Some investors may believe the headlines and assume that nobody's lending money anymore -- and certainly not for small residential rental projects.
The assertion:
But the reality is a little better than that. If you can come up with a downpayment, and are prepared to document income, assets and a solid appraised value, there are still some willing and able funding channels open to you.
Who's lending:
Portfolio lenders such as regional or smaller banks and savings institutions who continue to offer carefully-underwritten, specialized niche products for small investors.
Second, Fannie Mae and Freddie Mac, who continue to fund single and multifamily loans, although with lots more restrictions than before.
And finally -- if either of these two don't work for you -- you can explore the so-called "hard money" lending route, which will almost certainly cost you a lot more.
Caveat #1:
Let's start with number one: As just one example, Home Savings of America in El Segundo, California, still offers jumbo investor loans on one to four unit rental properties with a proprietary "pay option" adjustable-rate program, according to loan officer John W. Barnes.
You've got to sink some serious equity into the deal up front: Maximum loan-to-value ratio is 60 percent and you need to come to the table with a minimum 680 FICO score.
Caveat #2:
There are also some geographic limitations, but if you get through these hoops, you might qualify for a fully-indexed 6.65 percent rate, with a 40-year term and an "MTA" index tied to the average monthly yield of Treasury securities over a one year period.
Caveat #3:
For investors looking for a more plain-vanilla, 30-year, fixed rate mortgage, Fannie Mae continues to offer loans to rental property purchasers. But again, you need solid equity up front and higher credit scores than in the past. Even on loans with 30 percent down, Fannie is tagging on a 1.75 percent adverse market delivery fee on investor mortgages. Once you're over 80 percent LTV, the fee goes to 3.75 points.
No other options:
Finally, if all else fails, there is traditional "hard money" financing -- just ask local mortgage brokers who's in the market with the best programs. Since hard money investors are all about collateral and yield, be prepared to put a lot into the deal up front, and to pay double digit rates over a relatively short term.
My thoughts - Hmmm?
Caveat #1: Who has 40% to put down on a property? A 100k investment and you need 40k for a down payment, 80k for a 200k investment, 120k for a 300k investment. Perhaps you could use your equity line. Oh, that's right, most equity lines have been closed by the banks because values in many local housing markets have been battered. They're cutting limits on credit cards too, so be careful with the cash advance at 26%!
Caveat #2: Geographical limitations, if ... you might ... you could get. Better yet, use that 400k wad of cash you have sitting idle under your pillow and purchase a few homes in Las Vegas, NV and Phoenix, AZ. Home values in these locales have dropped significantly and you can buy 20-30% below today's battered values. In all seriousness, these will be good markets again and values are becoming very attractive. Take a closer look even though you may not have the 400k wad of cash under your pillow.
Caveat #3: Fannie Mae offers great loans. You only need high credit scores, solid equity positions, paying steep points (1.75%) with 30% down, paying hard money type points (3.75%), with 20% down. Again, who has the down payment and, if you do, can you make the numbers work with the associated fees? Perhaps I should back up and address my thought, "Can you make the numbers work?" That should be your first glaring indicator that there may be a problem. If you're trying to make the numbers work, need I say more?
The Hard Money Option: If you're rehabbing and reselling properties this is a viable short-term option. For a "rental property", this option is ludicrous unless you have the ability to refinance into one of the above-mentioned programs.
In short, for the average housing boom investor, the same investor who has foreclosed on homes and/or is hanging on for dear life, these are not plausible options. In fact, these options are nothing short of laughable.
If you're one of the few investors who actually figured all of this out. The same investor who usually figures it out. There's plenty of funding available, with plenty of options, because you have plenty of cash. You indeed, as always, are a small minority.
In conclusion, Harney's basic premise is right, the banks are lending to investors. However, the practical reality of his assertion is much different.
Getting an investor loan is like going into the supermarket to buy a turkey for your Thanksgiving gathering. The supermarket only has one 4lb turkey left when you need a 20lb turkey. The 4lb turkey costs $200.00 and the only method of payment the supermarket will accept is a cash advance from one of your credit cards.
Can you get a turkey, sure. Does it meet your needs, absolutely not. I'll let you ponder whether this is the return to fundamentals that we need or just more of the extremes. The drunken irrational exuberance of the housing boom has turned into a never-ending hangover.
Carlos Rossi anyone? Help yourself, it's in the refrigerator, top-shelf .... yeah the cardboard box. Drink up, your hangover will be gone before you know it.
The number of homeowners dealing with foreclosure is mounting. Nationwide, almost 766,000 homes received at least one foreclosure-related notice from July through September, according to Realty Trac. That's up 71% compared to the same time a year before.
Expect foreclosures to jump even more in Florida:
Expect already high foreclosure rates in Jacksonville, Naples and Miami to increase by 14% to 15% next year thanks to bottomless home prices and job loss.
"It's so far from recovery," says Doug Duncan, chief economist of Fannie Mae (nyse: FNM - news - people ). He says the ability to sell a home in the Sunshine State is not related to price, especially in the condo sector. "You can drop the price to zero and not sell a brand new property because there's no one there to buy it."
Bad in California too but, perhaps a light at the end of the tunnel:
It's not much better in California, home to five of the top 10 cities on our list, including Fresno, Santa Cruz, Merced and Santa Barbara. Here, foreclosures are expected to rise between 11% and 14% next year. Job growth figures are better than in Florida, and new housing permits have begun to bottom out, cutting into supply. Even though prices are down, transaction activity has surged 17% in San Diego, 21% in Los Angeles and 32% in Sacramento from last year, according to Radar Logic, a New York-based research firm.
"We're starting to see signs of a bottom in some places in California," says Scott Hoyt, a senior director of consumer economics at Moody's (nyse: MCO - news - people ) Economy.com. "Those places were the first places to crash. Now they're further into the foreclosure cycle. It looks like permit activity is starting to bottom out."
U.K. house prices dropped by the most in at least 17 years in October as banks tightened their grip on credit and the prospect of a recession deterred potential buyers, Nationwide Building Society said.
The average cost of a home fell 14.6 percent from a year earlier to 158,872 pounds ($261,000), the largest decline since the survey started in 1991, the Swindon, England-based mortgage lender said in an e-mailed statement today. Prices slid 1.4 percent from September.
One in ten mortgage holders may soon owe more than their homes are worth, Bank of England forecasts show, stretching homeowners as banks curtail lending. With the economy contracting for the first time since the the start of the 1990s and unemployment rising, economists say house prices may have further to fall.
The "R"-word: significant rate cuts to follow from the Bank of England?
Bank of England policy maker David Blanchflower said yesterday that Britain faces a "deep and long-lasting" recession unless rates are cut "significantly" soon. While the central bank on Oct. 8 slashed its benchmark rate by 50 basis points to 4.5 percent, Capital Economics Ltd. yesterday forecast it will fall as low as 1 percent.
