October 31, 2007

Fed Lowers Rates Today

Today the Fed cut rates a 1/4 of a point to 4.5%. This is going to provide immediate impact to HELO loans and credit cards. ARM's, resetting now are expected to increase monthly payments by as much as $10,000 a year per household. I expect these people to get some immediate relief, since banks want to own loans not property.

The Fed cut rates by a half point only six weeks ago on Sept. 18. The rate reduction was designed "to forestall some of the adverse effects on the broader economy that might otherwise arise from the disruptions in financial markets."
This rate cut may help consumers and variable owners stay in their homes (we hope), but the larger economy needs more time for the good news to trickle down because rate cuts take 6-9 months to work their way through the economy.

Michael Corkery's article in the Wall Street Journal today quotes an economist at Goldman Sachs. The latest decline in the homeownership rates indicates that this year, as many as 900,000 households moved from owning homes to renting them, says Jan Hatzius, an economist at Goldman Sachs. "It's a very big deal," Mr. Hatzius says. "It implies a very low level of housing demand over the next several years."

Good News
Property managers will do well since people relocating or owning more than one home will have trouble selling.

Multi family housing (rentals) should do well. All those people who would like to buy will now rent and wait out the market hoping to "catch the bottom".

Thanks for reading
Howard Bell
Your Property Path

October 28, 2007

Housing Markets: Where Are We Now

Fed Watch:
Much of what happens rests on the cost of money. Lower interest rates grease everything from home sales to commercial loans which the the economy at large. The Fed meets Oct. 30 to Oct. 31 and the lingering issues of the credit markets probably will give us another rate cut. Home Equity Loans and credit card purchases are very quick to respond but typically Fed rate cuts take six to nine months to completely filter through the economy.
Arms, are expected to reset and I read that they will add another $10,000 of annual mortgage payments to households. Without a rate reduction we will see even more supply, lower prices and more foreclosures. The more these things happen, the more people wait before buying as they try to catch the bottom. It just reinforces the existing trend. If anything should convince the Fed its time to lower rates (they are about where they where last year) this should do it.

I wanted to pass on to you the projections of the Mortgage Bankers Association; following is an edited list from the article

Housing Starts; We expect housing starts and home sales to reach bottom in the second and the third quarter of next year, respectively.
Existing home sales for 2007; will decline by about 12 percent from 2006 to 5.72 million units. Sales will decline further by about ten percent in 2008 before picking up by five percent in 2009.
New home sales; will decline by 22 percent from 2006 to 819,000 units. We expect an additional decline of ten percent in 2008. For all of 2009, we expect new home sales to rise by about six percent.
Home prices; for new and existing homes are expected to decline this year, with median prices falling about two percent. Prices should decline at a similar rate in 2008 before flattening out in 2009.
Residential mortgage originations; will decline about 15 percent in 2007 to $1.18 trillion from $1.40 trillion in 2006. Given projected declines in sales and prices for all of 2008, purchase origination should fall by 15 percent to 1.00 trillion in 2008. We expect purchase originations to rise about five percent in 2009, as home sales and home prices pick up.
Refinance originations; will also decline about 15 percent to $1.13 trillion in 2007 from $1.33 trillion in 2006. A significant amount of loans have faced or will face their resets this year and next year.
Total mortgage production will be down about nearly 15 percent to $2.31 trillion this year from $2.73 trillion in 2006. Total originations should decline another 18 percent next year as both purchase and refi originations drop.

Thanks for Reading

Your Property Path

October 24, 2007

Markets are Telling us Something

Stocks continued to decline today. The last big surprise was Citigroup reporting a loss of 57% of its income for the quarter. Today Merril Lynch reported a much larger than expected loss Merril Lynch increased the amount of its write-down by $2.9 billion for a total of $7.9 billion. Merrill said it lost $2.24 billion, or $2.82 a share, compared with a profit of $3.05 billion, or $3.17 a share, in the period a year earlier. Earnings from continuing operations were $2.85 a share. Revenue fell 94 percent, to $577 million from $9.83 billion a year earlier.

These losses are much greater than any of the experts were expecting and all is due to the subprime mess and the financial engineering of very complex products that exaggerated the move .

Whats it Mean for Us

Of course, if the lenders dont know how deep this is, no one else does .My guess is that the Fed will have to lower interest rates....

Freddie Mac reports that:

15-year Fixed Rate Mortgage: this week averaged 6.08 percent with an average 0.6 point, up from last week when it averaged 6.06 percent. A year ago, the 15-year FRM averaged 6.06 percent.

30-year Fixed-rate Mortgage:averaged 6.40 percent with an average 0.5 point for the week ending October 18, 2007, unchanged from last week when it averaged 6.40 percent. Last year at this time, the 30-year FRM averaged 6.36 percent.

Im surprised that rates havent really dropped at all from last year. The Fed better get on it or we face a looming recession is my guess... Sorry for the gloom

Thanks for Reading

Howard Bell

Your Property Path

October 20, 2007

Real Estate: What the Markets are Telling Us

Yesterday the markets took a real tanker, dropping over 366 points on more bank losses. Wachovia reported a 10% drop in income and a 1.3 billion dollar loss, much better than the Citigroup loss of almost 57%.

