $189,000
2. Detroit
Median list price: $80,000
3. Los Angeles-Long Beach, Calif.
Median list price: $324,900
4. Phoenix-Mesa, Ariz.
Median list price: $165,000
5. Atlanta
Median list price: $150,000
6. Tampa-St. Petersburg-Clearwater, Fla.
Median list price: $139,900
7. Philadelphia, Pa.-N.J.
Median list price: $224,950
8. Dallas
Median list price: $190,000
9. Las Vegas
Median list price: $120,000
10. Orlando, Fla.
Median list price: $155,000
By Melissa Dittmann Tracey for REALTOR® Magazine’s Daily News
Freddie Mac Approaches 2012 with 'Cautious Optimism'
Freddie Mac expects a 2 percent to 5 percent increase in home sales in 2012 amid moderate economic growth over the year, according to the GSE’s U.S. Economic and Housing Market Outlook for January.
Contributing to the anticipated rise in home sales are expectations that mortgage rates will remain near their current deflated levels and consumer confidence will pick up slightly.
Freddie Mac expects the economy to grow about 2.1 percent over the first quarter of this year and real gross domestic product growth to total 2.7 percent for the year.
Approaching the year with “cautious optimism,” Freddie Mac’s chief economist, Frank Nothaft, says, “There are some positive signs in the job market and consumer confidence; housing is starting to raise hopes for continued gradual economic recovery.”
“But the economy still is giving mixed messages,” he says.
For example, while the economy added 200,000 new jobs in December bringing the unemployment rate to its lowest level in almost three years, this positive movement is in part the result of seasonal hiring, and it “likely will be reversed in January,” according to Freddie Mac’s outlook.
The GSE also points out that the rate of underemployed workers improved 1.4 percent over the past year.
Citing expectations of the Congressional Budget Office, Freddie Mac says unemployment will continue to linger at its current rate of 8.5 percent throughout the rest of this year.
Like unemployment, rising consumer confidence toward the end of 2011 may in part be seasonal.
The Conference Board Consumer Confidence Index posted its highest rate since April at the end of the year – 64.5.
The Small Business Optimism Index from the National Federation of Independent Business rose for the last four months of the year but remains lower than its January 2011 level.
The housing market finished the year with “seasonally subdued” prices, rising home sales in November, and a decline in inventory to a six to seven-month supply.
Citing a survey from the Mortgage Bankers Association, Freddie Mac points out that almost 80 percent of households say now is a good time to purchase a home, while 7.6 percent say now is a good time to sell.
“The housing-market recovery will be delayed as long as there remains a large gap between buyer and seller sentiment,” according to the GSE.
Contributing to the anticipated rise in home sales are expectations that mortgage rates will remain near their current deflated levels and consumer confidence will pick up slightly.
Freddie Mac expects the economy to grow about 2.1 percent over the first quarter of this year and real gross domestic product growth to total 2.7 percent for the year.
Approaching the year with “cautious optimism,” Freddie Mac’s chief economist, Frank Nothaft, says, “There are some positive signs in the job market and consumer confidence; housing is starting to raise hopes for continued gradual economic recovery.”
“But the economy still is giving mixed messages,” he says.
For example, while the economy added 200,000 new jobs in December bringing the unemployment rate to its lowest level in almost three years, this positive movement is in part the result of seasonal hiring, and it “likely will be reversed in January,” according to Freddie Mac’s outlook.
The GSE also points out that the rate of underemployed workers improved 1.4 percent over the past year.
Citing expectations of the Congressional Budget Office, Freddie Mac says unemployment will continue to linger at its current rate of 8.5 percent throughout the rest of this year.
Like unemployment, rising consumer confidence toward the end of 2011 may in part be seasonal.
The Conference Board Consumer Confidence Index posted its highest rate since April at the end of the year – 64.5.
The Small Business Optimism Index from the National Federation of Independent Business rose for the last four months of the year but remains lower than its January 2011 level.
The housing market finished the year with “seasonally subdued” prices, rising home sales in November, and a decline in inventory to a six to seven-month supply.
Citing a survey from the Mortgage Bankers Association, Freddie Mac points out that almost 80 percent of households say now is a good time to purchase a home, while 7.6 percent say now is a good time to sell.
“The housing-market recovery will be delayed as long as there remains a large gap between buyer and seller sentiment,” according to the GSE.
Firms Launch $450M Program to Convert REOs Into Rentals
Government officials are in the process of reviewing 4,000-plus recommendations for turning repossessed homes into rental properties in order to trim the REO inventory held by federal housing agencies.
The Federal Housing Finance Agency (FHFA) has said it is pursuing potential ideas for REO-to-rental pilot programs “with a sense of urgency,” but two California firms don’t plan to wait on the government’s involvement to get a large-scale REO rental venture off the ground.
Carrington Holding Company LLC announced Wednesday that it has entered into an agreement with certain investment funds managed by Oaktree Capital Management, L.P. that will fund an initial purchase of up to $450 million in distressed single-family homes across the country.
“We believe that re-deploying vacant REO properties into rental homes is a way to help revitalize the housing market,” said Bruce Rose, Carrington’s founder and CEO.
Rose contends that reducing the number of distressed properties for sale will stabilize home prices and help neighborhoods that have been damaged by foreclosures begin the restoration process.
The bank-owned homes purchased through the venture will be managed as rental properties by Carrington. The company notes that there is growing market demand for rental units – demand that can be met through the industry’s effort to remove distressed properties from the sales inventory and stabilize the housing market.
Carrington currently manages over 3,000 single-family rental homes under Fannie Mae’s Tenant-in-Place and Deed-for-Lease programs. The company has developed a national field services network along with a proprietary software system that allows for centralized property monitoring and management.
“Carrington’s REO rental program is an excellent fit for our investment strategy, which includes a broad range of debt and equity investments in real estate-related investments and restructurings,” said John Brady, Oaktree’s head of global real estate.
“We believe that this is not only a unique investment opportunity with few qualified large-scale competitors, but one that also has the potential to have a broader positive effect on the housing market and the overall economy,” Brady added.
The Federal Housing Finance Agency (FHFA) has said it is pursuing potential ideas for REO-to-rental pilot programs “with a sense of urgency,” but two California firms don’t plan to wait on the government’s involvement to get a large-scale REO rental venture off the ground.
Carrington Holding Company LLC announced Wednesday that it has entered into an agreement with certain investment funds managed by Oaktree Capital Management, L.P. that will fund an initial purchase of up to $450 million in distressed single-family homes across the country.
“We believe that re-deploying vacant REO properties into rental homes is a way to help revitalize the housing market,” said Bruce Rose, Carrington’s founder and CEO.
Rose contends that reducing the number of distressed properties for sale will stabilize home prices and help neighborhoods that have been damaged by foreclosures begin the restoration process.
The bank-owned homes purchased through the venture will be managed as rental properties by Carrington. The company notes that there is growing market demand for rental units – demand that can be met through the industry’s effort to remove distressed properties from the sales inventory and stabilize the housing market.
Carrington currently manages over 3,000 single-family rental homes under Fannie Mae’s Tenant-in-Place and Deed-for-Lease programs. The company has developed a national field services network along with a proprietary software system that allows for centralized property monitoring and management.
“Carrington’s REO rental program is an excellent fit for our investment strategy, which includes a broad range of debt and equity investments in real estate-related investments and restructurings,” said John Brady, Oaktree’s head of global real estate.
“We believe that this is not only a unique investment opportunity with few qualified large-scale competitors, but one that also has the potential to have a broader positive effect on the housing market and the overall economy,” Brady added.
Housing May Turn the Corner in 2012: CoreLogic
CoreLogic’s chief economist Mark Fleming says housing statistics and the duration of the downturn to date indicate 2012 may be the year the housing market begins to turn the corner.
In the first release of CoreLogic’s new MarketPulse newsletter Wednesday, Fleming explained his rationale for such an assessment.
He notes that housing is an industry with long business cycles. Regional housing recessions have typically taken anywhere from three to five years to find their bottom, and Fleming says the national housing recession has behaved similarly in that it has bounced along a bottom for the past two years.
Fleming points out that housing affordability is rising dramatically due to a combination of home price deflation and rock-bottom mortgage rates. In fact, he says, after adjusting for inflation, this has been a “lost decade” for housing as prices are the same as at the beginning of the millennium.
“The time is right in 2012 for prices to begin growing again,” Fleming said, “and housing affordability will put a floor under any further significant declines.”
Fleming says he will be watching the spring and summer buying season closely for positive signs of demand.
He points out that households are paying off their debts and at the same time accessing credit more easily, with some even adding Home Equity Lines of Credit in the third quarter of last year – the first such movement for these second-lien mortgage products since the financial crisis began.
Fleming cites a quarterly survey by the New York Federal Reserve Bank, which shows total household debt continues to decline. At the same time, consumer sentiment rebounded strongly in the latter part of 2011, posting a six-month high in December – an indication that consumers’ confidence in the strength of the economy is growing, according to Fleming.
Most housing statistics basically moved sideways in the latter part of 2011, but Fleming finds several positives in the numbers. Although market indicators are coming off of very low levels, he notes that both existing-home sales and single-family housing starts have begun to increase, homebuilder confidence is improving, and affordability is at an all-time high.
Putting all of these statistics together suggests that while there is a very long way to go, the housing market is likely to sustain these upward movements in 2012, according to Fleming.
“While we cannot say with a high degree of certainty what 2012 has in store for us, indications based on the latter part of 2011 are that both the broad economy and the housing market are moving toward positive growth in 2012,” Fleming said.
He concedes that some impediments do exist, including slower global economic growth, a recession in Europe, and fiscal and political uncertainty in the United States.
But Fleming says when you look at the big picture, “we are bullish on the prospect of improving economic performance in 2012 from 2011.”
In the first release of CoreLogic’s new MarketPulse newsletter Wednesday, Fleming explained his rationale for such an assessment.
He notes that housing is an industry with long business cycles. Regional housing recessions have typically taken anywhere from three to five years to find their bottom, and Fleming says the national housing recession has behaved similarly in that it has bounced along a bottom for the past two years.
Fleming points out that housing affordability is rising dramatically due to a combination of home price deflation and rock-bottom mortgage rates. In fact, he says, after adjusting for inflation, this has been a “lost decade” for housing as prices are the same as at the beginning of the millennium.
“The time is right in 2012 for prices to begin growing again,” Fleming said, “and housing affordability will put a floor under any further significant declines.”
Fleming says he will be watching the spring and summer buying season closely for positive signs of demand.
He points out that households are paying off their debts and at the same time accessing credit more easily, with some even adding Home Equity Lines of Credit in the third quarter of last year – the first such movement for these second-lien mortgage products since the financial crisis began.
Fleming cites a quarterly survey by the New York Federal Reserve Bank, which shows total household debt continues to decline. At the same time, consumer sentiment rebounded strongly in the latter part of 2011, posting a six-month high in December – an indication that consumers’ confidence in the strength of the economy is growing, according to Fleming.
Most housing statistics basically moved sideways in the latter part of 2011, but Fleming finds several positives in the numbers. Although market indicators are coming off of very low levels, he notes that both existing-home sales and single-family housing starts have begun to increase, homebuilder confidence is improving, and affordability is at an all-time high.
Putting all of these statistics together suggests that while there is a very long way to go, the housing market is likely to sustain these upward movements in 2012, according to Fleming.
“While we cannot say with a high degree of certainty what 2012 has in store for us, indications based on the latter part of 2011 are that both the broad economy and the housing market are moving toward positive growth in 2012,” Fleming said.
He concedes that some impediments do exist, including slower global economic growth, a recession in Europe, and fiscal and political uncertainty in the United States.
But Fleming says when you look at the big picture, “we are bullish on the prospect of improving economic performance in 2012 from 2011.”
AG Negotiations with Banks Linger on; Settlement Possibly Imminent
After the estimations that the state attorneys general would reach a settlement with banks by Christmas failed to pan out, word today is the settlement is weeks away.
The negotiation talks between the state attorneys general and the nation’s five largest servicers are entering their second year, and a few attorneys general have already left the talks.
The banks and attorneys general are allegedly “very close” to a settlement, Reuters reported Wednesday, referencing remarks from HUD Secretary Shaun Donovan at a U.S. Conference of Mayors meeting.
The settlement currently on the table would assist about 1 million homeowners in obtaining principal reductions and would provide “direct compensation” to others, according to Reuters.
The settlement “would both fix the servicing problems, but also help over a million families around the country stay in their homes,” Donovan said, according to Reuters.
As settlement negotiations continue, a subset of 12 attorneys general reportedly met last week to discuss their own investigations into mortgage servicing and foreclosure practices, according to a Tuesday Bloomberg article.
California, New York, and Massachusetts attorneys general – all of whom left settlement negotiations to pursue their own investigations – were present.
The negotiation talks between the state attorneys general and the nation’s five largest servicers are entering their second year, and a few attorneys general have already left the talks.
The banks and attorneys general are allegedly “very close” to a settlement, Reuters reported Wednesday, referencing remarks from HUD Secretary Shaun Donovan at a U.S. Conference of Mayors meeting.
The settlement currently on the table would assist about 1 million homeowners in obtaining principal reductions and would provide “direct compensation” to others, according to Reuters.