U.K. policy makers are trying to ease strains in credit markets along with colleagues at the Federal Reserve and other central banks. Consumer borrowing rose at the slowest pace since April 1993 in September and mortgage approvals stayed close to the lowest in at least nine years, Bank of England figures show.
A further drop in U.K. housing prices?
U.K. house prices are nevertheless likely to fall more and the Bank of England estimates that a 15 percent drop in values would push 10 percent of mortgage-holders into so-called negative equity. Unemployment rose to the highest level in almost two years in September.
"As the economy weakens further, there is likely to be more movement on asking prices as sellers adjust to the prevailing conditions," said Earley.
Does any of this sound familiar? The global realities of our intertwined economic circumstances continue to become increasingly more evident. Will the U.K. housing market see the same battering in home prices that we've seen here in the states? They're certainly off to a good start, in a bad way.
The Federal Reserve cut a key short-term interest rate by a half-percentage point Wednesday and expressed continued worries about the damage being done to the economy by the ongoing crisis in the financial and credit markets.
The rate cut put the central bank's federal funds rate at 1%. That matched the lowest level for this overnight bank lending rate ever -- the last time it was at 1% was from June 2003 to June 2004.
Initially, the market is behaving. For some of you out there, your equity line, car loan, and credit card payments just got a touch cheaper yet again!
In case your schedule didn't enable you to see the S&P Case-Shiller data as it was reported (August 2008 home price index - housing data released October 28, 2008), we have included video feeds from Bloomberg and CNBC ("Squawk on the Street") providing the initial reporting of the Case-Shiller data and inital analysis reacting to the numbers. Additionally, we have included, at the bottom of this post, the chart displaying the S&P Case-Shiller home price index of 20 cities. Without further ado, if you're not interested in any of this, here is the actual press release (pdf file format)!
Home prices fell in August for the 25th consecutive month and prices in 10 major markets plunged a record 17.7% year over year, according to a key index of real estate values released Tuesday.
The S&P Case-Shiller Home Price 10-city index dropped 1.1% for the month. The 20-city index recorded a record year-over-year decline of 16.6% with a 1% fall in August.
Markets where values were hit the hardest:
The hardest hit of all 20 cities on a year-over-year basis was Phoenix, where prices plummeted 30.7% during the past 12 months. Las Vegas prices plunged 30.6% and Miami sank 28.1%.
Markets where values were the most stable:
The cities that held up the best were Dallas, which saw a decline of just -2.7%, Charlotte NC (down -2.8%) and Boston (off -4.7%).
During the past 12 months, no city was able to show a price gain. Declining housing prices continue to rule the day.
Where's the Federal Funds Rate headed? Currently sitting at 1.50%, the markets are now nearly split whether they think the Feds will drop the rate to either 1.00% or 0.75% (a 50 bps cut moves the Fed Funds Rate to 1.00% while a 75 bps cut would drop the rate to 0.75%):
The FOMC meeting is now upon us. The two-day FOMC meeting is scheduled for Tuesday, October 28, 2008 with the Fed Funds Rate decision made during the Wednesday, October 29, 2008 meeting:
Home equity lines, home equity loans, or any other loans tied to the Fed Funds Rate, barring any unexpected surprises, will be getting more attractive once again.
On a 100k loan, a 50 bps cut will make your money another $500 cheaper over the span of a year. A 75 bps cut will make your money another $750 cheaper of the span of a year.
Since the June 29, 2006 meeting, the Feds have dropped the rates from 5.25% to 1.50%, a drop of 3.75%. Again, on a 100k loan tied to the Fed Funds Rate, your money has gotten $3,750 cheaper over the span of a year, $312.50 per month, $10.27 each day!
For real estate investors using their equity to fund their purchases, these rate cuts translate into phenomenal savings. Couple these savings with home values that have dropped significantly in many locales and a volatile stock market, it's no wonder that real estate is beginning to look attractive once again.
A return to fundamentals and improving cash flow scenarios translates into more real estate investors. With deals to be had, investors will continue to enter the market in greater numbers; ultimately chipping away at these huge inventory levels one REO and foreclosure at a time.
Economists had forecast new home sales would drop to a 450,000 annual pace from an originally reported 460,000 rate the prior month, according to the median estimate in a Bloomberg survey of 59 economists. Forecasts ranged from 400,000 to 501,000.
The good news (sort of):
Sales of new houses in the U.S. unexpectedly rose in September from a 17-year low, propelled by a drop in prices ahead of the latest turmoil in financial markets.
Purchases increased 2.7 percent to an annual rate of 464,000 from 452,000 the prior month that was less than previously estimated, the Commerce Department said today in Washington. The median sales price decreased to a four-year low.
The bad news:
The median price of a new home decreased 9.1 percent from a year earlier to $218,400, the lowest since September 2004.
Sales were down 33 percent from September 2007, the Commerce report showed.
Nonetheless, the new home sales numbers released today do provide for a small bright spot amongst all of the housing doom and gloom. In looking back at the recent housing numbers released in October, providing insight to September's housing data, we believe that there are really two plausible conclusions for some of the better than expected numbers:
Yes, despite the economic meltdown, there is some stabilization that is slowly beginning to occur and we also believe that there was a rush to get purchases pushed through in September in consideration of the elimination of the FHA down payment assistance program, beginning on October 1, 2008.
Perhaps a different story will be told with the holiday season shortly upon us!
... Chairwoman Sheila Bair told the Senate Banking Committee about the success her agency has had in helping struggling borrowers at IndyMac, which the FDIC took over this summer.
Bair, the nation's leading bank regulator, thinks this foreclosure prevention program can work for other banks.
"Our hope is that the program we announced at IndyMac Federal will serve as a catalyst to promote more loan modifications for troubled borrowers across the country," she told the committee.
She's not alone. While individual lenders, loan servicers and non-profit foreclosure prevention outfits have been chipping away at the staggering housing crisis on a case by case basis, IndyMac, under the FDIC's leadership, became the first bank to establish a set protocol to modify home loans.
IndyMac has made some reasonable progress in the implementation of their loan modification program. Borrowers who have had their loans modified are receiving significant payment relief:
IndyMac services more than 60,000 loans that are either more than 60 days past due, in bankruptcy, in foreclosure or are otherwise not currently being paid. About two-thirds of those customers are eligible for the program, according to Bair, and more than 3,500 IndyMac borrowers have had their loans modified to affordable levels so far. Borrower payments have been cut on average by $380, she said.
Currently most lenders assess each loan on a case-by-case basis, which takes a tremendous amount of time and resources, and can hold up the process for months. Establishing set rules that a lender can apply to thousands of borrowers will speed the process, and help right the housing market more quickly
Under IndyMac's program, the lender modifies a loan so that the borrower's new mortgage payment, including insurance and taxes, eats up no more than 38% of their pre-tax income. This percentage, known as a debt to income ratio, topped 50% for some loans during the boom.
