Tight Credit for How Long?

From Reuters - "UK's Barclays sees 1-2 years of tight credit - BBC":

Bank lending will take 1-2 years to return to normal, and asset prices need as much as 18 months to stabilise, Barclays (BARC.L) Chief Executive John Varley said in an interview released on Saturday.

This economic mess will simply take time to work through but work through we must:

"I think that we will see the process of reduced borrowing play out over at least the course of the next 12 months ... maybe 24 months," he said.

"That is a painful process, it's a process through which the world absolutely has to go," he said.

Stating the obvious:

"As soon as asset prices stabilize, then we will see the financial economy recover. And when will that occur? That will occur some time over the course of the next 18 months," he said.

It took years to get to this point. Really, no surprise that it has already taken some time and will continue to do so before a solid recovery takes place. This housing and economic mess is like a clogged drain. Slowly, over time and with major neglect, the clog gets worse until one day it becomes completely clogged and only a major effort will fix what could have been prevented with simple basic measures. If only ...

Apartments - The Only Housing Sector Not Oversupplied?

As reported by Multi-Housing News - Apartments are the Only Housing Sector That Is Not Oversupplied, Affirms Witten:

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.

As reported by MercuryNews.com, a local example of this can be found in California's Silicon Valley - Foreclosures add to tight rental market:

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!"

FHA - The Only Game in Town?

As reported by Realty Times:

"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.