The settlement “would both fix the servicing problems, but also help over a million families around the country stay in their homes,” Donovan said, according to Reuters.
As settlement negotiations continue, a subset of 12 attorneys general reportedly met last week to discuss their own investigations into mortgage servicing and foreclosure practices, according to a Tuesday Bloomberg article.
California, New York, and Massachusetts attorneys general – all of whom left settlement negotiations to pursue their own investigations – were present.
Group Aims to Standardize Terminology on MLSs
With more than 900 multiple listing services across the country, data and terminology used to describe homes for sale can differ considerably. The most common differences center around how the number of bathrooms is counted, number of bedrooms, square footage, and even days on the market.
As such, one group is aiming to make the terminology on MLSs more consistent nationwide by introducing a Data Dictionary, which would create common vocabulary for fields used in the MLS that describe properties, Inman News reports. The Real Estate Standards Organization is to meet in April to consider the adoption of a Data Dictionary. However, the group acknowledges it will be a challenge to unify all of the data fields that are directly related to MLS rules and among 900 MLSs.
Yet, the Data Dictionary aims to provide definitions for fields in MLS entries to help create more consistency in reporting.
"We have (more than) 900 MLSs (and they) all describe the data in a little bit different way," Rebecca Jensen, chairperson for the RESO board and CEO for the UtahRealEstate.com MLS, told Inman News. "We just need a common way to describe it."
For example, the Data Dictionary proposes breaking down the number of bathrooms into separate fields to bring about more consistency and clarity in reporting, such as with baths total; baths full; baths half; baths three-quarter; and baths one-quarter.
Source: “Data Dictionary will Bring Common Vocabulary to for-sale Real Estate,” Inman News (Jan. 17, 2012)
As such, one group is aiming to make the terminology on MLSs more consistent nationwide by introducing a Data Dictionary, which would create common vocabulary for fields used in the MLS that describe properties, Inman News reports. The Real Estate Standards Organization is to meet in April to consider the adoption of a Data Dictionary. However, the group acknowledges it will be a challenge to unify all of the data fields that are directly related to MLS rules and among 900 MLSs.
Yet, the Data Dictionary aims to provide definitions for fields in MLS entries to help create more consistency in reporting.
"We have (more than) 900 MLSs (and they) all describe the data in a little bit different way," Rebecca Jensen, chairperson for the RESO board and CEO for the UtahRealEstate.com MLS, told Inman News. "We just need a common way to describe it."
For example, the Data Dictionary proposes breaking down the number of bathrooms into separate fields to bring about more consistency and clarity in reporting, such as with baths total; baths full; baths half; baths three-quarter; and baths one-quarter.
Source: “Data Dictionary will Bring Common Vocabulary to for-sale Real Estate,” Inman News (Jan. 17, 2012)
Mortgage Applications Surge 23%
Record-low mortgage rates sparked a wave in mortgage applications for home purchase and refinancings last week, increasing more than 20 percent in a week, the Mortgage Bankers Association reports.
For the week ending Jan. 13, mortgage applications for refinancing applications jumped 26.4 percent while home purchase applications, a future gauge for home buying, increased 10.3 percent.
"With mortgage rates reaching new lows, refinance volume jumped," Michael Fratantoni, MBA's vice president of research and economics, said in a statement. "Purchase activity also increased as buyers returned to the market after the holiday season."
Freddie Mac reported that 30-year fixed-rate mortgage averaged a record low of 3.89 percent for the week ending Jan. 12. For six consecutive weeks, 30-year fixed-rate mortgages -- the most popular choice among home buyers -- has averaged below 4 percent.
Source: “Mortgage Applications Surge on Refinancing Demand,” Reuters (Jan. 18, 2012)
For the week ending Jan. 13, mortgage applications for refinancing applications jumped 26.4 percent while home purchase applications, a future gauge for home buying, increased 10.3 percent.
"With mortgage rates reaching new lows, refinance volume jumped," Michael Fratantoni, MBA's vice president of research and economics, said in a statement. "Purchase activity also increased as buyers returned to the market after the holiday season."
Freddie Mac reported that 30-year fixed-rate mortgage averaged a record low of 3.89 percent for the week ending Jan. 12. For six consecutive weeks, 30-year fixed-rate mortgages -- the most popular choice among home buyers -- has averaged below 4 percent.
Source: “Mortgage Applications Surge on Refinancing Demand,” Reuters (Jan. 18, 2012)
Is Industrial Property's Turn Next? Manufacturing Momentum Shifting to the U.S.
After decades of watching American companies move jobs overseas, manufacturing is beginning to make a comeback of sorts here in the U.S. -- and sooner than some expected.
"There is no shortage of areas that were crippled by the financial crisis, and United States manufacturing ranks high on that list," noted a new report issued by Chat Reynders and Patrick McVeigh, the principals of Boston-based investment management firm Reynders, McVeigh Capital Management. "Production jobs were already fleeing overseas in favor of inexpensive labor in the mid-2000s, and the combination of the domestic consumer recession and a burst of Chinese market dominance only amplified the situation.
"Signs indicate, however, that U.S. companies are feeling pressure based on high unemployment, historically high profit margins, and historically low labor costs. It is simply becoming harder for companies to justify moving jobs offshore," Reynders and McVeigh noted.
In their report Workforce Rising: Why U.S. Manufacturing Is Poised for a Comeback, the two identified economics and innovation as each having a hand in resurrecting American manufacturing.
Advances in production technology are creating new opportunities; fracking, for example - the process of fracturing underground shale to reach natural gas and oil deposits - is demonstrating the dramatic impact that innovation can have.
Royal Dutch Shell plc is planning to bring thousands of jobs and more than $1 billion in investment to the Appalachian region for a chemical plant, fed by natural gas. Ohio, Pennsylvania and West Virginia are vying for the project.
In the auto industry, a renewed emphasis on domestic production has taken center stage in some labor negotiations. GM pledged to invest $2.5 billion in U.S. factories and to retain domestic work that was slated for outsourcing to Mexico. Similarly, Ford signed a new labor contract in October that calls for 12,000 new jobs and a total of investment of $16 billion in U.S. jobs and plants by 2015. Meanwhile, Mercedes' total new investment in its Tuscaloosa, AL, plant is expected to hit $2.4 billion by 2014, and work in the facility will create 1,400 jobs.
"As the momentum gains in different industries, three drivers are breathing life back into manufacturing, and each of them points to important near term investment opportunities in companies that stand to benefit," Reynders and McVeigh noted.
Globalization is gradually coming full circle as companies explore insourcing or homeshoring - bringing their manufacturing workforces back to America. Cost advantages of outsourcing production are becoming less significant, and despite (or perhaps because of) the difficult economic climate, the U.S. is in a better position to compete for such jobs.
As the wage gap between the U.S. and China shrinks, the days of cheap labor in China are waning, the two noted. The cost of wages in China is on the rise at a predicted 15% to 20% annually, while U.S wage rates are increasing at a much slower 2% clip.
The cost of manufacturing in the U.S. is improving in relation to other countries as U.S. workers have become even more efficient, partly again as aresult of the recent recession as companies 'did more with less.' In the first quarter of 2009 alone, productivity rose nearly 13%, according to White House statistics. Between 2002 and 2010, only one of 19 other industrialized countries managed to improve its unit labor cost position in manufacturing more than the United States.
A particularly bright spot for U.S.-based manufacturers has been a boom in domestic energy production. The country has seen a surge in American natural gas production, which has lowered energy costs for manufacturers, reduced pollution, and driven investment in the industries that supply equipment to the natural gas sector and those that use natural gas to fuel production-all of which have helped firms make the decision to keep jobs in the U.S. American service firms are taking advantage of new global markets.
As economies in other nations grow, there's more demand for U.S. engineers, software developers, researchers, and consultants. At the same time, a range of barriers that once made it hard to market those services across borders have come down. As a result, the United States is poised to expand its trade surplus in services to $146 billion in 2010. Since 2003, that surplus has nearly tripled.
Also, for most of 2011, Federal Reserve Board surveys of business conditions reported manufacturing activity expanding in most districts across the country -- reversing a slowdown in prior periods.
The strongest reports came from subsectors such as heavy equipment manufacturing and steel, for which demand has been boosted by robust growth in the energy, agricultural, and auto manufacturing sectors.
By contrast, demand remained somewhat weak for firms in housing-related subsectors, such as a door and furniture manufacturers and the makers of lumber and wood products. Export sales of assorted manufactured products generally performed well although slower economic growth in China and Europe held back sales for some manufacturers.
Other momentum changers, Reynders and McVeigh said are rising transportation costs and a shift among manufacturers to a more holistic view of production.
Transportation costs have drastically increased in the past few years due to the high price of oil. By reallocating resources to the U.S., companies can reduce the distance to the point of sale and eventually benefit from more accessible, cheaper fuel in domestic natural gas.
"Less obvious but just as significant is a fundamental shift to a more holistic view of production. Industries are taking a closer look at the full cycle of product delivery as reflected by the Total Cost of Ownership (TCO). TCO evaluates the entire cost incurred by companies when purchasing a manufacturing part, including the burden of controlling quality and delivery, transportation, oil consumption, inspection of labor, inventory carrying, and freight and packaging," Reynders and McVeigh said. "If the buyer performs a cost-benefit analysis of the TCO, they would find it is cheaper and more predictable to keep manufacturing close to home."
Grubb & Ellis in its 2012 market forecasts says trends such as homesourcing could begin to have real benefits this year but certainly by 2013.
Demand will accelerate in 2012, but given the sluggish domestic and overseas economies, only by about 15% to 130 million square feet. Large blocks of space will continue to outperform, Grubb & Ellis reported.
Third-party logistics providers are becoming an integral part of supply chains of an increasing number of companies, a trend that will continue to drive the Class A distribution sector.
For the recovery to accelerate more significantly, the market needs the return of business and consumer confidence so that smaller, local businesses will commit to more space at longer terms. However, the requisite level of confidence is unlikely to emerge until the second half of the year, and the November elections could delay it until the end of 2012.
"Near and on-shoring has the potential to accelerate demand for general industrial space. Caterpillar's decision to shift some production from Japan to North America could prove to be an exception," Grubb & Ellis reported. "However, given the supply chain disruptions following the earthquake in Japan, the flooding in Thailand and rising labor costs in China, more U.S. manufacturers are likely to follow.
The more meaningful acceleration will be in new supply, which will double to 40 million square feet. Assuming a stronger economic recovery in 2013 and 2014, new deliveries will easily double again in 2013 and potentially in 2014, matching the 155 million square feet that was completed in 2008. While selective speculative building commenced in 2011, 16 or more markets across the county will see new construction begin this year without a lease already in place.
Source: Costar - Mark Heschmeyer
"There is no shortage of areas that were crippled by the financial crisis, and United States manufacturing ranks high on that list," noted a new report issued by Chat Reynders and Patrick McVeigh, the principals of Boston-based investment management firm Reynders, McVeigh Capital Management. "Production jobs were already fleeing overseas in favor of inexpensive labor in the mid-2000s, and the combination of the domestic consumer recession and a burst of Chinese market dominance only amplified the situation.
"Signs indicate, however, that U.S. companies are feeling pressure based on high unemployment, historically high profit margins, and historically low labor costs. It is simply becoming harder for companies to justify moving jobs offshore," Reynders and McVeigh noted.
In their report Workforce Rising: Why U.S. Manufacturing Is Poised for a Comeback, the two identified economics and innovation as each having a hand in resurrecting American manufacturing.
Advances in production technology are creating new opportunities; fracking, for example - the process of fracturing underground shale to reach natural gas and oil deposits - is demonstrating the dramatic impact that innovation can have.
Royal Dutch Shell plc is planning to bring thousands of jobs and more than $1 billion in investment to the Appalachian region for a chemical plant, fed by natural gas. Ohio, Pennsylvania and West Virginia are vying for the project.
In the auto industry, a renewed emphasis on domestic production has taken center stage in some labor negotiations. GM pledged to invest $2.5 billion in U.S. factories and to retain domestic work that was slated for outsourcing to Mexico. Similarly, Ford signed a new labor contract in October that calls for 12,000 new jobs and a total of investment of $16 billion in U.S. jobs and plants by 2015. Meanwhile, Mercedes' total new investment in its Tuscaloosa, AL, plant is expected to hit $2.4 billion by 2014, and work in the facility will create 1,400 jobs.
"As the momentum gains in different industries, three drivers are breathing life back into manufacturing, and each of them points to important near term investment opportunities in companies that stand to benefit," Reynders and McVeigh noted.
Globalization is gradually coming full circle as companies explore insourcing or homeshoring - bringing their manufacturing workforces back to America. Cost advantages of outsourcing production are becoming less significant, and despite (or perhaps because of) the difficult economic climate, the U.S. is in a better position to compete for such jobs.
As the wage gap between the U.S. and China shrinks, the days of cheap labor in China are waning, the two noted. The cost of wages in China is on the rise at a predicted 15% to 20% annually, while U.S wage rates are increasing at a much slower 2% clip.
The cost of manufacturing in the U.S. is improving in relation to other countries as U.S. workers have become even more efficient, partly again as aresult of the recent recession as companies 'did more with less.' In the first quarter of 2009 alone, productivity rose nearly 13%, according to White House statistics. Between 2002 and 2010, only one of 19 other industrialized countries managed to improve its unit labor cost position in manufacturing more than the United States.