To achieve this lower payment, IndyMac can lower the interest rate, extend the life of the loan to, say, 30 or 40 years, defer some principal to the final years of the loan, or a use a combination of these strategies.
IndyMac is also trying to simplify the process for borrowers. It is overnighting loan forms to eligible customers with a signature required upon receipt. "It doesn't show up with your regular mail, coupons and junk mail, because the key is getting the consumer to open it," said FDIC spokesman David Barr.
Bank of America (BAC, Fortune 500) launched a similarly systematic program earlier in October. That program, scheduled to start in December, came as part of a settlement with state attorney general offices that sued Countrywide, which B of A recently acquired, for predatory lending practices. It's expected to help 400,000 troubled borrowers and is actually slightly more aggressive than IndyMac's plan.
B of A will use a 34% debt-to-income ratio to calculate the affordable monthly payment for its customers, and may also write down the principal balance of some negative amortizing loans. IndyMac will not forgive debt, but instead will add principal to the final years of a loan if necessary.
The loan modification program to be expanded:
IndyMac's program is now being applied to many delinquent loans owned by Freddie Mac (FRE, Fortune 500), Fannie Mae (FNM, Fortune 500) and other investors, Bair said in her testimony ...
The implementation of these "loan modification" programs are definitely a step in the right direction in terms of helping to stabilize the battered housing market. Only time will tell if these programs can catch on with a multitude of banks. If the banks do overwhelmingly adopt similar types of "loan modification" programs the question then turns to how efficient will they be in their implementation. To date, most banks have shown little discipline and grave incompetence in dealing with the housing crisis. At this point, to expect anything more would be naive, but we do hold out hope that they can get their act together.
Washington, D.C. - The apartment market remains healthy although rental demand is slowing, said Ron Witten, president of Witten Advisors LLC, speaking this week at the National Association of Home Builders' (NAHB) Fall Construction Forecast Conference.
Witten said that apartment occupancy level has decreased by only half a point in the past 12 months, and is now at 95 percent on a national basis. Rent growth continues, but it has declined from 4 to 5 percent at its peak in 2006-07 to 2.3 percent in the second quarter this year.
"Fundamentals are still quite good in the multifamily rental sector," said Witten.
However, he said that rental demand is "definitely" declining. Witten said the "real threat" to apartments comes from the single-family "shadow" rental market. However, he added that in early-2008 there was a significant trailing off in rental singlefamily move-ins due to renters' avoidance of living in remote locations because of high gas prices.
Witten forecasts that job losses will continue through 2009 before modestly recovering in 2010, and he said there will be a "strong" 2011.
Witten said there are about 100,000 units of empty apartments, which is not a big overhang given the base of about 20 million-plus apartment properties. He said no significant progress will be made in reducing the inventory as long as there are job losses through the end of 2009.
"This is the only housing sector that is not oversupplied," he said. 2009 he said will see the end of job losses, and by the end of 2010, any excess inventory will be "behind us."
David Seiders, chief economist of NAHB, said at the forecast that there has been a strong increase in multifamily rental production in the past year. However, he said the NAHB forecasts this increase was "overdone" and expects a decline in apartment starts, which will continue for about a year before stabilizing.
We believe the rental market in general should remain strong due to the misfortune of large numbers of homeowners who have lost their homes, are continuing to lose their homes, and will ultimately be forced to rent.
The single-family residential dwellings should begin to present an increasingly larger drag on apartment type rentals as more homes will continue to flood the market due to the sub-prime / credit crisis and investors, in increasingly larger numbers, will begin to take advantage of attractive and significantly lower housing prices now found in many of the overheated markets.
Record numbers of Silicon Valley homeowners have been foreclosed upon this year, and most must seek rental housing once they leave their homes. If tenant-occupied houses are in foreclosure, tenants nearly always get evicted, pushing them into the rental market again. And many renters who could afford to buy homes size up the bleak economy and opt not to take on mortgages and home ownership.
The result: It's a competitive market for those seeking reasonably priced rentals, and it's a pretty good time to be a landlord.
"The rental market has definitely become tighter in the sense that rents are going up," said Martin Eichner of Project Sentinel in Sunnyvale, an organization that provides landlord-tenant dispute resolution services, as well as foreclosure prevention help.
Average apartment rents rose 5.2 percent in Santa Clara County in the third quarter, to $1,708 a month, according to RealFacts, a Marin County firm that measures average monthly rents for all types of units in complexes of at least 50 units.
But rent increases in the third quarter were not as steep as in the second quarter, a sign of the softening economy. And RealFacts said apartment complexes were 95.6 percent full in the July-to-September quarter, down from 96.7 percent a year earlier.
One reason apartment occupancy rates are slipping is that more single-family houses are coming onto the market as rentals, said Joshua Howard, executive director of the local division of the California Apartment Association. Some of those houses are previous foreclosures that were purchased by investors.
"That's providing competition to multi-unit buildings," Howard said. "The rental housing economy has more options available right now."
Again, this trend will continue and should become more pronounced as the housing market begins to find a bottom. Many markets may not have bottomed in terms of pricing, but leveling inventories (this past year has brought subsiding rates of vigorously increasing inventory levels found in many markets during 2006 and 2007), steady rental rates, battered housing prices, and a volatile stock market are all favorable indicators leading a fair number of investors to believe that they can hear some homes rightfully screaming, "it's time, buy me!"
"Sales of existing homes rose in September, according to the latest reading on the battered housing market by an industry trade group released Friday.
The National Association of Realtors reported that sales by homeowners jumped 5% in September to an annual pace of 5.18 million, up from the August reading of 4.91 million.
September sales were up 1.4% from a year earlier. Economists surveyed by Briefing.com expected the report to show existing home sales rose to an annual pace of 4.95 million.
But prices still continued to fall. The median price of all homes sold during the month fell to $191,600, down 9% from $210,500 a year ago. Before the start of the current housing slump, it had been 11 years since prices fell compared to a year earlier."
"Economists said sales figures for this month and next will be critical in determining whether sales have reached a bottom as predicted by the Realtors' group. Federal Reserve Chairman Ben S. Bernanke earlier this month said even households with 'good credit' were finding it tough to get mortgages.
'This may be a temporary bump as we clear out these foreclosed properties,' said Adam York, an economist at Wachovia Corp. in Charlotte, North Carolina. 'As the meltdown really hits these figures in late October and November, that's when we could see some retracement.'
Resales were forecast to rise to a 4.95 million annual rate from a 4.91 million pace in August, according to the median estimate of 66 economists in a Bloomberg News survey. Projections ranged from 4.7 million to 5.11 million."
Foreclosure type and "Distressed Sales" comprised a large percentage of the sales:
"Foreclosure-related sales accounted for 35 percent to 40 percent of last month's total, the agents' group said. Of those, about 80 percent were for primary residence, higher than the average of about 75 percent and signaling that investors are not a primary reason for the jump, said Lawrence Yun, the group's chief economist.
