Archive for September, 2011
Mortgage rates in the U.S. fell to the lowest level in Freddie Mac records after the Federal Reserve announced a plan to reduce borrowing costs even further.
The average rate for a 30-year fixed loan dropped to 4.01 percent in the week ended today from 4.09 percent, Freddie Mac said in a statement. That’s the lowest in the McLean, Virginia-based company’s records dating back to 1971. The average 15-year rate declined to 3.28 percent from 3.29 percent last week.
Yields on 10-year Treasuries, a guide for consumer loans, touched the lowest level in more than a half-century, after the central bank said on Sept. 21 that it would begin a program aimed at boosting the economy and lowering mortgage rates. The effort, called Operation Twist, would replace shorter-term securities in the Fed’s portfolio with longer-term debt. Policy makers also plan to support the home-loan market by reinvesting maturing housing debt into mortgage-backed securities.
“Mortgage rates have fallen some ways already, but they probably haven’t fully caught up with the decline in the 10-year Treasury,” Paul Dales, senior U.S. economist at Capital Economics Ltd. in Toronto, said in a telephone interview yesterday. “It’s possible the effects of Operation Twist will drag 10-year yields down further, thereby weighing on mortgage rates more.”
Gap in Rates
The gap, or spread, between the average 30-year fixed mortgage rate and the benchmark 10-year Treasury yield widened to 2.26 percentage points last week, the biggest gap since 2009, according to data compiled by Bloomberg. If the spread matched the gap of 1.17 percentage points in February, the 2011 low, home-loan rates now would be close to 3 percent.
Homeowners are taking advantage of low borrowing costs to reduce their monthly payments. A Mortgage Bankers Association index of refinancing rose 11 percent in the week ended Sept. 23. The Washington-based trade group’s purchase gauge increased 2.6 percent.
Declining interest rates have done little to stimulate the U.S. housing market as the unemployment rate sticks above 9 percent and lenders tighten credit. The number of contracts to purchase previously owned homes fell 1.2 percent in August, following a 1.3 percent decline the previous month, according to a National Association of Realtors index released today.
‘Marginal Support’
Record-low borrowing costs “are only a marginal support right now,” Michael Feroli, chief U.S. economist at JPMorgan Chase & Co. (JPM) in New York, said in a telephone interview yesterday. “Mortgage credit is still tight and secondly, on the demand side, households are concerned about the job market and falling house prices.”
The S&P Case-Shiller index of home values in 20 U.S. cities decreased 4.1 percent in July from a year earlier, the group reported Sept. 27.
Purchases of new houses fell in August to a six-month low, Commerce Department data showed this week. Sales of previously owned homes that month rose to a five-month high, boosted by demand for lower-priced distressed properties, the National Association of Realtors said Sept. 21. The median price dropped to $168,300 from $177,300 in August 2010.
Current residential shadow inventory as of July 2011 declined slightly to 1.6 million units, representing a supply of 5 months. This is down from 1.9 million units, a supply of 6 months, from a year ago, and follows a decline from April 2011 when shadow inventory stood at 1.7 million units. The moderate decline in shadow inventory is being driven by a pace of new delinquencies that is slower than the disposition pace of distressed assets.
Click here to download the full Shadow Inventory report.
Data Highlights
- The shadow inventory of residential properties as of July 2011 fell to 1.6 million
units, or 5 months’ worth of supply, down from 1.9 million units, or a 6-months’
supply, as compared to July 2010. - Of the 1.6 million properties currently in the shadow inventory, 770,000 units are
seriously delinquent (2.2-months’ supply), 430,000 are in some stage of
foreclosure (1.2-months’ supply) and 390,000 are already in REO (1.1-months’
supply). - As of July 2011 the shadow inventory is 22 percent lower than the peak in January
2010 at 2 million units, 8.4-months’ supply. - The total shadow and visible inventory was 5.4 million units in July 2011, down from
6.1 million units a year ago. The shadow inventory accounts for 29 percent of
the combined shadow and visible inventories. - The aggregate current mortgage debt outstanding of the shadow inventory was $336
billion in July 2011, down 18 percent from $411 billion a year ago.
“The steady improvement in the shadow inventory is a positive development for the housing market. However, continued price declines, high levels of negative equity and a sluggish labor market will keep the shadow supply elevated for an extended period of time.” said Mark Fleming, chief economist for CoreLogic.