A particularly bright spot for U.S.-based manufacturers has been a boom in domestic energy production. The country has seen a surge in American natural gas production, which has lowered energy costs for manufacturers, reduced pollution, and driven investment in the industries that supply equipment to the natural gas sector and those that use natural gas to fuel production-all of which have helped firms make the decision to keep jobs in the U.S. American service firms are taking advantage of new global markets.
As economies in other nations grow, there's more demand for U.S. engineers, software developers, researchers, and consultants. At the same time, a range of barriers that once made it hard to market those services across borders have come down. As a result, the United States is poised to expand its trade surplus in services to $146 billion in 2010. Since 2003, that surplus has nearly tripled.
Also, for most of 2011, Federal Reserve Board surveys of business conditions reported manufacturing activity expanding in most districts across the country -- reversing a slowdown in prior periods.
The strongest reports came from subsectors such as heavy equipment manufacturing and steel, for which demand has been boosted by robust growth in the energy, agricultural, and auto manufacturing sectors.
By contrast, demand remained somewhat weak for firms in housing-related subsectors, such as a door and furniture manufacturers and the makers of lumber and wood products. Export sales of assorted manufactured products generally performed well although slower economic growth in China and Europe held back sales for some manufacturers.
Other momentum changers, Reynders and McVeigh said are rising transportation costs and a shift among manufacturers to a more holistic view of production.
Transportation costs have drastically increased in the past few years due to the high price of oil. By reallocating resources to the U.S., companies can reduce the distance to the point of sale and eventually benefit from more accessible, cheaper fuel in domestic natural gas.
"Less obvious but just as significant is a fundamental shift to a more holistic view of production. Industries are taking a closer look at the full cycle of product delivery as reflected by the Total Cost of Ownership (TCO). TCO evaluates the entire cost incurred by companies when purchasing a manufacturing part, including the burden of controlling quality and delivery, transportation, oil consumption, inspection of labor, inventory carrying, and freight and packaging," Reynders and McVeigh said. "If the buyer performs a cost-benefit analysis of the TCO, they would find it is cheaper and more predictable to keep manufacturing close to home."
Grubb & Ellis in its 2012 market forecasts says trends such as homesourcing could begin to have real benefits this year but certainly by 2013.
Demand will accelerate in 2012, but given the sluggish domestic and overseas economies, only by about 15% to 130 million square feet. Large blocks of space will continue to outperform, Grubb & Ellis reported.
Third-party logistics providers are becoming an integral part of supply chains of an increasing number of companies, a trend that will continue to drive the Class A distribution sector.
For the recovery to accelerate more significantly, the market needs the return of business and consumer confidence so that smaller, local businesses will commit to more space at longer terms. However, the requisite level of confidence is unlikely to emerge until the second half of the year, and the November elections could delay it until the end of 2012.
"Near and on-shoring has the potential to accelerate demand for general industrial space. Caterpillar's decision to shift some production from Japan to North America could prove to be an exception," Grubb & Ellis reported. "However, given the supply chain disruptions following the earthquake in Japan, the flooding in Thailand and rising labor costs in China, more U.S. manufacturers are likely to follow.
The more meaningful acceleration will be in new supply, which will double to 40 million square feet. Assuming a stronger economic recovery in 2013 and 2014, new deliveries will easily double again in 2013 and potentially in 2014, matching the 155 million square feet that was completed in 2008. While selective speculative building commenced in 2011, 16 or more markets across the county will see new construction begin this year without a lease already in place.
Source: Costar - Mark Heschmeyer
CRE Price Index Rises for Seventh Consecutive Month
The CoStar National Composite Index of commercial real estate pricing rose for the seventh straight month since last spring as investment-grade sales made solid pricing gains in November 2011, and the level of distressed sale transactions continued to decline during the month.
The composite index rose 0.6% in November from the previous month, with prices now an average 1.8% higher compared to the same period a year ago, according to this month’s release of the CoStar Commercial Repeat Sale Index (CCRSI), which tracks sale pair transaction data through Nov. 30.
November also brought the second consecutive year-over-year increase in the composite index. Last month, CoStar reported that the index rose 2.2% in October from the same period a year earlier, the first year-over-year improvement in the composite since the U.S. economy took a dive in 2008.
The national General Commercial and Investment-Grade indices both rose over the previous month for the seventh consecutive time since May 2011, boosted by a stabilizing commercial property recovery during the second half of the year.
Despite the gains, the real estate recovery continues to be less robust than previous economic cycles, with the composite index remaining 31.8% below its August 2007 peak during the height of the real estate boom
The investment-grade index recorded a solid 2.2% increase in November, however, based on 105 sale pair transactions, with average prices now 6.4% higher than the same period a year ago. The general property sales index rose slightly by 0.3%, with prices up 1.1% from the year-earlier period based on 633 transactions.
Source: Randyl Drummer Costar
The composite index rose 0.6% in November from the previous month, with prices now an average 1.8% higher compared to the same period a year ago, according to this month’s release of the CoStar Commercial Repeat Sale Index (CCRSI), which tracks sale pair transaction data through Nov. 30.
November also brought the second consecutive year-over-year increase in the composite index. Last month, CoStar reported that the index rose 2.2% in October from the same period a year earlier, the first year-over-year improvement in the composite since the U.S. economy took a dive in 2008.
The national General Commercial and Investment-Grade indices both rose over the previous month for the seventh consecutive time since May 2011, boosted by a stabilizing commercial property recovery during the second half of the year.
Despite the gains, the real estate recovery continues to be less robust than previous economic cycles, with the composite index remaining 31.8% below its August 2007 peak during the height of the real estate boom
The investment-grade index recorded a solid 2.2% increase in November, however, based on 105 sale pair transactions, with average prices now 6.4% higher than the same period a year ago. The general property sales index rose slightly by 0.3%, with prices up 1.1% from the year-earlier period based on 633 transactions.
Source: Randyl Drummer Costar
Citi's $1.2B Fourth-Quarter Profit Misses Market Forecasts
Citigroup’s fourth-quarter earnings results fell far short of analysts’ expectations, despite the fact that credit losses were down 40 percent from the previous year.
The New York-based lender reported net income of $1.2 billion, or 38 cents per share, for the fourth quarter of 2011. This compares to net income of $1.3 billion, or 43 cents per share, in the fourth quarter 2010.
Analysts were expecting to see the latest quarter turn a profit of 50 cents per share. The company attributed the shortfall to a sharp decline in investment banking revenues.
Citigroup’s net income for the full year of 2011 was $11.3 billion, up from $10.6 billion in 2010.
The company says its total cost of credit has improved dramatically, driven by a 40 percent decline in net credit losses to $4.1 billion in the fourth quarter and a $1.5 billion release of credit reserves. The credit reserve release reflects a lower level of inherent losses remaining in the company’s portfolio, Citi explained in its Tuesday earnings release.
The global bank has a total of just over $30 billion set aside to cover loan losses, with $10 billion earmarked specifically for its North American real estate lending business. Citi’s total loan loss reserves represent 4.7 percent of its portfolio.
CFO John Gerspach told investors that legacy mortgage issues “are the single largest source of risk facing the U.S. banking industry.”
Citigroup took a $200 million hit as a result of loan repurchases from investors during the fourth quarter. Buybacks in 2011 were up 80 percent when compared to the previous year.
The company says it increased reserves for litigation costs by $557 million during the fourth quarter, with the lion’s share slated to cover legal costs tied to mortgage disputes.
Consumer loans held in the company’s Citicorp division which were 90-plus days delinquent fell 22 percent from the prior year to $2.4 billion. The 90-plus delinquent ratio plummeted 27 percent to 0.98 percent of loans.
Delinquencies on loans held in its Citi Holdings division, however, increased. Two years ago, Citi split its business into two silos – Citicorp and Citi Holdings, with Citi Holdings being the entity that houses the operations the company wants to sell off or wind down. Some $100 billion in mortgages sit under the Citi Holdings banner.
Gerspach told investors to expect delinquencies on these loans to continue to rise over the next couple of quarters as previously modified mortgages turn delinquent again. Nevertheless, Gerspach added, “To date, those re-default rates remain below our expectations.”
He cited statistics that show re-defaults of less than 25 percent for the company’s own proprietary modification programs and less than 15 percent for government programs.
Citi disclosed Tuesday that it plans to eliminate 5,000 jobs this year and cut expenses by $3 billion.
“Clearly, the macro environment has impacted the capital markets and we will continue to right-size our businesses to match the environment,” said Vikram Pandit, Citi’s CEO.
The New York-based lender reported net income of $1.2 billion, or 38 cents per share, for the fourth quarter of 2011. This compares to net income of $1.3 billion, or 43 cents per share, in the fourth quarter 2010.
Analysts were expecting to see the latest quarter turn a profit of 50 cents per share. The company attributed the shortfall to a sharp decline in investment banking revenues.
Citigroup’s net income for the full year of 2011 was $11.3 billion, up from $10.6 billion in 2010.
The company says its total cost of credit has improved dramatically, driven by a 40 percent decline in net credit losses to $4.1 billion in the fourth quarter and a $1.5 billion release of credit reserves. The credit reserve release reflects a lower level of inherent losses remaining in the company’s portfolio, Citi explained in its Tuesday earnings release.
The global bank has a total of just over $30 billion set aside to cover loan losses, with $10 billion earmarked specifically for its North American real estate lending business. Citi’s total loan loss reserves represent 4.7 percent of its portfolio.
CFO John Gerspach told investors that legacy mortgage issues “are the single largest source of risk facing the U.S. banking industry.”
Citigroup took a $200 million hit as a result of loan repurchases from investors during the fourth quarter. Buybacks in 2011 were up 80 percent when compared to the previous year.
The company says it increased reserves for litigation costs by $557 million during the fourth quarter, with the lion’s share slated to cover legal costs tied to mortgage disputes.
Consumer loans held in the company’s Citicorp division which were 90-plus days delinquent fell 22 percent from the prior year to $2.4 billion. The 90-plus delinquent ratio plummeted 27 percent to 0.98 percent of loans.
Delinquencies on loans held in its Citi Holdings division, however, increased. Two years ago, Citi split its business into two silos – Citicorp and Citi Holdings, with Citi Holdings being the entity that houses the operations the company wants to sell off or wind down. Some $100 billion in mortgages sit under the Citi Holdings banner.
Gerspach told investors to expect delinquencies on these loans to continue to rise over the next couple of quarters as previously modified mortgages turn delinquent again. Nevertheless, Gerspach added, “To date, those re-default rates remain below our expectations.”
He cited statistics that show re-defaults of less than 25 percent for the company’s own proprietary modification programs and less than 15 percent for government programs.
Citi disclosed Tuesday that it plans to eliminate 5,000 jobs this year and cut expenses by $3 billion.
“Clearly, the macro environment has impacted the capital markets and we will continue to right-size our businesses to match the environment,” said Vikram Pandit, Citi’s CEO.
Wells Fargo Reports Record Income in Fourth Quarter
Wells Fargo & Company ended the year with record earnings in the fourth quarter, reporting a net income of $4.1 billion, up from $3.4 billion in the third quarter, according to its fourth quarter report released Tuesday.
The San Francisco-based bank reported year-end profits of $15.9 billion, demonstrating a 28 percent increase from yearly earnings in 2010.
“The fourth quarter of 2011 was a very strong quarter for Wells Fargo, with record earnings, solid linked quarter growth in loans, deposits and capital, and continued strong credit quality,” said Chief Financial Officer Tim Sloan.
“Revenue was up 5 percent from the third quarter despite a full quarter’s impact of the new debit interchange rules. As expected, expenses were higher in the quarter and we are maintaining our target of $11 billion in noninterest expense in the fourth quarter of 2012,” Sloan continued.
Wells Fargo holds a residential mortgage servicing portfolio totaling $1.8 trillion in value.
As of year-end, Wells Fargo held $20.5 billion in government-issued and government-guaranteed loans that were at least 90 days delinquent.
Outside of government-associated loans, the bank held $1.9 billion in loans that were at least 90 days delinquent.
At the end of November, Wells Fargo counted 724,710 mortgage modifications – either completed or in trial – since the start of 2009. The majority – 84 percent – were proprietary, while the remainder were administered through HAMP.
In the fourth quarter, mortgage applications and originations at Wells Fargo increased. Applications in the fourth quarter totaled $157 billion, up from $169 billion in the third quarter.
Originations rose from $89 billion in the third quarter to $120 billion in the fourth quarter.
“In 2012, we are focused on Wells Fargo’s many opportunities, including continuing to provide our customers with award winning service, welcoming new customers as we grow market share throughout our many businesses and geographies, achieving efficiency improvements across the company and returning even more capital to our shareholders,” said John Stumpf, chairman and CEO of Wells Fargo.
The San Francisco-based bank reported year-end profits of $15.9 billion, demonstrating a 28 percent increase from yearly earnings in 2010.
“The fourth quarter of 2011 was a very strong quarter for Wells Fargo, with record earnings, solid linked quarter growth in loans, deposits and capital, and continued strong credit quality,” said Chief Financial Officer Tim Sloan.