'In terms of sales, I think we have bottomed out,' Yun said in a press conference. 'The first step to housing-market stabilization is rising home sales. Hopefully, this trend can continue.'
The number of previously owned unsold homes on the market at the end of September represented 9.9 months' worth at the current sales pace, the fewest since February and down from 10.6 months' at the end of the prior month.
Inventories need to continue dropping in order to stabilize prices, and that will take more time, Yun also said. In the past, the Realtors' group has said a five to six month's supply represents a stable market."
Housing prices continue to fall:
"The median price of an existing home dropped from a year ago to $191,600, the lowest since April 2004. Falling home prices make it harder to refinance mortgages, pushing up foreclosures in the third quarter to the highest since record-keeping began in 2005, according to Realtytrac.com.
Resales account for about 90 percent of the market, while purchases of new homes make up the rest. Sales of existing homes are compiled from contract closings and may reflect contracts signed one or two months earlier.
Today's report showed resales of single-family homes climbed 6.2 percent to an annual rate of 4.62 million. Sales of condos and co-ops were unchanged at a 560,000 rate.
Purchases increased in three of four regions, led by a 17 percent surge in the West as distressed sales jumped in California and Nevada. In the Northeast, sales fell 1.2 percent."
Housing market still searching for the bottom:
"'The housing downswing is really not exactly even nearing a bottom at this point,' David Seiders, chief economist at the National Association of Homebuilders said Oct. 17 in an interview with Bloomberg Television. 'The core problem in the economy is still housing, and house prices are decimating the financial markets.'
Construction companies continue to struggle. Pulte Homes Inc., the third-largest U.S. builder, this week reported a net loss of $280.4 million for the third quarter, more than double what analysts had projected.
'A bottom in the housing market may not come for some time,' Chief Executive Officer Richard Dugas said on a conference call yesterday."
It may have been lost in this latest release of the existing home sales numbers but, we believe it is important to note that inventory numbers have been subsiding quietly over the past year and now the trend suggests that perhaps inventory numbers are beginning to level:
Inventory levels were flat for years (during the bubble), but started increasing at the end of 2005.
Inventory levels increased sharply in 2006 and 2007, but have only increased slightly in 2008. In fact inventory for August and September 2008 are slightly below the levels of last year. This might indicate that inventory levels are close to the peak for this cycle (and have peaked for 2008), however there is probably a substantial shadow inventory - homeowners wanting to sell, but waiting for a better market - so existing home inventory levels will probably stay elevated for some time. - (CalculatedRISK)
Again, simple supply and demand. As goes the inventory so does ultimately the pricing. Too much inventory spells disaster for housing prices. Tight supplies ultimately creates upward pressures on pricing. Many economist believe that housing needs to find a solid footing before the rest of this economic mess can be effectively cleaned up. We're not economists but we do agree.
"A wave of anxiety about a global recession was set to reach the United States at Friday's Wall Street open, with limits imposed on futures trading after they fell more than 6%.
Futures followed the lead of plunging markets worldwide, with Japan's Nikkei index ending down 9.6% and European markets down almost as sharply.
'Today might be the day where everybody throws in the towel.' said Peter Cardillo, chief market economist for Avalon Partners. 'People are saying 'I've had it, I can't take it anymore, I'm selling everything.'
Futures trading limits were imposed before 7 a.m. ET, when Dow Jones industrial average futures were down 548 points. The futures for the S&P 500 were down 60 and Nasdaq 100 futures were down 84. Futures measure current index values against the perceived future performance and can indicate how markets open when trading begins in New York.
Economists said that even commodities were selling off, including a $18 drop in gold and a 6% decline in copper, with oil trading below $65 a barrel. The dollar rose against the euro and the British pound, but plunged against the yen.
'It's across-the-board global liquidation of stocks,' said Art Hogan, chief market strategist at Jefferies & Co."
Look towards an ugly open and another volatile day on Wall Street. Hello, anyone out there? If you can hear me, we need some serious help and we need it NOW!
"Former Federal Reserve Chairman Alan Greenspan said a 'once-in-a-century credit tsunami' has engulfed financial markets and conceded that his free-market ideology shunning regulation was flawed.
'Yes, I found a flaw,' Greenspan said in response to grilling from the House Committee on Oversight and Government Reform. 'That is precisely the reason I was shocked because I'd been going for 40 years or more with very considerable evidence that it was working exceptionally well.'
Greenspan said he was 'partially' wrong in opposing regulation of derivatives and acknowledged that financial institutions didn't protect shareholders and investments as well as he expected.
'We cannot expect perfection in any area where forecasting is required,' he said. 'We have to do our best but not expect infallibility or omniscience.'
Part of the problem was that the Fed's ability to forecast the economy's trajectory is an inexact science, he said.
'If we are right 60 percent of the time in forecasting, we are doing exceptionally well; that means we are wrong 40 percent of the time,' Greenspan said. 'Forecasting never gets to the point where it is 100 percent accurate.'"
What happened?
"Today, the former Fed chairman asked: 'What went wrong with global economic policies that had worked so effectively for nearly four decades?'
Greenspan reiterated his 'shocked disbelief' that financial companies failed to execute sufficient 'surveillance' on their trading counterparties to prevent surging losses. The 'breakdown' was clearest in the market where securities firms packaged home mortgages into debt sold on to other investors, he said.
'As much as I would prefer it otherwise, in this financial environment I see no choice but to require that all securitizers retain a meaningful part of the securities they issue,' Greenspan said. That would give the companies an incentive to ensure the assets are properly priced for their risk, advocates say."
It's a bit disconcerting that so many of our leading economists comment that they didn't see this economic crisis coming. In hindsight, the signs are quite clear. Many will argue that the signs were there and quite clear all along. Nonetheless, easy money, the lack of basic regulations, and greed made for a bad cocktail. Still dazed and confused, the hangover continues.
If you have problems viewing the Bloomberg video below, "Housing Defaults For September; Highest Metro Foreclosure Rates", you can find the video directly by clicking on the link we have provided:
Be Patient and Husband Cash Until sellers relent, investors should sit tight. "[Amass] as much capital as possible and wait" for prices that clear the market. Opportunities will surface at significant discounts to peak pricing and patience will be rewarded. "Investments made in 2009 could result in substantial future returns."
Buy Discounted Loans Lenders will be offloading more loans at increasing discounts once the pressure builds to resolve damaged balance sheets. Buyers need to focus on underlying collateral, watching for wide disparities in asset quality and resiliency. They also must carefully scrutinize loan positions in the capital stack-mezzanine and lower tranches of senior debt "may have no value."
Recap Distressed Borrowers Some overleveraged owners will look to lifelines from new capital sources rather than face defaults. Investors will be in the driver's seat-they can get better deal structure, more guarantees, principal paydowns, and bigger spreads. Invest in maturity defaults, construction loans/bridge loans, or take mezzanine positions and equity stakes. "You can get equity returns for debt risk."