Click here to download the full Shadow Inventory report.
Corelogic
The value of residential real estate in the UK has held up better than may have been expected at the beginning of the financial downturn, one expert has claimed. Economics editor at the Sunday Times David Smith made the comments at the British Council of Shopping Centres (BCSC) conference and exhibition, stating “the picture for house prices has not been that bad”. He explained that despite values falling by an average of 20 per cent initially, they have since rebounded by around ten per cent.
Mr Smith noted that one key difference between the recent economic crisis and the one that hit the country in the early 1990s is the lack of forced sellers in the market place. He pointed out that increases in unemployment were not as severe as had been predicted, which means fewer homeowners have been in a position where they need to sell as they can no longer keep up with repayments.
But the property industry is suffering in terms of the levels of activity, with far fewer transactions taking place, in part due to restricted mortgage availability. Mr Smith is not so optimistic on this point, commenting: “I don’t think we’ll get back to where we were before the crisis, but gradually we will move back to approach some mid-level [activity].” Earlier this month, the Royal
Institution of Chartered Surveyors (Rics) UK Housing Market Survey for August showed that fewer sales were finalised than in July.
In fact, the Rics figures revealed that activity levels have dropped back to those experienced in June 2009. According to the findings, economic uncertainty and limited finance are the key issues depressing the residential real estate sector. Alan Collett, a spokesperson for the organisation, warned: “The risk is that the worsening economic picture will gradually begin to have a more material impact on sentiment and discourage potential house purchasers, even where mortgage finance is available.”
Of all the cities and all the neighbourhoods affected by America’s recent recession, few were hit harder than downtown Miami. An urban counterpoint to seafront South Beach, this 60-block swathe of city-centre property welcomed 22,500 new condominium units between 2003 and 2010. That’s almost double the number built during the preceding four decades combined, according to Condo Vultures, a real estate consultancy based in Bal Harbour.
The newcomers were spread over 80 new buildings across “greater downtown Miami”, which includes Brickell Avenue, the Biscayne Boulevard Corridor and downtown itself. Much like in Dubai or Las Vegas, most downtown apartments were purchased off-plan, and years from completion, during the development boom of the past decade. As prices rose in tandem with unfinished inventory, the resulting property bubble saw more than one-third of the new apartments stand empty and unsold during the depths of America’s financial crisis in June 2009.
Now, just over two years later, the downtown Miami market is once again on the move. Propelled by significant shifts in promotion strategies, price points and buyer types, a mere 11 per cent of newly completed condos remain unsold. It helps that tight credit lending has brought additional construction to a virtual standstill, allowing the market to absorb existing inventory. Equally key is downtown’s nascent maturity: over the past decade the area’s population has almost doubled to 70,000, according to the Miami Development Authority.
Serving the recent arrivals are important new civic landmarks, such as the American Airlines Arena and Adrienne Arsht Center for the Performing Arts, along with adjoining vibrant cultural quarters such as the Design and Wynwood Arts districts. Numerous restaurants and five-star hotels offering upscale nightlife, such as the Four Seasons, JW Marriott and the Epic Miami, have also boosted downtown’s status as a leisure destination in its own right.
“Downtown has evolved and finally grown up,” says Alicia Cervera Lamadrid, managing partner of Cervera Real Estate, which has operated in the Miami area for four decades. “Spearheaded by the annual Art Basel Miami fair, Miami now rivals other world-class cities as a true cultural destination.”
Lifestyle amenities may help attract downtown buyers but the neighbourhood’s main lure is price. Today, new-build/full-service condos hover at roughly $380 per sq ft – some 30 to 50 per cent less than before the 2008 economic crash, and less than half of South Beach’s current prices. Overall, house prices in greater Miami are down 51 per cent from their December 2006 peak, according to the Standard & Poor’s/Case-Shiller index. While the downtown figures reflect a 25 per cent rebound from 2009’s market bottom, they should remain stable for the next few years, says Peter Zalewski, Condo Vulture principal.
Projects such as the 96-unit 23 Biscayne Bay, set to open next June, are deliberately pricing themselves at less than $250 per sq ft to ensure “the deepest pool of buyers”, says Zalewski. A 724-sq ft one-bedroom condo at 23 Biscayne Bay, for example, is priced at $160,000 or $220 per sq ft.