“Revenue was up 5 percent from the third quarter despite a full quarter’s impact of the new debit interchange rules. As expected, expenses were higher in the quarter and we are maintaining our target of $11 billion in noninterest expense in the fourth quarter of 2012,” Sloan continued.
Wells Fargo holds a residential mortgage servicing portfolio totaling $1.8 trillion in value.
As of year-end, Wells Fargo held $20.5 billion in government-issued and government-guaranteed loans that were at least 90 days delinquent.
Outside of government-associated loans, the bank held $1.9 billion in loans that were at least 90 days delinquent.
At the end of November, Wells Fargo counted 724,710 mortgage modifications – either completed or in trial – since the start of 2009. The majority – 84 percent – were proprietary, while the remainder were administered through HAMP.
In the fourth quarter, mortgage applications and originations at Wells Fargo increased. Applications in the fourth quarter totaled $157 billion, up from $169 billion in the third quarter.
Originations rose from $89 billion in the third quarter to $120 billion in the fourth quarter.
“In 2012, we are focused on Wells Fargo’s many opportunities, including continuing to provide our customers with award winning service, welcoming new customers as we grow market share throughout our many businesses and geographies, achieving efficiency improvements across the company and returning even more capital to our shareholders,” said John Stumpf, chairman and CEO of Wells Fargo.
Senator Criticizes OCC's Guidance on Foreclosed Properties
One Ohio congressman is taking the plight of homeowners in his foreclosure-ravaged state straight to federal regulators.
Sen. Sherrod Brown (D-Ohio) says guidance issued to mortgage servicers last month by the Office of the Comptroller of the Currency (OCC) amounts to “a free pass for banks to abandon foreclosed homes,” a practice Brown says undermines neighborhoods and property values and leaves local taxpayers on the hook for maintenance and cleanup costs.
In a letter to the OCC’s John Walsh, Brown pointedly states, “[Y]our guidance implicitly approves of the practice of having lenders ‘release a lien securing a defaulted loan rather than foreclose on the residential property.’”
The regulator’s guidelines explain that such a decision is based on financial considerations when the costs to foreclose, rehabilitate, and sell a property exceed its current fair-market value.
But Brown argues there’s more than financials to consider. In 2009, Brown called for a federal investigation into these so-called “bank walkaways.” The Government Account-
ability Office (GAO) responded and concluded that bank walkaways, though not a common practice nationwide, are focused in economically struggling areas and pose significant health, safety, and financial concerns.
Such a practice, according to Brown, should not be supported by the federal government.
“Too many Wall Street banks are walking away from too many Ohio Main Street communities,” Brown said. “And when they do, they leave behind homes that are often vandalized and left to crumble.”
Brown says responsible homeowners are seeing their property values plummet as abandoned homes in their neighborhood are left to decay. He cites a study by the Federal Reserve Bank of Cleveland which found that each vacant property in Cleveland could decrease the sales price of homes within 500 feet by about 3.1 percent.
Brown says the OCC’s guidance only serves to legitimize a practice that is unfair to homeowners and local communities. He’s calling for the agency to adopt important reforms to mitigate the damage caused by homes abandoned prior to foreclosure.
Where foreclosure is initiated on a property that the bank ultimately decides to release, Brown asserts the OCC should require servicers to complete the foreclosure and finance the cost of demolishing the home, or they should be required to transfer title of abandoned properties to governmental or nonprofit entities, such as land banks.
“Strong standards from the OCC will send a message that Wall Street must share in the responsibility to end the foreclosure crisis,” Brown wrote to Walsh.
The senator says preventing banks from walking away from properties will give servicers greater incentive to avoid unnecessary foreclosures and act in the best interest of the nation’s communities.
Sen. Sherrod Brown (D-Ohio) says guidance issued to mortgage servicers last month by the Office of the Comptroller of the Currency (OCC) amounts to “a free pass for banks to abandon foreclosed homes,” a practice Brown says undermines neighborhoods and property values and leaves local taxpayers on the hook for maintenance and cleanup costs.
In a letter to the OCC’s John Walsh, Brown pointedly states, “[Y]our guidance implicitly approves of the practice of having lenders ‘release a lien securing a defaulted loan rather than foreclose on the residential property.’”
The regulator’s guidelines explain that such a decision is based on financial considerations when the costs to foreclose, rehabilitate, and sell a property exceed its current fair-market value.
But Brown argues there’s more than financials to consider. In 2009, Brown called for a federal investigation into these so-called “bank walkaways.” The Government Account-
ability Office (GAO) responded and concluded that bank walkaways, though not a common practice nationwide, are focused in economically struggling areas and pose significant health, safety, and financial concerns.
Such a practice, according to Brown, should not be supported by the federal government.
“Too many Wall Street banks are walking away from too many Ohio Main Street communities,” Brown said. “And when they do, they leave behind homes that are often vandalized and left to crumble.”
Brown says responsible homeowners are seeing their property values plummet as abandoned homes in their neighborhood are left to decay. He cites a study by the Federal Reserve Bank of Cleveland which found that each vacant property in Cleveland could decrease the sales price of homes within 500 feet by about 3.1 percent.
Brown says the OCC’s guidance only serves to legitimize a practice that is unfair to homeowners and local communities. He’s calling for the agency to adopt important reforms to mitigate the damage caused by homes abandoned prior to foreclosure.
Where foreclosure is initiated on a property that the bank ultimately decides to release, Brown asserts the OCC should require servicers to complete the foreclosure and finance the cost of demolishing the home, or they should be required to transfer title of abandoned properties to governmental or nonprofit entities, such as land banks.
“Strong standards from the OCC will send a message that Wall Street must share in the responsibility to end the foreclosure crisis,” Brown wrote to Walsh.
The senator says preventing banks from walking away from properties will give servicers greater incentive to avoid unnecessary foreclosures and act in the best interest of the nation’s communities.
Fannie Mae Predicts 'Moderate Growth' in 2012
The U.S. economy is projected to grow 2.3 percent for the year, according to Fannie Mae’s Economics & Mortgage Market Analysis Group.
Growth will be affected by “fiscal policy issues and political economic uncertainty,” according to Fannie Mae.
The upcoming presidential election, the healthcare debate, and the sovereign debt crisis in the euro zone are three wild cards causing concern for Americans.
Recent improvements in employment have elevated consumers from their “summer rut,” and the housing market is showing some positive indicators, though movement is slow.
“We’re entering 2012 with decent momentum, especially on the employment side,” said Doug Duncan, Fannie Mae’s chief economist.
However, Duncan suggests this momentum will fade over the first half of this year amid “policy changes and challenges that involve the global economy, the domestic economy, and the housing sector.”
Duncan predicts “a year of moderate growth edging away from the 2011 threat of a double dip.”
Growth will be affected by “fiscal policy issues and political economic uncertainty,” according to Fannie Mae.
The upcoming presidential election, the healthcare debate, and the sovereign debt crisis in the euro zone are three wild cards causing concern for Americans.
Recent improvements in employment have elevated consumers from their “summer rut,” and the housing market is showing some positive indicators, though movement is slow.
“We’re entering 2012 with decent momentum, especially on the employment side,” said Doug Duncan, Fannie Mae’s chief economist.
However, Duncan suggests this momentum will fade over the first half of this year amid “policy changes and challenges that involve the global economy, the domestic economy, and the housing sector.”
Duncan predicts “a year of moderate growth edging away from the 2011 threat of a double dip.”
O.J. Simpson's Home Faces Foreclosure
O.J. Simpson, the 64-year-old former football star, is facing foreclosure on his Miami home while he serves a prison term in Nevada.
Simpson purchased the 4,233-square-foot, four-bedroom, four-bath house in 2000 for $575,000, according to media reports. The home’s assessed value now stands at $478,401, the Associated Press reports.
Simpson was convicted of kidnapping, armed robbery, among other charges, from a 2007 confrontation with sports memorabilia dealers in Las Vegas. He is serving a nine to 33-year prison sentence in Nevada. Simpson was acquitted in 1995 of killing his ex-wife and her friend.
Simpson’s attorney has filed a motion to dismiss the foreclosure case against him. Even though Simpson is in prison, he still earns an income from his NFL pension, a retirement account, and residual payments from movies he appeared in.
Source: “Bank Foreclosing on O.J. Simpson’s Florida House,” Associated Press (Jan. 17, 2012)
Simpson purchased the 4,233-square-foot, four-bedroom, four-bath house in 2000 for $575,000, according to media reports. The home’s assessed value now stands at $478,401, the Associated Press reports.
Simpson was convicted of kidnapping, armed robbery, among other charges, from a 2007 confrontation with sports memorabilia dealers in Las Vegas. He is serving a nine to 33-year prison sentence in Nevada. Simpson was acquitted in 1995 of killing his ex-wife and her friend.
Simpson’s attorney has filed a motion to dismiss the foreclosure case against him. Even though Simpson is in prison, he still earns an income from his NFL pension, a retirement account, and residual payments from movies he appeared in.
Source: “Bank Foreclosing on O.J. Simpson’s Florida House,” Associated Press (Jan. 17, 2012)
REALTORS(R) FCU Reports Solid Growth
Since it opened in May 2009, the REALTORS® Federal Credit Union (FCU) has become a significant benefit among National Association of REALTORS® members, offering a diverse portfolio of services and products. Since then, REALTORS® FCU has experienced unprecedented growth in membership.
Most recently, REALTORS® FCU was rated as the fastest growing credit union in the country by Callahan & Associates, a leading credit union information source. REALTORS® FCU ranked number one in organic membership growth which neared 25 percent between June 2010 and June 2011. Over the 12-month time period, REALTORS® FCU also grew its loan portfolio by 10.66 percent. Currently, REALTORS® FCU has 7,501 members with total assets of $77.9 million.
“REALTORS® FCU is one of NAR’s most valued member benefits,” said NAR President Moe Veissi, broker-owner of Veissi & Associates Inc., in Miami. “Credit union members have access to an assortment of products and services, as well as tremendous rates and fewer fees than with other institutions. The rapid growth REALTORS® FCU has experienced comes as no surprise because it was established with REALTORS®in mind. And now that REALTORS® FCU has a mobile banking app, we expect even greater growth.”
REALTORS® FCU recently began offering a free mobile banking app for its members; the app is available for iPhone, Android and Blackberry. After just eight weeks, nearly 14 percent of REALTORS® FCU online banking users had downloaded the app, which currently has more than 600 registered mobile users.
“The industry average for mobile banking users after this amount of time is typically between 5-7 percent,” REALTORS® FCU Executive Vice President & Chief Operating Officer Jesse Boyer said. “REALTORS® FCU surpassed this and we continue to sign up new users every day. Mobile banking allows our on-the-go members to access account information, transfer funds, review transactions, and find ATMs from the convenience of their mobile device.”
Most recently, REALTORS® FCU was rated as the fastest growing credit union in the country by Callahan & Associates, a leading credit union information source. REALTORS® FCU ranked number one in organic membership growth which neared 25 percent between June 2010 and June 2011. Over the 12-month time period, REALTORS® FCU also grew its loan portfolio by 10.66 percent. Currently, REALTORS® FCU has 7,501 members with total assets of $77.9 million.
“REALTORS® FCU is one of NAR’s most valued member benefits,” said NAR President Moe Veissi, broker-owner of Veissi & Associates Inc., in Miami. “Credit union members have access to an assortment of products and services, as well as tremendous rates and fewer fees than with other institutions. The rapid growth REALTORS® FCU has experienced comes as no surprise because it was established with REALTORS®in mind. And now that REALTORS® FCU has a mobile banking app, we expect even greater growth.”
REALTORS® FCU recently began offering a free mobile banking app for its members; the app is available for iPhone, Android and Blackberry. After just eight weeks, nearly 14 percent of REALTORS® FCU online banking users had downloaded the app, which currently has more than 600 registered mobile users.
“The industry average for mobile banking users after this amount of time is typically between 5-7 percent,” REALTORS® FCU Executive Vice President & Chief Operating Officer Jesse Boyer said. “REALTORS® FCU surpassed this and we continue to sign up new users every day. Mobile banking allows our on-the-go members to access account information, transfer funds, review transactions, and find ATMs from the convenience of their mobile device.”
Qualifying for the Best Mortgage Rate
Many borrowers are finding that the record-low mortgage rates advertised recently are out of reach. So how can borrowers snag these best rates — which for the 30-year fixed-rate mortgage alone has been under 4 percent recently? Basically, they need to prove to lenders they are less risk: Lenders offer the best rates to those who they perceive as low-risk borrowers.
Here are ways for consumers to show lenders that they are low-risk borrowers, according to a recent article at The New York Times:
Credit score: According to one mortgage broker, ideal borrowers nowadays have a FICO score of 740 or higher to qualify for the best pricing.
Property types: Buyers of a duplex, four-unit building, or condo may have a rate premium added. Also, lenders will charge borrowers more if they plan to rent out the property rather than live there.
Down payment: Borrowers who put down at least 25 percent will most likely attract the best pricing, lenders say. “Lenders offer different breaks on rates if equity is higher, so you should ask what is available,” The New York Times article notes.