Hold Core Investors really have no choice-selling as vultures circle makes no sense. Well-leased properties with manageable rollover exposure will take paper losses after scoring years of outsized paper gains. Owners should step up tenant relations and leasing programs to maintain occupancies and cash flows.
Buy Public REITs These stocks have taken a major licking, already factoring in much of the expected declines in private markets. They may experience more downside when negative headlines increase about rising commercial defaults and foreclosures, but will lead any market recovery. Many larger companies are well capitalized with manageable debt loads and should navigate ensuing turbulence as fundamentals falter-lowered share prices make their dividends look more attractive again.
Focus on Global Pathway Markets The favored 24-hour coastal cities-D.C., San Francisco, New York, L.A., Boston, and Seattle-will hold value better and bounce back more quickly. Core players and offshore investors gravitate to these elite business and cultural centers linked directly to Asia and Europe commercial capitals. Hot-growth Texas markets-Houston and Dallas-show temporary strength as long as oil prices stay high.
Staff Up Asset Managers, Leasing Pros, Workout Specialists "It's time to work your asset base the best you can and realize you can't stop losing some value. Do the best you can to lose less. Separate good assets from bad. It's property triage time. Put workout specialists on the bad assets and protect as much value as you can in disposing of them. Put the best asset managers and leasing people on good properties to improve cash flows and enhance future value."
The moral of the story - hold tight, be ready, significant opportunities should be right around the corner. Look towards discounted loans, public REITs, and concentrate your investments in "global pathway markets" (Washington, D.C., San Francisco, New York, L.A., Boston, and Seattle). Don't forget to keep an eye on Texas, specifically Houston and Dallas, as "oil" will play a significant roll in its impact of these markets.
Until then, tighten the ropes, refine your processes, and improve upon your existing management to make the best of what you currently have. Make money by saving money. If you can't hold on, employ the advice of experts to help you preserve as much value as you can while you try to dispose of the "bad assests".
The preface to their "Emerging Trends in Real Estate 2009" report:
"A joint undertaking of the Urban Land Institute (ULI) and PricewaterhouseCoopers, Emerging Trends in Real Estate is a trends and forecast publication in its 30th edition; this year, it is expanding to cover real estate markets in Latin America. It is the most highly regarded and widely read forecast report in the real estate industry. The report provides an outlook on U.S., Canadian, and Latin American real estate investment and development trends, real estate finance and capital markets, property sectors, metropolitan areas, and other real estate issues. Emerging Trends in Real Estate 2009 presents a consensus outlook for the future and reflects the views of more than 700 individuals who completed surveys and/or were interviewed as a part of the research process for this report. Interviewees and survey participants represent a wide range of industry experts-investors, developers, property companies, lenders, brokers, and consultants. ULI and PricewaterhouseCoopers researchers personally interviewed over 270 individuals, and survey responses were received from over 440 individuals whose company affiliations are broken down as follows:
Private Property Company or Developer - 43.3% Real Estate Service Firm - 18.6% Institutional/Equity Investor or Investment Manager - 17.2% Other Entity - 7.8% Bank, Lender, or Securitized Lender - 4.8% Publicly Listed Property Company or REIT - 4.6% Homebuilder or Residential Land Developer - 3.7%
A list of the interview participants in this year's study appears at the end of this report. To all who helped, the Urban Land Institute and PricewaterhouseCoopers extend sincere thanks for sharing valuable time and expertise. Without the involvement of these many individuals, this report would not have been possible."
In an upcoming series of posts, we will begin to take a closer look at the data within PWC's October release of their "Emerging Trends in Real Estate 2009" report.
"LONDON -- The European housing markets are turning as bitter as vinegar on chips as property sales and prices come tumbling down.
Property values fell to their lowest level in 30 years in September, according to the Royal Institution of Chartered Surveyors. According to another report, home sales fell to 17,000 in June 2008 from 105,000 in June of 2007, and that was before the financial collapse of late summer and fall.
Prices have fallen 15 percent in the last year with some local experts predicting a 50 percent drop before the bottom is reached. As many as 60,000 homeowners are dipping into "negative equity" per month. The U.S. market began to fall in late 2005. The U.K. market stayed strong until last year, but now it is falling fast."
"Doom and gloom" continues to rule the day in this ever growing global arena. The world, in it's expansion, continues to grow smaller and much more intimate.
"The country's top housing official has an urgent message for potential home buyers: You may have heard that the credit markets were 'frozen,' but FHA has been open for business throughout the credit squeeze, and so are Fannie Mae and Freddie Mac. In fact, FHA's volume has tripled and the agency is now insuring well over a hundred thousand new loans a month.
In an exclusive one-on-one interview with Realty Times, Housing and Urban Development Secretary Steve Preston said that FHA, Fannie and Freddie -- who account for a combined 90 percent plus share of the entire U.S. mortgage market -- 'have kept liquidity alive' for home buyers -- and have virtually unlimited funds for new mortgages.
'There is no credit crisis' for individual home buyers who have at least three percent to put down, documentable employment, and at least a moderately good credit record, said Preston."
We might add that we're definitely noticing this trend with our real estate projects. A major contributing factor is that FHA still only requires a minimal down payment which continues to enable a market that would otherwise no longer exist in consideration of our current credit environment.
Fitch: Housing Prices Have 10% to Go Before Stabilizing
Fitch Ratings put the housing slump in perspective with a note out today looking at when prices will start to stabilize. Its estimates are based on Case-Shiller housing data and assume a rate of inflation of 3%:
"Fitch's analysis shows that the 29% rise in prices realized between 2004 and 2006, representing one of the largest price growth periods ever recorded, has been reversed. With prices returning to early 2004 levels, Fitch believes that most of the additional 10% decline, which will bring prices back to levels seen in 2003, will occur over the next eighteen months. Fitch then expects declines thereafter to moderate."
A loss of an additional 10% over the next 18 months could be considered a positive since housing prices have been dropping sharply and quickly in many markets. The obvious negative, another 10% loss ... wow. When will this end?
"The London Interbank Offered Rate (or LIBOR, pronounced /'laibor/) is a daily reference rate based on the interest rates at which banks offer to lend unsecured funds to other banks in the London wholesale money market (or interbank market). LIBOR will be slightly higher than the London Interbank Bid Rate (LIBID), the rate at which banks are prepared to accept deposits. It is roughly comparable to the U.S. Federal funds rate."
LIBOR in simpler terms:
"If, for example, you come into your branch of Wells Fargo (WFC) with a deposit of $1 million, it would be the intention of WFC to lend that money out to one of its customers. But suppose that it doesn't have a good prospect right now for that loan. At the same time, Citigroup (C) has a long-standing customer which wants to draw $1 million on its existing credit line, but is a bit short of deposits at that moment. Citi would then borrow the money it needed from WFC, which would normally be happy to do so, since it is better than having the cash sitting around idle in its vault. The rate it is done at is LIBOR." - (Zacks Investment Research)"
The current problem:
"Under normal circumstances, Wells Fargo making a loan to Citi or JP Morgan for three months would be one of the safest things it could do with its money. As a result, three-month LIBOR is normally priced just slightly over the yield on a 3-month T-bill, which is absolutely the safest thing a bank can do with its money (the government owns the printing press so it can always pay). The difference between these two rates is known as the TED (Treasury Euro Dollar) spread.