At the opposite extreme, much larger – and more deluxe – developments, such as Paramount Bay, are devising new strategies to secure far higher returns. Built on a 2.7-acre (1.1ha) plot fronting Biscayne Bay, the 46-floor, 346-unit tower has faced bankruptcy, foreclosure and even the death of two workers during its five years of construction. This June, Paramount Bay was fully acquired by iStar Financial, one of its main lenders, which has brought in musician Lenny Kravitz’s New York-based design firm, Kravitz Design, to overhaul the project.
While the choice of Kravitz is certainly unexpected, the musician comes to Paramount Bay after completing hospitality and residential projects at Miami’s Setai and Delano hotels. Anthony Burns, vice-president of iStar, concedes the choice of Kravitz was risky. “But you can’t accomplish great things without taking risk,” he says. “Kravitz’s team nailed the concept and what we are looking to achieve.”
Kravitz, who has been designing for more than a decade, says: “Downtown allows you to be in Miami, while still being able to walk to great restaurants and art galleries, which I appreciate as a New Yorker. Paramount Bay has a similar sort of urban quality; out front you’re facing the water, but from the back the city sprawls for miles. It’s a great juxtaposition.”
Kravitz’s input has already had an impact. Since hitting the market this spring, Paramount Bay apartments have sold for an average of $482 per sq ft, says Condo Vultures, more than $100 above the downtown average. Nonetheless, many Paramount Bay condos are far less costly, such as a 1,214 sq ft, one-bedroom unit for $400,000 (about $330 per sq ft). Similar prices can be found at other higher-end downtown developments, such as 900 Biscayne Bay, Marina Blue and 10 Museum Park.
About half of downtown buyers are foreigners, mostly Latin Americans. Cervera says Brazilians are among the strongest buyers, thanks to the real’s 45 per cent gain against the dollar since 2008, along with Venezuelans, Mexicans, Canadians and Egyptians.
Mexico City-based Sara Montiel and her husband bought a three-bedroom apartment near Biscayne Blvd this summer through Cervera Real Estate for roughly $900,000. “While we love the beach, we’re primarily city people and like that everything is so close,” says Montiel, an estate agent who plans to visit Miami every other month. “The prices actually felt ‘real’ and reasonable,” Montiel adds, “so my husband said it was finally time to buy.”
House and Home
The “High Speed” rail plan pitched by President Obama a couple of years ago was given $100 million of “life support funding”by a Democrat-controlled Senate subcomittee last week. The funding came a day after the Senate’s transportation subcommittee omitted any funding for the “High Speed” rail plan altogether.
What is newsworthy here is the fact that the plan, which would bring a line through Raleigh requiring elevated segments and closure of some streets in downtown, is a lot further off than we thought. Just a year ago we were debating the merits of NC5, NC1, and the like. Now, however, these concepts, like so many, seem decades away, not years..
Raleigh planners have been busy deciding how to adapt development planning for the ensuing variants of high-occupancy rail transit, however it is clear that these operations cannot survive without massive amounts of federal funding; money that isn’t there and isn’t going to be there for a long, long time. Cyclists like Paul Farrell and John C. Dvorak have actually called for the Great Depression 2 hitting in 2012, rendering the winner of next year’s presidential election irrelevant. While it seems that an Obama re-election gives “high speed” rail a better chance at seeing the light of day any time in the moderate future, the stark reality is that Washington isn’t going to have money for new projects like this for a while. Infrastructure maintenance will trump new projects for a while even after the economy eventually turns around.
What this means to us as a region is that we probably need to do what we can as a region within fiscal means to mimic the actions of rail. Because a light rail system would rely on heavy federal funding, in the moderate future out focus should be on better integration of the Triangle’s bus services. A merger between Chapel Hill, Durham, Raleigh, Cary, and Triangle transit groups will not happen, for political reasons, however we can still meld these five systems to seemingly create a cohesive network that provides short, medium, and long distance travel in the region. For sure, these groups must come together and provide good shuttle networks to large sporting and music events in the region.