Also, borrowers who are able to get a low rate now may want to lock it in if they are heading to closing soon. “Lenders typically agree not to change an offered interest rate for 60 days, but borrowers confident of a quick closing may be willing to accept a 45-day rate guarantee, or even a 30-day lock, in exchange for a small discount, because the transaction’s speed helps the lender reduce its risk,” The New York Times article notes.
Source: “Mortgages: Shopping for the Best Rates,” The New York Times (Jan. 12, 2012)
Here are ways for consumers to show lenders that they are low-risk borrowers, according to a recent article at The New York Times:
Credit score: According to one mortgage broker, ideal borrowers nowadays have a FICO score of 740 or higher to qualify for the best pricing.
Property types: Buyers of a duplex, four-unit building, or condo may have a rate premium added. Also, lenders will charge borrowers more if they plan to rent out the property rather than live there.
Down payment: Borrowers who put down at least 25 percent will most likely attract the best pricing, lenders say. “Lenders offer different breaks on rates if equity is higher, so you should ask what is available,” The New York Times article notes.
Also, borrowers who are able to get a low rate now may want to lock it in if they are heading to closing soon. “Lenders typically agree not to change an offered interest rate for 60 days, but borrowers confident of a quick closing may be willing to accept a 45-day rate guarantee, or even a 30-day lock, in exchange for a small discount, because the transaction’s speed helps the lender reduce its risk,” The New York Times article notes.
Source: “Mortgages: Shopping for the Best Rates,” The New York Times (Jan. 12, 2012)
Selling a Rented Home Can Pose Challenges
Some home owners turned into reluctant landlords and rented out their homes to earn extra income while the housing market was sluggish. But now some of these home owners are ready to sell.
However, real estate agents often caution clients that trying to sell a home when a tenant still lives there can be tricky since many renters — who have no financial stake in the matter — aren’t always so eager to help market a home and keep it tidy and neat on their landlord’s behalf.
Nevertheless, “it’s pretty common in this market to be selling a home with a tenant in it,” Chris Hager, a real estate professional with Long & Foster Real Estate in North Bethesda, Md., told the Washington Times. “There are lots of reluctant landlords out there who opted to rent their property rather than sell it, and now they want to put it on the market. There’s the potential for conflict between the tenant and the landlord, especially if it was not made clear to the tenant from the beginning that the owners wanted to sell.”
Landlords should make a point to clearly communicate their intentions to sell, and not “sneak” the house on the market without telling the tenants first, real estate professionals say.
Landlords might want to offer a concession on the rent to tenants in exchange for them keeping the home in clean, good condition while it’s on the market — such as 10 percent off each month’s rent while it’s on the market. But be sure to communicate expectations for cleanliness, such as keeping the dishes out of the sink and making the bed. Experts also suggest setting established hours for showing the property to make it easier on the tenant.
“You never get a second chance to make a first impression, so it is particularly important to have the place in strong showing shape on the first and second weekends on the market,” says Nick Pasquini, broker-owner of Century 21 Redwood Realty in Washington, D.C., and Arlington and Ashburn, Va.
Source: “Challenges of Selling a Rented Home,” Washington Times (Jan. 13, 2012)
However, real estate agents often caution clients that trying to sell a home when a tenant still lives there can be tricky since many renters — who have no financial stake in the matter — aren’t always so eager to help market a home and keep it tidy and neat on their landlord’s behalf.
Nevertheless, “it’s pretty common in this market to be selling a home with a tenant in it,” Chris Hager, a real estate professional with Long & Foster Real Estate in North Bethesda, Md., told the Washington Times. “There are lots of reluctant landlords out there who opted to rent their property rather than sell it, and now they want to put it on the market. There’s the potential for conflict between the tenant and the landlord, especially if it was not made clear to the tenant from the beginning that the owners wanted to sell.”
Landlords should make a point to clearly communicate their intentions to sell, and not “sneak” the house on the market without telling the tenants first, real estate professionals say.
Landlords might want to offer a concession on the rent to tenants in exchange for them keeping the home in clean, good condition while it’s on the market — such as 10 percent off each month’s rent while it’s on the market. But be sure to communicate expectations for cleanliness, such as keeping the dishes out of the sink and making the bed. Experts also suggest setting established hours for showing the property to make it easier on the tenant.
“You never get a second chance to make a first impression, so it is particularly important to have the place in strong showing shape on the first and second weekends on the market,” says Nick Pasquini, broker-owner of Century 21 Redwood Realty in Washington, D.C., and Arlington and Ashburn, Va.
Source: “Challenges of Selling a Rented Home,” Washington Times (Jan. 13, 2012)
Optimism Builds in Housing Market
Several recent indicators for the real estate industry are pointing to a market that is on the mend and entering recovery mode.
Housing experts’ predictions for the new year tend to center around a market stabilizing before entering a gradual, albeit very slow, recovery. However, the tone is more upbeat than it has been in years for the housing market.
Here are a few of the signs that are showing the market moving in a more positive direction:
Home sales: Existing home sales are expected to increase 12 percent this year, following a 2 percent jump last year, Moody’s Analytics predicts. The signs are already showing: In November, pending home sales — a gauge for future home buying — reached its highest level in 19 months, the National Association of REALTORS® reported. (Read more.)
New-home market: Coming off of what could be considered the worst year for new-home building ever recorded, the sector is expected to bounce back this year. New-home sales and starts were already showing a rebound in the last few months of 2011. Moody’s is predicting that single-family housing starts will increase 37 percent this year, and new-home sales will soar 74 percent.
Housing stocks: Investors are starting to get optimistic about the possibility of a rebound too, and are turning to home builder stocks. These equities have recently outperformed the broader stock market and the S&P 1500 homebuilding index has increased 38 percent since mid-October, USA Today reports.
Consumer confidence: With mortgage rates at record lows and housing affordability high, about 71 percent of Americans say now is a good time to purchase a home. Also, more Americans are optimistic that home prices will rise over the next year — about 26 percent say prices will rise in 2012, an increase of 4 percent over the last survey, according to Fannie Mae’s December National Housing Survey
Source: “Housing Outlook Is More Upbeat,” USA Today (Jan. 15, 2012) and “Consumers More Confident, Survey Says,” Deseret News (Utah) (Jan. 16, 2012)
Housing experts’ predictions for the new year tend to center around a market stabilizing before entering a gradual, albeit very slow, recovery. However, the tone is more upbeat than it has been in years for the housing market.
Here are a few of the signs that are showing the market moving in a more positive direction:
Home sales: Existing home sales are expected to increase 12 percent this year, following a 2 percent jump last year, Moody’s Analytics predicts. The signs are already showing: In November, pending home sales — a gauge for future home buying — reached its highest level in 19 months, the National Association of REALTORS® reported. (Read more.)
New-home market: Coming off of what could be considered the worst year for new-home building ever recorded, the sector is expected to bounce back this year. New-home sales and starts were already showing a rebound in the last few months of 2011. Moody’s is predicting that single-family housing starts will increase 37 percent this year, and new-home sales will soar 74 percent.
Housing stocks: Investors are starting to get optimistic about the possibility of a rebound too, and are turning to home builder stocks. These equities have recently outperformed the broader stock market and the S&P 1500 homebuilding index has increased 38 percent since mid-October, USA Today reports.
Consumer confidence: With mortgage rates at record lows and housing affordability high, about 71 percent of Americans say now is a good time to purchase a home. Also, more Americans are optimistic that home prices will rise over the next year — about 26 percent say prices will rise in 2012, an increase of 4 percent over the last survey, according to Fannie Mae’s December National Housing Survey
Source: “Housing Outlook Is More Upbeat,” USA Today (Jan. 15, 2012) and “Consumers More Confident, Survey Says,” Deseret News (Utah) (Jan. 16, 2012)
Tuesday, January 17, 2012
New York AG Allots $1M to Foreclosure Prevention
Following an expiration of federal funding for foreclosure prevention in New York, the state’s Attorney General Eric Schneiderman allotted $1 million to foreclosure prevention services.
Schneiderman’s office will distribute the funding to nonprofit and legal aid services aimed at helping homeowners facing foreclosure.
Schneiderman released a request for applications from legal organizations aiming to help struggling homeowners last week.
“This funding will provide thousands of New Yorkers with the legal expertise they desperately need to defend their rights and avoid falling prey to unscrupulous mortgage servicers or foreclosure mill law firms filing fabricated or robosigned documents,” Schneiderman stated.
Currently, about one in 10 mortgages is at risk of foreclosure in the state of New York, according to Schneiderman’s office.
Schneiderman “has made it a top priority of his administration to hold accountable those whose misconduct led to the collapse of the housing market– and to provide significant relief to homeowners,” stated a press release announcing the funding.
Not only does foreclosure prevention help struggling homeowners, but according to the Empire Justice Center, it also helps the state itself.
The Empirical Justice Center suggests that at the current rate, foreclosures will cost New York’s local governments about $5 billion with $186,695 in both direct and indirect costs per county.
The designated $1 million is a portion of unspent money from a 2006 settlement with Ameriquest Mortgage over predatory and illegal lending. Ameriquest paid a total of $295 million with New York receiving $22 million.
Schneiderman’s office will distribute the funding to nonprofit and legal aid services aimed at helping homeowners facing foreclosure.
Schneiderman released a request for applications from legal organizations aiming to help struggling homeowners last week.
“This funding will provide thousands of New Yorkers with the legal expertise they desperately need to defend their rights and avoid falling prey to unscrupulous mortgage servicers or foreclosure mill law firms filing fabricated or robosigned documents,” Schneiderman stated.
Currently, about one in 10 mortgages is at risk of foreclosure in the state of New York, according to Schneiderman’s office.
Schneiderman “has made it a top priority of his administration to hold accountable those whose misconduct led to the collapse of the housing market– and to provide significant relief to homeowners,” stated a press release announcing the funding.
Not only does foreclosure prevention help struggling homeowners, but according to the Empire Justice Center, it also helps the state itself.
The Empirical Justice Center suggests that at the current rate, foreclosures will cost New York’s local governments about $5 billion with $186,695 in both direct and indirect costs per county.
The designated $1 million is a portion of unspent money from a 2006 settlement with Ameriquest Mortgage over predatory and illegal lending. Ameriquest paid a total of $295 million with New York receiving $22 million.
Fed's Beige Book Depicts Growth in All Economic Areas Except Housing
The U.S. economy ended 2011 in better standing than earlier in the year, according to the Federal Reserve’s polling of key business contacts, economists, and market experts throughout its 12 regional districts.
Opinions gathered from these local insiders are published in regular editions of the Fed’s Beige Book, a compilation of anecdotal information illustrating current economic conditions across the country. The central bank’s latest Beige Book rendition covers the reporting period from mid-November through the end of December.
On the whole, Beige Book findings indicate the economy expanded at a “modest to moderate pace,” representing an improvement from the “slow to moderate pace” description cited in the November report.
Seven districts characterized growth as modest. Of the remaining five, New York and Chicago noted a pickup in the pace of growth, Dallas and San Francisco reported moderate growth, and Richmond indicated that activity flattened or improved slightly.
Compared with prior summaries, the Federal Reserve says the regional reports, on balance, suggest ongoing improve-
ment in economic conditions in recent months – and that’s without the typical recovery model in which housing serves as a primary contributor to economic expansion.
Across the board, Fed districts labeled residential real estate as “sluggish.” Activity in regional markets largely held steady at very low levels, with the exception of further increases in the construction of multifamily residences, the central bank reported.
The pace of single-family home sales remained depressed throughout the country, although the Dallas district reported a modest increase over the prior reporting period.
Some districts, such as Boston and Atlanta, noted that home sales exceeded levels from 12 months earlier, but mainly because the earlier levels reflected a substantial drop following the expiration of the homebuyers’ tax credit in mid-2010.
Prices were largely stable on a short-term basis in most areas but in many instances were below their year-ago levels, according to the Fed.
Extensive inventories of distressed properties were reported to be a source of price restraint in the Boston, Richmond, Chicago, and San Francisco districts.
Construction of single-family homes remained at low levels in most districts and fell further in such areas as Philadelphia, St. Louis, Minneapolis, and Kansas City. Cleveland, however, reported that activity improved during the past couple of months.
In contrast to the soft market for single-family residences, the market for rental units tightened in New York and Richmond, while construction of multifamily residences rose in the Boston, Philadelphia, Chicago, Kansas City, and Dallas districts.
Opinions gathered from these local insiders are published in regular editions of the Fed’s Beige Book, a compilation of anecdotal information illustrating current economic conditions across the country. The central bank’s latest Beige Book rendition covers the reporting period from mid-November through the end of December.
On the whole, Beige Book findings indicate the economy expanded at a “modest to moderate pace,” representing an improvement from the “slow to moderate pace” description cited in the November report.
Seven districts characterized growth as modest. Of the remaining five, New York and Chicago noted a pickup in the pace of growth, Dallas and San Francisco reported moderate growth, and Richmond indicated that activity flattened or improved slightly.
Compared with prior summaries, the Federal Reserve says the regional reports, on balance, suggest ongoing improve-
ment in economic conditions in recent months – and that’s without the typical recovery model in which housing serves as a primary contributor to economic expansion.
Across the board, Fed districts labeled residential real estate as “sluggish.” Activity in regional markets largely held steady at very low levels, with the exception of further increases in the construction of multifamily residences, the central bank reported.