However, these are not normal times, and recently TED has become a minor celebrity. Right now, TED is spread wider than the Grand Canyon. The current spread is 4.24%; during times this year when the market thought the credit crisis was contained, it was down around 1.0%. During normal times, it is usually less than 0.50%.
The implication of this is that WFC is not sure if other major banks like JPM will be around in three months, and as such has to charge a much higher rate to compensate for that risk. However, right now the interbank market is just about dead -- not only are the rates abnormally high, but the volume of transactions is extremely low." - (Zacks Investment Research)
Why should we care (generically speaking)?
"More than half of U.S. adjustable rate home loans are tied to Libor, so a recent increase in this benchmark rate mean monthly mortgage payments will rise for affected homeowners if the rise is sustained. A typical adjustable rate home loan will adjust based on the six-month Libor, plus 2 to 3 percentage points. Plus, many home equity lines of credit, small business loans and student loans also use Libor as an index. Student loans, for example, can be set based on the three-month Libor rate plus, say, 4 percentage points or the one-month Libor rate, plus 9 percentage points." - (The Seattle Times)
What is LIBOR doing today?
"The London interbank offered rate, or Libor, for three-month dollar loans fell to 4.05875%, down sharply from 4.41875% on Friday." - (Market Watch)
Momentarily, LIBOR is heading in the right direction. Will this continue? Will the credit crisis, woes, and worries begin to subside? Is this a signal that credit markets are beginning to thaw or is this merely just a short-lived positive blip on the screen?
"... 30-year fixed-rate mortgage (FRM) averaged 6.46 percent with an average 0.6 point for the week ending October 16, 2008, up from last week when it averaged 5.94 percent. Last year at this time, the 30-year FRM averaged 6.40 percent. This week's increase of 52 basis points was the largest weekly increase since the week ending April 17, 1987, when the 30-year FRM rose 84 basis points.
The 15-year FRM this week averaged 6.14 percent with an average 0.6 point, up from last week when it averaged 5.63 percent. A year ago at this time, the 15-year FRM averaged 6.08 percent.
Five-year Treasury-indexed hybrid adjustable-rate mortgages (ARMs) averaged 6.14 percent this week, with an average 0.6 point, up from last week when it averaged 5.90 percent. A year ago, the 5-year ARM averaged 6.11 percent.
One-year Treasury-indexed ARMs averaged 5.16 percent this week with an average 0.6 point, up from last week when it averaged 5.15 percent. At this time last year, the 1-year ARM averaged 5.76 percent."
Over appraisals, cash-out refinances, and inflated stated income may be a thing of the past but have no fear, new mortgage fraud strategies have found a new home. - (CNNMoney.com)
What's happening:
"The number of fraudulent loans issued during the second quarter this year increased 45%, compared with the same period in 2007, according to the Mortgage Asset Research Institute (MARI), a service of LexisNexis."
Popular mortgage fraud during the housing boom:
"During the boom, that might have meant a buyer who inflated his income to qualify for a bigger loan. Some went so far as to get a fake appraisal, invent a fake buyer, and after securing a mortgage, absconding with the cash."
Today's mortgage fraud:
"One modern gambit is under-appraising property values.
These schemes involve short sales, which come up when a struggling homeowner is 'underwater,' or owes more on his mortgage than the home is worth.
When done legitimately, the owner sells the home for the lower market value, and the lender agrees to accept just that amount and forgive the difference.
When illegitimate, fraudsters fake very low appraisals for the homes and use those appraisals to justify low short-sale prices - well below true market values.
If busy bankers don't check the appraisal closely, they may agree to sales of homes that should be worth $200,000, for $150,000 or even less.
The buyers - in cahoots with the owner - then flip them for a big profit."
Still more fraud - "new liar loans" for a depressed housing market:
"During the boom, many borrowers misrepresented their income or assets with 'no-doc liar loans,' approved on the basis of good credit scores with no documentation.
After the mortgage meltdown, no-doc loans vanished, but applicants who lie have not.
'Liar loans are now fully documented - but with really good fraudulent documents,' said Hagberg.
In one case investigated by Interthinx, a New York man buying an investment property in Georgia provided documents that showed double his actual salary.
Advanced information technology and photocopying equipment have gotten so accurate that very convincing papers, including income statements, savings accounts and tax returns can be produced on demand."
One more spin - "Buy and Bail":
"This is a new scheme that had no equivalent during the boom years.
You're underwater on your mortgage and want a new, cheaper home down the block.
You could just bail on the existing home, but no lender would give you a mortgage for the new one.
So you tell the bank you plan to rent out the current home - even though you have no intention of doing so.
'This is a very difficult scam to pin down,' said Jennifer Butts, a spokeswoman for MARI, because the rental agreements that borrowers proffer may not be scrutinized by lenders."
Different times, different tactics, business as usual.
"Initial construction of U.S. homes fell to a fresh 17-year low in September, according to a government report released Friday.
Privately owned housing starts fell to a seasonally adjusted annual rate of 817,000 in September, according to the Commerce Department. The rate was down 6.3% from August's revised reading of 872,000 and 31.1% lower than September 2007." - (CNNMoney.com)
It's ugly and getting uglier:
Housing starts have fallen nearly two-thirds from their peak of 2.3 million in January 2006, and were at the lowest annual pace since January 1991.
'This is bad news for anyone who works in the housing industry, bad news for the economy as a whole, and the decline in housing activity just continues to deepen,' said Mike Larson, an analyst for Weiss Research. 'This is one of the worst downturns in the housing market in the history of our country.'
A bright spot: Lower inventory levels will ultimately turn this housing market around (simple supply and demand economics). There is demand, there's no credit, and there's too many homes.
"You've heard the news that pending sales are up across the country over 7 percent from July to August. While that's the broad brush news, when looking at the details, one sees just how many states in the West are experiencing a huge surge in the number of sales being registered on real estate boards across the region."
Markets showing the strength:
"Leading the way is Idaho, with a 51 percent jump between the two quarters. California was up 25.8 percent followed closely by Nevada at 25 percent. The fourth strongest statewide market was Arizona, up by 20.5 percent."
Anthony's conclusion:
"When news hit about this latest sales increase of 7.4 percent, hidden, again, in the fine print was the fact that sales year over year in the west had jumped a whopping 37 percent. The challenge facing markets now, of course, is the current credit crisis, which will determine if the trends of upward bound sales will continue."