In lieu of “high speed” rail, we can still work on presenting a marketing effort focusing on the advantages of train over plane for short-distance trips. Free internet connectivity on board would be a start. Perhaps a more elite line of regional bus services that more closely resemble charter services than a bus-of-the damned could do well.
Great bus services sure isn’t as sexy as the dream of multilevel trains through downtown Raleigh. However the role of our government here is to provide reasonable means to move people, and we have those means.
Purchases of new houses in the U.S. declined in August to a six-month low as the biggest drop in prices in two years failed to lure buyers away from even less expensive distressed properties.
Sales, tabulated when contracts are signed, dropped 2.3 percent to a 295,000 annual pace, figures from the Commerce Department showed today in Washington. The median estimate of 73 economists in a Bloomberg News survey called for a decline to 293,000. The median price slumped 7.7 percent from August 2010, the steepest 12-month drop since July 2009.
Foreclosure-driven price decreases for previously owned homes may keep attracting investors away from new properties, hurting builders like Lennar Corp. Limited access to credit, rising unemployment and waning consumer confidence also signal the industry that helped precipitate the recession will take time to find its footing.
“Sales are very weak, and there will be very little improvement over the next couple of months,” said Celia Chen, a housing economist at Moody’s Analytics Inc. in West Chester, Pennsylvania. “We expect a step up in distressed home sales, which will put more downward pressure on prices. It’ll be a very slow return to normal.”
Stocks fell, as an analyst report saying Apple Inc. will cut orders for iPad parts pushed down shares in technology companies. The Standard & Poor’s 500 Index dropped 0.3 percent to 1,132.69 at 10:19 a.m. in New York. The S&P Supercomposite Homebuilder Index decreased 1.1 percent to 177.58.
Survey Results
Economists’ estimates ranged from 275,000 to 320,000. The government revised July demand up to 302,000 from a previously reported 298,000.
The median sales price decreased to $209,100 in August from $226,600 in the same month last year, today’s report showed.
Purchases fell in three of four U.S. regions last month, led by a 14 percent drop in the Northeast. The Midwest registered the only gain, advancing 8.2 percent.
The supply of homes at the current sales rate rose to 6.6 month’s worth, from 6.5 months in the prior month. There were 162,000 new houses on the market at the end of August, the fewest in data going back to 1963.
Distressed Properties
Sales of previously owned homes climbed 7.7 percent in August to a five-month high 5.03 million annual rate, figures from the National Association of Realtors showed Sept. 21. The median price fell 5.1 percent from August 2010. Cash deals accounted for 29 percent of the transactions, while distressed properties, including foreclosures and short sales, made up 31 percent.
New home sales, which are tabulated when contracts are signed, have lost their ability to forecast the broader market as demand shifts to previously owned houses. Purchases of existing houses are calculated when a deal closes about a month or two later. Resales accounted for about 90 percent of the housing market last year.
Miami-based Lennar, the third-largest U.S. homebuilder by revenue, reported a 31 percent drop in profit in the quarter ended Aug. 31 as sales fell. The market remains “challenging,”with “already skittish customers” driven away by burdensome mortgage-qualification rules, Chief Executive Officer Stuart Miller said on a conference call on Sept. 19.
Existing homes and foreclosures are Lennar’s “biggest competitors in today’s market,” Miller said. At the same time, there is “evidence that the consumer is beginning to return in earnest” as home prices have fallen to attractive levels and mortgage rates on 30-year loans are at record lows, he said.
Fed Action
Federal Reserve policy makers last week announced more steps to spur growth and revive the residential real estate industry, which since 1982 has aided every economic recovery except the current one that began in June 2009.
Housing starts dropped in August to the slowest annual rate in three months, the Commerce Department reported last week. The National Association of Home Builders/Wells Fargo sentiment index fell in September to a three-month low, other data showed.
“There are significant downside risks to the economic outlook, including strains in global financial markets,” the Fed said in a statement on Sept. 21 after its two-day meeting. “The housing sector remains depressed,” and there is “continuing weakness in overall labor market conditions.”
In a move aimed at lowering borrowing costs, the Fed said it will buy $400 billion of bonds with maturities of six to 30 years through June, while selling an equal amount of debt maturing in three years or less. The central bank will also reinvest maturing mortgage debt into mortgage-backed securities instead of Treasuries in an attempt to spur housing and refinancing.
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