The pace of single-family home sales remained depressed throughout the country, although the Dallas district reported a modest increase over the prior reporting period.
Some districts, such as Boston and Atlanta, noted that home sales exceeded levels from 12 months earlier, but mainly because the earlier levels reflected a substantial drop following the expiration of the homebuyers’ tax credit in mid-2010.
Prices were largely stable on a short-term basis in most areas but in many instances were below their year-ago levels, according to the Fed.
Extensive inventories of distressed properties were reported to be a source of price restraint in the Boston, Richmond, Chicago, and San Francisco districts.
Construction of single-family homes remained at low levels in most districts and fell further in such areas as Philadelphia, St. Louis, Minneapolis, and Kansas City. Cleveland, however, reported that activity improved during the past couple of months.
In contrast to the soft market for single-family residences, the market for rental units tightened in New York and Richmond, while construction of multifamily residences rose in the Boston, Philadelphia, Chicago, Kansas City, and Dallas districts.
Las Vegas Breaks Yearly Home Sales Record
Despite a decade-long trend making winter the slowest homebuying season for the Las Vegas area, the region saw an increase in existing home sales for the month of December, finishing the year strong enough to break the metro’s yearly existing home sale record from 2009, according to the Greater Las Vegas Association of Realtors.
The 2009 record was set with the sale of 46,879 homes, and 2011 surpassed this milestone with 48,186 sales.
Sales of single-family homes rose 10.9 percent year-over-year in December, while condo and townhome sales decreased by almost as much – 10.8 percent.
REOs made up 46 percent of existing home sales for the month, unchanged from November. Short sales accounted for nearly 27 percent of December’s transactions.
December’s rise in sales came with a decline in home prices, which was characteristic of 2011, according to the Greater Las Vegas Association of Realtors.
The median single-family home price in the Las Vegas area over the month of December fell 4 percent from November and 9.1 percent from one year ago.
The median sale price for the month was $120,000.
However, the Greater Las Vegas Association of Realtors anticipates rising prices this year.
“We may see some improvement in prices this year as our inventory of homes on the market keeps going down and demand stays high,” said Kolleen Kelley new president of the Greater Las Vegas Association of Realtors as of the start of 2012.
“We’re also seeing more short sales, which are preferable to foreclosures and sell for higher prices than homes that have gone through a foreclosure.” Kelley said.
The 2009 record was set with the sale of 46,879 homes, and 2011 surpassed this milestone with 48,186 sales.
Sales of single-family homes rose 10.9 percent year-over-year in December, while condo and townhome sales decreased by almost as much – 10.8 percent.
REOs made up 46 percent of existing home sales for the month, unchanged from November. Short sales accounted for nearly 27 percent of December’s transactions.
December’s rise in sales came with a decline in home prices, which was characteristic of 2011, according to the Greater Las Vegas Association of Realtors.
The median single-family home price in the Las Vegas area over the month of December fell 4 percent from November and 9.1 percent from one year ago.
The median sale price for the month was $120,000.
However, the Greater Las Vegas Association of Realtors anticipates rising prices this year.
“We may see some improvement in prices this year as our inventory of homes on the market keeps going down and demand stays high,” said Kolleen Kelley new president of the Greater Las Vegas Association of Realtors as of the start of 2012.
“We’re also seeing more short sales, which are preferable to foreclosures and sell for higher prices than homes that have gone through a foreclosure.” Kelley said.
Vacant Foreclosures Saddle Local Communities With High Costs
A recent study from the Government Accountability Office (GAO) found that non-seasonal vacant properties across the United States rose 51 percent over the span of a decade, from nearly 7 million in 2000 to 10 million in April 2010.
Ten states saw vacancies go up by 70 percent or more, largely as a result of high foreclosure rates. Those with the largest increases over the last decade were Nevada (126 percent), Minnesota (100 percent), New Hampshire (99 percent), Arizona (92 percent), and Florida (90 percent). Georgia, Michigan, Colorado, Rhode Island, and Massachusetts also experienced increases above 70 percent.
The elevated number of vacant homes carries with it a hefty price tag for lenders that must resume ownership after foreclosure. GAO found that in 2010, Fannie Mae and Freddie Mac reimbursed servicers and vendors over $953 million for property maintenance costs.
However, it’s local governments, many of which are already dealing with depleted funds, that are feeling “significant” pressures from the rise in home vacancies, according to GAO.
The agency notes that other studies have concluded vacant foreclosed properties may reduce prices of nearby homes by as much as $17,000 per property. As a result, municipalities report being out millions of dollars in lost tax revenues. That’s in addition to extra expenditures to put staff, systems, and programs in place to ensure local property ordinances are met, as well as costs associated with addressing public safety issues posed by extended periods of vacancy or improper property maintenance.
In conducting its analysis, GAO interviewed local officials and representatives of community groups to gauge the causal effect of foreclosures on vacancy numbers, the types
of costs associated with vacant properties, and state and local governments’ responses to rising vacancies.
Local contacts pointed to the surge in foreclosures, high unemployment levels and, in some cities, population declines as factors contributing to the increase in vacant properties.
Officials in Tucson and Las Vegas say they did not have difficulty managing the vacant properties in their cities prior to the surge in foreclosures that began in 2006.
In Detroit and Cleveland, officials contend that elevated foreclosure numbers continue to add to the already large number of vacant properties in their cities.
Some servicers and the GSEs told GAO that between 10 and 20 percent of properties are vacant at the time they initiate foreclosure, and by the completion of a foreclosure sale, about 40 percent to 50 percent are vacant.
GAO says the localities it studied are all engaged in multiple strategies to try to minimize the costs and other negative impacts that vacant properties create for their communities.
Efforts range from simple data-gathering to more precisely identifying vacant properties, to acquisition and rehabilitation or, in some cases, demolition of abandoned properties.
In addition, some local governments have tasked servicers with additional responsibilities for maintaining properties, amended their code enforcement rules to establish greater incentives for property maintenance, and established specialized housing courts to address vacant property and other housing issues.
These strategies, however, face various challenges, particularly the lack of financial support to effectively address such a large-scale problem, according to GAO.
As a result, governments in many of the communities GAO examined are reaching out to members of the community – including neighborhood groups and private developers – in an attempt to leverage all available resources.
In addition, local governments have called for increased federal funding and greater attention by federal regulators to servicers’ role in managing vacant properties.
GAO’s full report on home vacancies and their impact on local communities is available online.
Ten states saw vacancies go up by 70 percent or more, largely as a result of high foreclosure rates. Those with the largest increases over the last decade were Nevada (126 percent), Minnesota (100 percent), New Hampshire (99 percent), Arizona (92 percent), and Florida (90 percent). Georgia, Michigan, Colorado, Rhode Island, and Massachusetts also experienced increases above 70 percent.
The elevated number of vacant homes carries with it a hefty price tag for lenders that must resume ownership after foreclosure. GAO found that in 2010, Fannie Mae and Freddie Mac reimbursed servicers and vendors over $953 million for property maintenance costs.
However, it’s local governments, many of which are already dealing with depleted funds, that are feeling “significant” pressures from the rise in home vacancies, according to GAO.
The agency notes that other studies have concluded vacant foreclosed properties may reduce prices of nearby homes by as much as $17,000 per property. As a result, municipalities report being out millions of dollars in lost tax revenues. That’s in addition to extra expenditures to put staff, systems, and programs in place to ensure local property ordinances are met, as well as costs associated with addressing public safety issues posed by extended periods of vacancy or improper property maintenance.
In conducting its analysis, GAO interviewed local officials and representatives of community groups to gauge the causal effect of foreclosures on vacancy numbers, the types
of costs associated with vacant properties, and state and local governments’ responses to rising vacancies.
Local contacts pointed to the surge in foreclosures, high unemployment levels and, in some cities, population declines as factors contributing to the increase in vacant properties.
Officials in Tucson and Las Vegas say they did not have difficulty managing the vacant properties in their cities prior to the surge in foreclosures that began in 2006.
In Detroit and Cleveland, officials contend that elevated foreclosure numbers continue to add to the already large number of vacant properties in their cities.
Some servicers and the GSEs told GAO that between 10 and 20 percent of properties are vacant at the time they initiate foreclosure, and by the completion of a foreclosure sale, about 40 percent to 50 percent are vacant.
GAO says the localities it studied are all engaged in multiple strategies to try to minimize the costs and other negative impacts that vacant properties create for their communities.
Efforts range from simple data-gathering to more precisely identifying vacant properties, to acquisition and rehabilitation or, in some cases, demolition of abandoned properties.
In addition, some local governments have tasked servicers with additional responsibilities for maintaining properties, amended their code enforcement rules to establish greater incentives for property maintenance, and established specialized housing courts to address vacant property and other housing issues.
These strategies, however, face various challenges, particularly the lack of financial support to effectively address such a large-scale problem, according to GAO.
As a result, governments in many of the communities GAO examined are reaching out to members of the community – including neighborhood groups and private developers – in an attempt to leverage all available resources.
In addition, local governments have called for increased federal funding and greater attention by federal regulators to servicers’ role in managing vacant properties.
GAO’s full report on home vacancies and their impact on local communities is available online.
Monday, January 16, 2012
JPMorgan Posts $19B Annual Profit Despite Housing Hangover
JPMorgan Chase kicked off the earnings reporting season for major U.S. lenders on Friday with its announcement that the company earned a record profit of $19 billion for the 2011 fiscal year. That compares with $17.4 billion in net income for the prior year. Earnings per share were $4.48 for 2011.
The company reported net income of $3.7 billion for the fourth quarter of 2011, compared with $4.8 billion for the fourth quarter of 2010.
Although the numbers paint a picture of a company in full recovery mode from the financial crisis and recession, JPMorgan’s latest results missed analysts’ expectations as
the company continues to struggle with legacy issues stemming from the housing downturn.
Mortgage net charge-offs and delinquencies modestly improved over the final quarter of 2011, but both remained at elevated levels, the New York-based lender noted in its earnings report.
JPMorgan’s total nonperforming assets declined by 33 percent compared to a year earlier, but legal wranglings involving mortgages and investors’ repurchase demands cut heavily into the company’s profits.
The company doled out more than $3 billion in 2011 to cover legal proceedings related to its mortgage business. That tally marks a decline from the $5.7 billion that was laid down in 2010 but still represents a hefty sum of what could have gone to boosting the bottom line.
CEO Jamie Dimon says the company set aside $528 million in the final quarter of last year alone to address mortgage-related legal issues.
The handling of foreclosures and defaulted mortgages also carried a steep price tag. In the fourth quarter, JPMorgan’s cost related to this part of the business added up to $925 million.
“There’s still a huge drag [from housing issues],” CEO Jamie Dimon told investors. “You’re talking about several billion dollars a year in mortgage [operations] alone.”
The company reported net income of $3.7 billion for the fourth quarter of 2011, compared with $4.8 billion for the fourth quarter of 2010.
Although the numbers paint a picture of a company in full recovery mode from the financial crisis and recession, JPMorgan’s latest results missed analysts’ expectations as
the company continues to struggle with legacy issues stemming from the housing downturn.
Mortgage net charge-offs and delinquencies modestly improved over the final quarter of 2011, but both remained at elevated levels, the New York-based lender noted in its earnings report.
JPMorgan’s total nonperforming assets declined by 33 percent compared to a year earlier, but legal wranglings involving mortgages and investors’ repurchase demands cut heavily into the company’s profits.
The company doled out more than $3 billion in 2011 to cover legal proceedings related to its mortgage business. That tally marks a decline from the $5.7 billion that was laid down in 2010 but still represents a hefty sum of what could have gone to boosting the bottom line.
CEO Jamie Dimon says the company set aside $528 million in the final quarter of last year alone to address mortgage-related legal issues.
The handling of foreclosures and defaulted mortgages also carried a steep price tag. In the fourth quarter, JPMorgan’s cost related to this part of the business added up to $925 million.
“There’s still a huge drag [from housing issues],” CEO Jamie Dimon told investors. “You’re talking about several billion dollars a year in mortgage [operations] alone.”
Foreclosure Starts Decline on West Coast
West coast states saw a decline in foreclosure starts in December, according to ForeclosureRadar. In fact four of the five states tracked by ForeclosureRadar’s monthly survey saw double-digit declines.
The exception was Oregon, where foreclosure starts rose by 5 percent.
Foreclosure sales in the West coast states were mixed but “down far less than we expected given lender announcements of holiday moratoriums,” ForeclosureRadar reported.
Foreclosure sales rose in California and Washington and fell in Oregon, Nevada, and Arizona.
Foreclosure timelines declined overall, which was “surprising,” according to California-based ForeclosureRadar.
The greatest drop in foreclosure timeline was seen in California, where the time to foreclose is now 250 days, a 16.9 percent drop from November.
After a 3.2 percent decline, Nevada’s 331 day foreclosure timeline was the greatest, while Washington’s 104-day timeline was the lowest. Washington also posted the lowest rate of change for the month – a 0.9 percent increase.
Arizona’s timeline also increased in December, rising to 145 days after a 2.1 percent increase.
With a 30.6 percent drop, California posted the greatest decline in foreclosure starts in December. Arizona followed with a 24.2 percent decline.