Any surprise? Home builder confidence is in the tank and actually set a record low for the month of October:
"Reflecting profound uncertainties tied to the financial market shocks of recent weeks, builder confidence in the market for new single-family homes receded to a new record low this month. The National Association of Home Builders/Wells Fargo Housing Market Index (HMI) declined three points to 14 in October after having edged up slightly in the previous month." - (NAHB - National Association of Home Builders)
"California State Senate Bill 1137, which went into effect Sept. 8, imposes significant new requirements on lenders prior to filing for foreclosure - including the requirement that servicers contact homeowner borrowers to explore options for avoiding foreclosure on their primary residence at least 30 days before filing a notice of default." - (Housingwire)
The results:
"Recent legislation in California helped push notice of default filings, which indicate the start of the foreclosure process, down 61.8 percent in September, according to a recent report released earlier this week. ForeclosureRadar, which published monthly foreclosure data, found that only 16,352 notices of default were filed in September, down from 42,790 in August, and a decrease of 36.4 percent from a year earlier." - (Housingwire)
The bad news:
The bill did not directly impact foreclosure sales; however, the number of foreclosure sales in the state still fell by 12.4 percent. Despite the monthly drop, properties taken to sale at auction increased 163.2 percent from the prior year, to 23,409 sales, with a combined loan balance of $9.75 Billion. - (Housingwire)
Lower interest rates in the beginning of the week looks to have initially spurred activity and refinance applicants while volatility and rising rates towards the end of the week brought the activity back to lower levels:
"'Treasury yields were extremely volatile last week,' said Orawin Velz, MBA's associate vice president of economic forecasting, in a news release. "The yield on the 10-year Treasury note -- the benchmark for the 30-year fixed mortgage rate -- moved up about 40 basis points over the course of the week.
'Lower yields earlier in the week appeared to have spurred refinance activity, which then faded as the week went on and rates began to rise.'
Overall, applications volume slumped 17% for the week ended Oct. 10 from the same week in 2007, the MBA said." - (MarketWatch)
Inside the mortgage numbers:
"The four-week moving average for all mortgages was down 7.9%, the MBA's latest survey showed. It covers about one half of all U.S. retail residential mortgage applications
Refinancings made up 46.4% of all mortgage applications filed last week, up from 43.4% the week before. Adjustable-rate mortgages also rose, accounting for 2.6% of all applications, up from 2.3%.
The rate charged on 30-year fixed-rate mortgages averaged 6.47% last week, up from 5.99% the week before, while 15-year fixed-rate mortgages had an average rate of 6.17% last week, up from 5.71%.
The rate on one-year ARMs averaged 6.67% last week, up from 6.60% the previous week." - (MarketWatch)
This is beginning to look like a trend. A plan is announced that promises a government of one nation or another to pump unbelievable amounts of liquidity and the stock market gets happy for one jovial moment before they awake and realize how bad all of this really is.
As part of a $250 Billion dollar plan, U.S. to pump about $125 Billion into Wells Fargo & Co., JPMorgan Chase & Co., Bank of America Corp., Merrill Lynch & Co., Morgan Stanley, State Street Corp., Bank of New York Mellon Corp., Citigroup Inc., and Goldman Sachs Group Inc.
U.S. Futures markets are looking strong again.
Global economic markets are showing strength again.
Libor (London interbank offered rate) rates are heading in the right direction.
The Dow Jones Industrial average posted it's biggest point gain ever, 936.42, up over 11% today after being pummeled in the previous eight trading sessions down nearly 2,400 points.
Can anyone remember a time when you couldn't make a decision fast enough? If you didn't pull the trigger by putting in an "over the asking price" offer within hours of your future dream home being listed on the market, it was going to the next eager home buyer. Perhaps you felt left out if you weren't buying. Gee, what's all the fuss about?
Forget about the financing, that was a guarantee. Too high debt to income ratios? Not enough income? Poor credit? Perfect, we've got just the right product for you. In fact, your interest rate will only be 2.5% and if you really want that $500,000.00 home, go for it, we can make it work. Don't you worry.
Now, the bus tours are back. The only difference, the views.
Before, it was jovial discussions with your fellow investors, everyone pondering how much the homes would appreciate in the next two months.
"What do you do for a living?" "I'm a real estate investor." "I'm looking to buy a couple of homes today, how about you?" "I'm a real estate investor too and I'm looking to buy two, maybe three homes today! In fact, I quit my job yesterday to do this full time."
Fast forward to 2008. "I love this home, it sold for $500,000.00 in 2005, now it's selling for $225,000.00." The obvious question follows, "You're going to buy it right?" The response, "No, there's probably a better deal around the corner."
These behaviors are predictable and are never going away, neither are these cycles. Oftentimes, these reactions cloud our judgment and lead us to making poor financial decisions. Part of having success is learning these behaviors.
We always seem to learn our lessons of the past until we get drunk on the good times and the promise of a better future, always forgetting that for every action, there is a reaction.
Why do we always choose to live in these worlds of extremes? How come most people fail to realize that this behavior gets them what they've always had .... financially speaking, not much?
In early hours, the U.S. "futures" are very strong and global markets are showing strength in lieu of the measures taken over this weekend by many oversees governments to help curb the growing global economic crisis:
"The British government announced a $63 billion investment in three major banks.
The U.S. Federal Reserve, Bank of England, European Central Bank, Bank of Japan and the Swiss National Bank revealed coordinated steps to juice short-term funding markets.
On Sunday, 15 European nations agreed to a wide-ranging plan to shore up troubled banks."
Bank of America announced that it will begin modifying loans for distressed borrowers. The plan is touted as being a strong measure that will go a long way towards helping to curb the amount of future homes heading into foreclosure.
"The program, scheduled to start in December, will be open to distressed borrowers who signed up with Countrywide Financial between January 1, 2004 and December 31, 2007. Countrywide was acquired by Bank of America (BAC, Fortune 500) in July." - (CNNMoney.com)
If the plan is successful, there's no doubt that the adjustments will have an impact on preventing a certain percentage of foreclosures. As foreclosures begin to subside, inventory levels will begin to normalize. Housing stability should follow in line.
It's hard to deny that drastic measures need to be taken in consideration of the continuing U.S. housing decline and "depression" like economic conditions. Nonetheless, there seems to be quite a few Americans crying foul as they are keeping up with their mortgage payments and are not eligible for any such relief. Some ask, why are we being punished for paying our mortgage and not overextending beyond our financial means? Is this a valid complaint? Will we see other banks follow suite? Perhaps it's all just a matter of perspective. Nothing seems overly fair right now.
U.S. stock futures are off considerably, global markets are tanking, and it's Friday. None of this bodes well for the opening of the US markets. Brace yourself, it looks like the markets will be rockin' and rollin' today.
"European markets got off to a terrible start. Within the first 10 minutes of trading, London's FTSE, the CAC in Paris and the XETRA DAX in Frankfurt, Germany, had all sloughed off about 10% of their values ......
Asian markets ended lower. The Nikkei Exchange in Japan closed down 9.6%.
Meanwhile, the Australian All Ordinaries index closed more than 8% lower and South Korea's KOSPI index finished the day off 4.3%.