ForeclosureRadar reported a 45.8 percent rise in foreclosure cancellations in December, which it attributes to the closing of a trustee sale location in Norwalk.
Affecting foreclosures in Nevada, which declined 14 percent in December, is a new law requiring lenders to file an additional affidavit.
“Nevada’s new foreclosure rules appear on track to bring a near complete halt to foreclosures in that state.” stated Sean O’Toole, Founder and CEO of ForeclosureRadar.
The exception was Oregon, where foreclosure starts rose by 5 percent.
Foreclosure sales in the West coast states were mixed but “down far less than we expected given lender announcements of holiday moratoriums,” ForeclosureRadar reported.
Foreclosure sales rose in California and Washington and fell in Oregon, Nevada, and Arizona.
Foreclosure timelines declined overall, which was “surprising,” according to California-based ForeclosureRadar.
The greatest drop in foreclosure timeline was seen in California, where the time to foreclose is now 250 days, a 16.9 percent drop from November.
After a 3.2 percent decline, Nevada’s 331 day foreclosure timeline was the greatest, while Washington’s 104-day timeline was the lowest. Washington also posted the lowest rate of change for the month – a 0.9 percent increase.
Arizona’s timeline also increased in December, rising to 145 days after a 2.1 percent increase.
With a 30.6 percent drop, California posted the greatest decline in foreclosure starts in December. Arizona followed with a 24.2 percent decline.
ForeclosureRadar reported a 45.8 percent rise in foreclosure cancellations in December, which it attributes to the closing of a trustee sale location in Norwalk.
Affecting foreclosures in Nevada, which declined 14 percent in December, is a new law requiring lenders to file an additional affidavit.
“Nevada’s new foreclosure rules appear on track to bring a near complete halt to foreclosures in that state.” stated Sean O’Toole, Founder and CEO of ForeclosureRadar.
Investors Can Trim Losses by Discriminating Between Servicers: Report
The ratings agency Standard & Poor’s says investors can cut their losses by basing servicer selection on key performance metrics of default management.
The company has come up with a new method to assess residential mortgage servicer performance that looks at how the speed of the servicers’ foreclosure processes and the success of their loan modification programs affect investors’ losses on nonperforming loans.
S&P says it’s found “significant differences” among 10 of the largest servicers – differences that could save investors up to 7.3 months of interest payments on loans that eventually default.
Servicers’ average liquidation speeds can differ by several months, according to S&P, leading to variations in loss severity primarily due to differences in the number of payments borrowers miss.
Loan modification programs can also have a big impact on overall losses from a loan pool, S&P says. Servicers’ rates of successful modifications, as a percentage of all nonperforming loans, ranged from 3 percent to 18 percent for the servicers in S&P’s sample.
The ratings agency did not list the servicers by name in this inaugural performance assessment study, although it intends to do so in future reports.
“The continuing slump in the U.S. housing market has highlighted the crucial role of mortgage servicers, which
administer all aspects of these loans — from collecting payments, to modifying troubled loans, to proceeding with foreclosures and property liquidations when borrowers default,” S&P said in its report.
“Ultimately, a mortgage servicer’s success from an investor perspective boils down to defaults within its portfolio of mortgages and the speed and volume of any recoveries it can achieve on those loans,” S&P noted.
The ratings agency noted that both foreclosure frequencies and loss severities are functions of a myriad of factors, and many of those factors are out of the servicer’s control — including the loan-to-value (LTV) ratio, state-specific foreclosure requirements, and the quality of the underwriting at origination, as well as changing property valuations in a volatile market.
For this reason, S&P looked at each servicer’s speed through the foreclosure and resolution process against averages for the related states and loan types, as well as the success of the servicer’s loan modification program.
Long foreclosure periods typically increase losses due to the interest advanced each month, as well as taxes and insurance that may need to be paid and property preservation costs.
To complement its analysis of liquidation speeds, S&P also assessed the success of each servicer’s loan modification programs. Overall, the agency found that “loan modifications were successful more often than not.” On average, S&P found about 60 percent of modified loans were still current 12 months after being modified.
S&P says the extent to which servicers are able to modify loans — and the terms of those modifications — can vary based on servicing agreements and government program rules.
“While these factors limit the efficacy of modification success rates as a measure of a servicer’s overall success, we believe that paired with liquidation speeds, these factors help provide a more complete picture of the merits of the various servicers’ strategies,” S&P said.
The company has come up with a new method to assess residential mortgage servicer performance that looks at how the speed of the servicers’ foreclosure processes and the success of their loan modification programs affect investors’ losses on nonperforming loans.
S&P says it’s found “significant differences” among 10 of the largest servicers – differences that could save investors up to 7.3 months of interest payments on loans that eventually default.
Servicers’ average liquidation speeds can differ by several months, according to S&P, leading to variations in loss severity primarily due to differences in the number of payments borrowers miss.
Loan modification programs can also have a big impact on overall losses from a loan pool, S&P says. Servicers’ rates of successful modifications, as a percentage of all nonperforming loans, ranged from 3 percent to 18 percent for the servicers in S&P’s sample.
The ratings agency did not list the servicers by name in this inaugural performance assessment study, although it intends to do so in future reports.
“The continuing slump in the U.S. housing market has highlighted the crucial role of mortgage servicers, which
administer all aspects of these loans — from collecting payments, to modifying troubled loans, to proceeding with foreclosures and property liquidations when borrowers default,” S&P said in its report.
“Ultimately, a mortgage servicer’s success from an investor perspective boils down to defaults within its portfolio of mortgages and the speed and volume of any recoveries it can achieve on those loans,” S&P noted.
The ratings agency noted that both foreclosure frequencies and loss severities are functions of a myriad of factors, and many of those factors are out of the servicer’s control — including the loan-to-value (LTV) ratio, state-specific foreclosure requirements, and the quality of the underwriting at origination, as well as changing property valuations in a volatile market.
For this reason, S&P looked at each servicer’s speed through the foreclosure and resolution process against averages for the related states and loan types, as well as the success of the servicer’s loan modification program.
Long foreclosure periods typically increase losses due to the interest advanced each month, as well as taxes and insurance that may need to be paid and property preservation costs.
To complement its analysis of liquidation speeds, S&P also assessed the success of each servicer’s loan modification programs. Overall, the agency found that “loan modifications were successful more often than not.” On average, S&P found about 60 percent of modified loans were still current 12 months after being modified.
S&P says the extent to which servicers are able to modify loans — and the terms of those modifications — can vary based on servicing agreements and government program rules.
“While these factors limit the efficacy of modification success rates as a measure of a servicer’s overall success, we believe that paired with liquidation speeds, these factors help provide a more complete picture of the merits of the various servicers’ strategies,” S&P said.
Sunday, January 15, 2012
Congress and Fed Disagree on Best Path to Economic Recovery
With a common goal of economic recovery, Congress and the Federal Reserve diverge on the best means to that end. Should the housing sector serve as a financer of the government’s economic policies, or should the government help boost the housing sector?
Federal Reserve Chairman Ben Bernanke submitted a white paper to Congress last week to “provide a framework for thinking about directions policymakers might take to help the housing market.”
Bernanke expressed support of an REO rental program and stressed the importance of credit access.
Bernanke stated that in order to fund these initiatives, “losses must ultimately be allocated among homeowners, lenders, guarantors, investors and taxpayers.”
In addition, he stated, “some actions that cause greater losses to be sustained by the GSEs in the near term might be in the interest of taxpayers to pursue if those actions result in a quicker and more vigorous economic recovery.”
Following the white paper, two other Fed members spoke out in favor of Bernanke’s suggestions.
Congress, on the other hand, has already taken action to use funding from the GSEs to fuel its economic policies.
The extension of the Temporary Payroll Tax Cut relies on housing for its financing. The law calls on the Federal Housing Finance Agency to raise the GSEs’ guarantee fees
Additionally, one member of Congress believes Bernanke has overstepped his bounds by releasing his white paper last week.
“I believe that your recent housing white paper, and recent advocacy by Federal Reserve officials for further taxpayer-funded government ‘intervention’ in housing and mortgage markets, intrudes too far into fiscal policy advice and advocacy,” stated Sen. Orrin Hatch (R-Utah) in a letter Tuesday to Bernanke.
After what Hatch called the Fed’s “extraordinary interventions in the economy” during the financial crisis, Hatch hopes to restore the “distinction between monetary policy and fiscal policy.”
Speaking out on the debate, Paul Dales, senior economist at Capital Economics says, “It is not clear which side will win this tug of war, but it seems unlikely that policymakers will agree to any action big enough to generate a significant housing recovery.”
Dales suggests one compromise between the divergent views of Congress and the Fed would be for Treasury to designate TARP funds for housing policy implementation.
While Treasury would not require Congressional approval to do so, Dales says Treasury may be reluctant to begin allocating TARP funds “when there has been no obvious return from the money it has already spent on HAMP.”
Regardless, Dales says without investment in housing policies, “the best that can be hoped for is a fairly modest and very protracted housing recovery.”
Federal Reserve Chairman Ben Bernanke submitted a white paper to Congress last week to “provide a framework for thinking about directions policymakers might take to help the housing market.”
Bernanke expressed support of an REO rental program and stressed the importance of credit access.
Bernanke stated that in order to fund these initiatives, “losses must ultimately be allocated among homeowners, lenders, guarantors, investors and taxpayers.”
In addition, he stated, “some actions that cause greater losses to be sustained by the GSEs in the near term might be in the interest of taxpayers to pursue if those actions result in a quicker and more vigorous economic recovery.”
Following the white paper, two other Fed members spoke out in favor of Bernanke’s suggestions.
Congress, on the other hand, has already taken action to use funding from the GSEs to fuel its economic policies.
The extension of the Temporary Payroll Tax Cut relies on housing for its financing. The law calls on the Federal Housing Finance Agency to raise the GSEs’ guarantee fees
Additionally, one member of Congress believes Bernanke has overstepped his bounds by releasing his white paper last week.
“I believe that your recent housing white paper, and recent advocacy by Federal Reserve officials for further taxpayer-funded government ‘intervention’ in housing and mortgage markets, intrudes too far into fiscal policy advice and advocacy,” stated Sen. Orrin Hatch (R-Utah) in a letter Tuesday to Bernanke.
After what Hatch called the Fed’s “extraordinary interventions in the economy” during the financial crisis, Hatch hopes to restore the “distinction between monetary policy and fiscal policy.”
Speaking out on the debate, Paul Dales, senior economist at Capital Economics says, “It is not clear which side will win this tug of war, but it seems unlikely that policymakers will agree to any action big enough to generate a significant housing recovery.”
Dales suggests one compromise between the divergent views of Congress and the Fed would be for Treasury to designate TARP funds for housing policy implementation.
While Treasury would not require Congressional approval to do so, Dales says Treasury may be reluctant to begin allocating TARP funds “when there has been no obvious return from the money it has already spent on HAMP.”
Regardless, Dales says without investment in housing policies, “the best that can be hoped for is a fairly modest and very protracted housing recovery.”
New REO Inventory in 2011 = 804,423 Homes
RealtyTrac’s year-end report released Thursday shows foreclosure filings – including default, auction, and bank repossession notices – were reported on 1,887,777 U.S. properties in 2011. Of that total, 804,423 homes were taken back by lenders as REO.
Last year’s tally of nearly 1.9 million properties with a foreclosure filing seems staggering, but it’s actually the lowest reported since 2007. It’s 34 percent below 2010, 33 percent below 2009, and 19 percent below the 2008 total.
RealtyTrac’s newly appointed CEO Brandon Moore describes foreclosure activity last year as being in “full delay mode.”
“The lack of clarity regarding many of the documentation and legal issues plaguing the foreclosure industry means that we are continuing to see a highly dysfunctional foreclosure process that is inefficiently dealing with delinquent mortgages – particularly in states with a judicial foreclosure process,” Moore said.
These delays, however, may be coming to an end. Moore says there were strong signs in the second half of 2011 that indicate lenders are finally beginning to push stalled foreclosures through in select local markets.
“We expect that trend to continue this year, boosting foreclosure activity for 2012 higher than it was in 2011, though still below the peak of 2010,” Moore said.
Despite signs that some markets are experiencing a pickup in foreclosures, RealtyTrac’s analysis shows that processing timelines continued to increase.
On the national stage, properties foreclosed in the fourth quarter took an average of 348 days to complete the process, up from 336 days in the third quarter and up from 305 days in the fourth quarter of 2010.
RealtyTrac says the length of the average foreclosure process has increased 24 percent from the third quarter of 2010, when lenders began to re-evaluate foreclosure procedures as a result of documentation and affidavit errors.
New York holds the title of ‘longest foreclosure process in the nation’ – an average of 1,019 days.
New Jersey documented the nation’s second longest end-to-end foreclosure process, at 964 days. Florida has the third longest at 806 days. Foreclosure activity in both these states dropped more than 60 percent from 2010 to 2011.
All three states with the longest foreclosure timelines employ the judicial foreclosure process.
Texas continues to register the shortest average foreclosure process of any state, at 90 days, but that still represents an increase from 86 days in the third quarter and 81 days in the fourth quarter of 2010.
At 106 days, Delaware has the second shortest foreclosure timeline in the nation, and Kentucky lays claim to the third shortest, at 108 days.