Hong Kong's Hang Seng index was down about 8% in afternoon trading and Mumbai's BSE SENSEX was down 7.4%." - Money.Cnn.Com
Just when you think it can't get any worse. Just when you think the government throwing more money at it will fix the problem. Just when you think .... oh well, what's the point, we all know it's a disaster out there.
Are you starting to wonder if anyone has a clue as to what's going on and what needs to be done to get this problem fixed?
Our economy is deteriorating and doing so frighteningly fast. The Dow is off nearly 40% over the past year, losing over 2,271 points, or 20.1%, during the last seven sessions of trading. The Nasdaq is down more than 40% over the past year as well. Housing has been bruised and battered beyond belief. We could go on and on and ...
It seems like the sky is falling but if you look really close, far off in the distance, you will see what looks to be a light. Yes, that's right, a light. It may be hardly noticeable but make no mistake, it's there.
Do I need to remind you to take notice of how low housing prices are with stocks not too far behind?
Remember when you thought housing prices would stretch to the moon but you forgot that little thing called a cycle? Don't forget about Mr. Cycle. Just when you think he's gone, he has a mysterious way of showing up again. Shortly to follow are the endless cries, "If I only ...", "I should have ...", "I didn't realize ..."
According to the National Association of Realtors "Pending Home Sales" report, pending home sales surged significantly for the month of August up 7.4% from July to August nationwide.
The western region led the charge with a reported rise of 18.4%. The index for the western region is up 37.8% from a year ago. The southern region showed the smallest gains in the pending home sales index up merely 2.3% from July 2008 but down 2.1% from a year ago.
We believe the stark differences in numbers between the western and southern regions can simply be explained by a transition of home equity. The southern region, in large part, was the recipient of a spill over effect.
As home prices surged significantly in the west during the housing boom, a large influx of equity from investors and relocating home buyers spilled over into the southern and midwest regions bolstering, to a an extent, their housing markets.
Initially, the run up in California spilled over to areas (amongst others) such as Boise, ID, Phoenix, AZ, and Las Vegas, NV. Next and last in line to receive the spill over effect during the housing market boom were areas such as Charlotte, NC, Kansas City MO/KC, and Nashville, TN.
Even though there have been positive indicators, especially in the western region, there is not enough positive data to call this a trend. However, we do believe the bleeding is slowly coming to an end.
The Fed, in a globally concerted effort, cuts rates by 50 basis points. The target rate has now been lowered to 1.5%. The rate for the Fed's discount window was lowered 50 basis points as well bringing the rate to 1.75%.
For real estate investors using equity loans and equity lines to finance their real estate investments, your money just got cheaper again. On $100,000.00 investment, you are now paying $500.00 a year less for that money.
Since the Fed's started cutting rates, the rate has been lowered from 5.25% to 1.50%, a 3.75% drop. On $100,000.00 investment, you are now paying $3,750.00 a year less for that money.
With each cut, real estate is becoming more attractive. A home just got cheaper without having to drop the price. Your cash flow just improved even though you, as a real estate investor, are collecting the same rent check.
Renewed rally cries for an intermeeting, globally concerted effort, rate cut by the Feds before their two day meeting at the end of the month (October 28th and 29th). Bernake signals a cut may be on the way.
The drumbeat only got louder as the DOW dropped over 500 points in today's trading session. Today's loss pushed the DOW to a 5-year low.
If the Fed does cut rates again, what does that mean for real estate? If you have home equity, car loans, business loans, or any loan tied to the fed funds rate, your money will get cheaper.
In regards to real estate, the cheaper cost of money will spur more real estate investors to begin looking at real estate as a viable investing option again.
In consideration of the numerous monetary policies being implemented, I think one has to wonder if the housing bottom is just around the corner.
The Fed announced this morning, October 7, 2008, that they will enter the commercial paper market:
"... Fed will purchase three-month unsecured and asset-backed commercial paper directly from eligible issuers"
The Fed hopes this latest round of measures will help to liquidate the frozen business credit markets as many small businesses are increasingly feeling the pain of not being able to obtain business credit.
The short-term effects of the myriad of measures taken by the Fed over the past six months will undoubtedly begin to filter into the market over the next year. What will the long-term effects of pumping this unbelievable amounts of liquidity into the market?
The frozen credit markets are now widely impacting many markets. As if we weren't already feeling the crunch, it looks like economic conditions will continue to deteriorate.
You could say that real estate, your home, and many local housing markets are no strangers to these credit problems as real estate markets have been deteriorating in many locales for three plus years now.
Businesses are now widely beginning to feel the pain too. These additional ripples will continue resound the loudest (now even louder) in our pocket books!
In brief, here are a few points summarizing expert opinion regarding the government bailout bill and it's impact on real estate and the housing market:
Housing markets should begin to find a bottom because the bailout bill will go towards building consumer confidence.
Interest rates should remain low and relatively speaking stable.
Foreclosures should begin to subside since it's believed that the government will make a concerted effort to "work out" more favorable loan terms for homeowners on loans in the mortgage portfolios that they have taken over from the bank.
Most experts believe the housing recovery will not happen overnight. The effects of the government bailout package will take time to enact and to infiltrate the market. Short term, it's believed that improved consumer confidence will go a long way towards beginning to stem the bleeding.
Today the House agreed to the new bailout bill, 263 Democrats to 171 Republicans. The government tells us that the intent for this bill is to help liquidate a frozen credit market.
The current credit markets are so tight that some business owners are now struggling to obtain financing for simply keeping their businesses afloat let alone business expansion.
Ben Bernanke said "the legislation is a critical step toward stabilizing our financial markets and ensuring an uninterrupted flow of credit to households and businesses."
The said result, foreclosures should begin to subside since we should be able to obtain loans again as banks begin lending with new confidence as the government soaks up their bad debt. As loans become more available, it is believed that there is a pent-up demand for housing and Americans will begin to purchase residential real estate again at their current bargain basement prices in many housing markets. As we begin to purchase more homes, the inventory will subside and prices should begin to stabilize before the demand and shrinking inventories ultimately begin to put upward pressure on housing prices.
Time will only tell if these favored results will actually begin to positively affect our housing market. Unfortunately, this bill is laden with nearly $150 Billion in "pork" legislation and does not address many of the issues that ultimately lead us to this point.
We must demand more of our government but can begin by demanding more from ourselves ... if there ever was a time to pay attention!
Our Ahwatukee, AZ home is now pending! We have had the home for sale (listed on the MLS) for roughly 12 days. The original contract came in roughly 8 days after the home had been listed.
The "Buyers" have scheduled the home inspection for this Friday, 10/3/2008. Originally the "Buyers" were going to use FHA financing but we were able to work together with them to negotiate a deal for them to use "conventional" financing in return for additional financial concessions made on our end.
I believe both parties are happy with the deal that has been agreed to for the sale of this Ahwatukee, AZ home!