More than 6 percent of Nevada housing units (one in 16) had at least one foreclosure filing in 2011, giving it the nation’s highest state foreclosure rate for the fifth consecutive year. That’s despite a 31 percent decrease in foreclosure activity from 2010.
Arizona registered the nation’s second highest foreclosure rate for the third year in a row, with 4.14 percent of its homes (one in 24) receiving at least one filing in 2011.
California registered the nation’s third highest foreclosure rate for all of 2011, with 3.19 percent (one in every 31 homes).
Other states with 2011 foreclosure rates ranking among the nation’s 10 highest include: Georgia (2.71 percent), Utah (2.32 percent), Michigan (2.21 percent), Florida (2.06 percent), Illinois (1.95 percent), Colorado (1.78 percent), and Idaho (1.77 percent).
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Last year’s tally of nearly 1.9 million properties with a foreclosure filing seems staggering, but it’s actually the lowest reported since 2007. It’s 34 percent below 2010, 33 percent below 2009, and 19 percent below the 2008 total.
RealtyTrac’s newly appointed CEO Brandon Moore describes foreclosure activity last year as being in “full delay mode.”
“The lack of clarity regarding many of the documentation and legal issues plaguing the foreclosure industry means that we are continuing to see a highly dysfunctional foreclosure process that is inefficiently dealing with delinquent mortgages – particularly in states with a judicial foreclosure process,” Moore said.
These delays, however, may be coming to an end. Moore says there were strong signs in the second half of 2011 that indicate lenders are finally beginning to push stalled foreclosures through in select local markets.
“We expect that trend to continue this year, boosting foreclosure activity for 2012 higher than it was in 2011, though still below the peak of 2010,” Moore said.
Despite signs that some markets are experiencing a pickup in foreclosures, RealtyTrac’s analysis shows that processing timelines continued to increase.
On the national stage, properties foreclosed in the fourth quarter took an average of 348 days to complete the process, up from 336 days in the third quarter and up from 305 days in the fourth quarter of 2010.
RealtyTrac says the length of the average foreclosure process has increased 24 percent from the third quarter of 2010, when lenders began to re-evaluate foreclosure procedures as a result of documentation and affidavit errors.
New York holds the title of ‘longest foreclosure process in the nation’ – an average of 1,019 days.
New Jersey documented the nation’s second longest end-to-end foreclosure process, at 964 days. Florida has the third longest at 806 days. Foreclosure activity in both these states dropped more than 60 percent from 2010 to 2011.
All three states with the longest foreclosure timelines employ the judicial foreclosure process.
Texas continues to register the shortest average foreclosure process of any state, at 90 days, but that still represents an increase from 86 days in the third quarter and 81 days in the fourth quarter of 2010.
At 106 days, Delaware has the second shortest foreclosure timeline in the nation, and Kentucky lays claim to the third shortest, at 108 days.
More than 6 percent of Nevada housing units (one in 16) had at least one foreclosure filing in 2011, giving it the nation’s highest state foreclosure rate for the fifth consecutive year. That’s despite a 31 percent decrease in foreclosure activity from 2010.
Arizona registered the nation’s second highest foreclosure rate for the third year in a row, with 4.14 percent of its homes (one in 24) receiving at least one filing in 2011.
California registered the nation’s third highest foreclosure rate for all of 2011, with 3.19 percent (one in every 31 homes).
Other states with 2011 foreclosure rates ranking among the nation’s 10 highest include: Georgia (2.71 percent), Utah (2.32 percent), Michigan (2.21 percent), Florida (2.06 percent), Illinois (1.95 percent), Colorado (1.78 percent), and Idaho (1.77 percent).
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NJ NETS to Move HQ to Brooklyn NY
NETS Basketball signed a long-term lease to relocate its corporate headquarters from East Rutherford, NJ to 15 MetroTech Center in Brooklyn, NY. The NETS will sublease the entire 11th floor, approximately 35,145 square feet. The sublandlord is Visiting Nurse Regional Health Care System, which will consolidate its offices to the 10th floor. A February move is scheduled.
15 MetroTech Center is a class A, 19-story office building located in the 16 acre MetroTech Center. The seven-building corporate campus was developed by Forest City Ratner in 1987. It is located in the Downtown Brooklyn submarket of Long Island.
Bruce Mosler of Cushman & Wakefield, Inc. represented the sublandlord. Glenn Markman, also with Cushman & Wakefield, represented the tenant.
15 MetroTech Center is a class A, 19-story office building located in the 16 acre MetroTech Center. The seven-building corporate campus was developed by Forest City Ratner in 1987. It is located in the Downtown Brooklyn submarket of Long Island.
Bruce Mosler of Cushman & Wakefield, Inc. represented the sublandlord. Glenn Markman, also with Cushman & Wakefield, represented the tenant.
Blackstone/DDR Team Up to Acquire $1.4B Shopping Portfolio
Private-equity kingpin Blackstone Group (NYSE: BX) made its latest foray into commercial real estate, joining forces with DDR Corp. (NYSE: DDR) in a deal to acquire a shopping center portfolio from EPN Group, an affiliate of Tel Aviv-based Elbit Imaging Ltd. The transaction, which is expected to close in June 2012, is valued at $1.43 billion, including at least $950 million in assumed debt and new financings.
The open-air power center properties being acquired by the newly formed joint venture are spread across 20 state and total 10.6 million square feet, with 90% of the space leased.
Blackstone will own 95% of the venture with an affiliate of DDR owning the rest. DDR will invest $150 million in preferred equity and will continue to handle leasing and property management for the properties as it has for EPN Group and EDT Retail Trust, formerly Macquarie DDR Trust, which finalized the sale of the portfolio to EPN last summer. The agreement also gives DDR the right of first offer to acquire 10 of the assets under certain conditions.
EPN Group said the sale is subject to lender approval and certain other closing conditions following the completion of a shortened due diligence period ending Jan. 31.
The states with the largest concentration of properties involved in the transaction (ranked by annual base rent) are Massachusetts (12.7%), Ohio (10.6%), Minnesota (9.5%), New York (9.2%); Texas (6.9%); Illinois (6.4%); Florida (6.2%); Connecticut (5.3%); Colorado (4.9%) and Kansas (4.4%), according to mid-year 2011 financial from EDT Retail.
The top tenants (also ranked by annual base rent) include the TJX companies, Kohl's, PetSmart, Dick's Sporting Goods, Best Buy, Bed Bath & Beyond, JoAnn's, Old Navy, Walmart and Home Depot.
There was a slight discrepancy in the number of centers being sold, reportedly because the prospective seller counted the Riverdale Village shopping center in Minnesota as two properties. EPN reported the number at 47 shopping centers, while the joint venture reported that it’s acquiring 46 properties.
EPN acquired a 47.8% stake in EDT Retail and the portfolio for approximately $116 million in a recapitalization in 2010, and became the joint manager of the properties along with DDR. Last summer, EPN purchased the remaining stake for $242 million and privatized EDT Retail Trust, making it a wholly owned subsidiary. DDR has an intimate knowledge of the portfolio, having leased and managed all the assets throughout all the changes, in some assets dating back to 1995.
DDR President and CEO Daniel B. Hurwitz said the transaction "illustrates our access to off-market opportunities, while creative structuring enables risk mitigation and non-dilutive deleveraging. Lastly, this transaction enables the retention of significant fee income, and enhances our current ownership and future access to prime assets."
Alex Berman, EPN Group co-founder and CEO, described the sale of the EDT portfolio "a bittersweet event" for EPN Group.
"On one hand, we have enjoyed immensely our association with EDT and DDR, and wish well to Blackstone and DDR, two of the most prominent and sophisticated real estate investors. On the other hand, we are proud of EPN's ability to successfully acquire, create value and realize significant profit for our investors on a large and complex investment in a span of two years."
Despite the pending sale, EPN is not planning to exit the U.S. entirely. Berman said EPN Group sees further investment opportunities in the market and intends to continue raising funds for possible direct and joint-venture acquisitions.
The pending acquisition is being viewed as another major bet by Blackstone in a strong recovery in U.S. retail property values. In June of 2011, the private equity firm closed on its purchase of 585 shopping centers in the U.S. from Australia’s Centro Properties Group for $9.2 billion. That deal included Centro's U.S. property management platform, comprised of 18 offices and 600 employees. Then in December, Blackstone bought 36 shopping centers for $473 million from Equity One Inc. (EQY). The retail properties are located in the Atlanta, Tampa and Orlando markets, with additional assets located in North Carolina, South Carolina, Alabama, Tennessee and Maryland. Prior to that, Blackstone invested $500 million in General Growth Properties Inc. (GGP) as part of the mall owner’s emergence from bankruptcy in 2010.
Since peaking in the first quarter of 2010, the retail vacancy rate has steadily declined across the U.S., dipping under 7% in the fourth quarter of 2011 for the first time since 2008, according to CoStar Group's latest market analysis. Despite the challenging retail environment that saw several high profile retailers go under, the retail property sector has benefitted from several consecutive quarters of positive absorption and very little new construction.
Goldman, Sachs & Co. served as advisor to DDR on the acquisition. Citigroup Global Markets Inc. and Eastdil Secured, a subsidiary of Wells Fargo & Company, served as advisors to Blackstone and JP Morgan served as advisor to EPN.
The open-air power center properties being acquired by the newly formed joint venture are spread across 20 state and total 10.6 million square feet, with 90% of the space leased.
Blackstone will own 95% of the venture with an affiliate of DDR owning the rest. DDR will invest $150 million in preferred equity and will continue to handle leasing and property management for the properties as it has for EPN Group and EDT Retail Trust, formerly Macquarie DDR Trust, which finalized the sale of the portfolio to EPN last summer. The agreement also gives DDR the right of first offer to acquire 10 of the assets under certain conditions.
EPN Group said the sale is subject to lender approval and certain other closing conditions following the completion of a shortened due diligence period ending Jan. 31.
The states with the largest concentration of properties involved in the transaction (ranked by annual base rent) are Massachusetts (12.7%), Ohio (10.6%), Minnesota (9.5%), New York (9.2%); Texas (6.9%); Illinois (6.4%); Florida (6.2%); Connecticut (5.3%); Colorado (4.9%) and Kansas (4.4%), according to mid-year 2011 financial from EDT Retail.
The top tenants (also ranked by annual base rent) include the TJX companies, Kohl's, PetSmart, Dick's Sporting Goods, Best Buy, Bed Bath & Beyond, JoAnn's, Old Navy, Walmart and Home Depot.
There was a slight discrepancy in the number of centers being sold, reportedly because the prospective seller counted the Riverdale Village shopping center in Minnesota as two properties. EPN reported the number at 47 shopping centers, while the joint venture reported that it’s acquiring 46 properties.
EPN acquired a 47.8% stake in EDT Retail and the portfolio for approximately $116 million in a recapitalization in 2010, and became the joint manager of the properties along with DDR. Last summer, EPN purchased the remaining stake for $242 million and privatized EDT Retail Trust, making it a wholly owned subsidiary. DDR has an intimate knowledge of the portfolio, having leased and managed all the assets throughout all the changes, in some assets dating back to 1995.
DDR President and CEO Daniel B. Hurwitz said the transaction "illustrates our access to off-market opportunities, while creative structuring enables risk mitigation and non-dilutive deleveraging. Lastly, this transaction enables the retention of significant fee income, and enhances our current ownership and future access to prime assets."
Alex Berman, EPN Group co-founder and CEO, described the sale of the EDT portfolio "a bittersweet event" for EPN Group.
"On one hand, we have enjoyed immensely our association with EDT and DDR, and wish well to Blackstone and DDR, two of the most prominent and sophisticated real estate investors. On the other hand, we are proud of EPN's ability to successfully acquire, create value and realize significant profit for our investors on a large and complex investment in a span of two years."
Despite the pending sale, EPN is not planning to exit the U.S. entirely. Berman said EPN Group sees further investment opportunities in the market and intends to continue raising funds for possible direct and joint-venture acquisitions.
The pending acquisition is being viewed as another major bet by Blackstone in a strong recovery in U.S. retail property values. In June of 2011, the private equity firm closed on its purchase of 585 shopping centers in the U.S. from Australia’s Centro Properties Group for $9.2 billion. That deal included Centro's U.S. property management platform, comprised of 18 offices and 600 employees. Then in December, Blackstone bought 36 shopping centers for $473 million from Equity One Inc. (EQY). The retail properties are located in the Atlanta, Tampa and Orlando markets, with additional assets located in North Carolina, South Carolina, Alabama, Tennessee and Maryland. Prior to that, Blackstone invested $500 million in General Growth Properties Inc. (GGP) as part of the mall owner’s emergence from bankruptcy in 2010.
Since peaking in the first quarter of 2010, the retail vacancy rate has steadily declined across the U.S., dipping under 7% in the fourth quarter of 2011 for the first time since 2008, according to CoStar Group's latest market analysis. Despite the challenging retail environment that saw several high profile retailers go under, the retail property sector has benefitted from several consecutive quarters of positive absorption and very little new construction.
Goldman, Sachs & Co. served as advisor to DDR on the acquisition. Citigroup Global Markets Inc. and Eastdil Secured, a subsidiary of Wells Fargo & Company, served as advisors to Blackstone and JP Morgan served as advisor to EPN.
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