Given the bank reported losses of recent days this wasnt as bad as it could be. What caused this real drop was that Caterpillar reported a decline in income...causing fears that the real estate recession was spreading. A small panic set in and sellers stepped up.

Looking closer: Caterpillar posted a 21 percent gain in quarterly profit but fell short of analysts’ estimates. The company cut its full-year profit forecast, sending its stock down 5.3 percent, to $73.57. Net income at Honeywell, the manufacturer based in New Jersey, climbed 14 percent, and the company raised its yearly sales expectations. But the stock still fell nearly 4 percent, to $58.32.

Can we draw any conclusions for the real estate industry

1. People are really nervous

2. Seems some of this is a small panic, but Monday will tell us more.

Are we Dead in the Water

According to Freddie MAc's Richard Syron: Some parts of the housing market are literally frozen up. It has introduced an enormous amount of fear into large parts of the household sector about what's going to happen to them when they get to reset [their mortgage rates] . . . I think this is a substantial depressive to the overall economy . . . I would put the possibility [of a US recession] in the 40 to 45 per cent range.


1. The volume of applications filed to refinance an existing loan was down 1.1% on a week-to-weak basis.

2. Applications for loans to purchase homes rose a seasonally adjusted 2.1%.

The trick is to find those sectors in your area that are doing well.

1. Depressed prices draw long term investors

2. Foreclosures draw bargain hunters

3. Multi Family is doing well because rentals become in short supply lifting cash flow

4. Vacation homes are doing well

5. Certain retirement communities may not be tied to the economic cycle

Thanks for Reading

Howard bell

Your Property Path

October 18, 2007

The Markets are Telling Us Something

The big banks have reported earnings and what is clear to me are two things:

1. They lost a bundle: Bank of America corporation chalked up big charges due to credit-related turmoil. They lost something like 33% this quarter, suggesting that the problems in the credit market may yet be closer to the beginning than to the end. Citigroup saw its profit drop 57% in the third quarter.
2. Even they were not aware of how bad this would become. I remember Citigroup saying that they were very surprised that there losses were so high. Th is is the largest bank in the world and 57% of its quarterly income is a huge amount of money.
3. If the lenders arent sure how bad there loans are, then no one has a handle on the extent of this problem.

The Secty of the Treasury summed up the recent mess this way according to an article via Mortgage Daily News;
  • Housing starts are off more than 40 percent from the peak of 2.3 million units in early 2006;
  • employment in residential building, including specialty trade contractors, has dropped by almost 200,000 since early 2006, offsetting about one-quarter of the jobs gained in the housing boom, and mortgage defaults and foreclosures are rising.
  • At the end of the second quarter of this year, more than 900,000 subprime loans were at least 30 days delinquent.
  • Foreclosures have increased about 50 percent from 2000 to 2006 and those involving subprime loans are up over 200 percent in that same period.
  • Current trends suggest there will be just over 1 million foreclosure starts this year - of which 620,000 will be subprime.
"The housing decline is still unfolding," the Secretary said, "and I view it as the most significant current risk to our economy.

Thanks for Reading
Your Property Path

October 17, 2007

Poor Credit: Builders Will Help You Buy

Yes, its true. New home builders are having a tough time moving supply and so one answer aside from chopping price is to increase the pool of available buyers. How do you do that, you ask? Well one way is to take motivated buyers who have poor credit and help them with credit repair programs. The Wall Street Journal has an interesting article about a program that more than one new home builder is trying out.

Both Hovanian and DR Horton are large home builders with an uncomfortable amount of supply. They have devised similar programs that puts "credit challenged home buyers" through intensive coaching that includes assistance with debt reduction and responsible spending, according to the company's Web site."

"The program is now available in 19 states for products including single-family homes, town homes and active-adult communities. Applicants are screened carefully, says Hovnanian, and about half of those referred sign up. The company pays Debt Resource USA, Fort Lauderdale, Fla., $150 upfront and $200 when a student graduates and closes on a house. In a third of communities, aspiring buyers sign contracts before joining the credit program. Those who don't complete the program can't buy a house."

There is another good article on How to erase bad credit that points out that many credit repair company's are scams. We dont think large companies such as DR Horten would be involved in such schemes, but it is wise to check with the FTC Bureau of Consumer Protection, if you are looking into companies on your own.

This is certainly a win win situation. I dont think it will move the kind of supply that these builders are seeing, but its a positive market approach to self help that we can all applaud.

Thanks for reading
Howard Bell
Your Property Path

October 13, 2007

Foreclosures: Fed to the Rescue

Hope Now Coalition:

The White house forms a new mortgage coalition to help people who are facing foreclosure. The ARM's resetting now and in the future can increase monthly payments by many hundreds of dollars, forcing more supply onto the market and driving prices down even further. The expectation is to help some two million households facing loss. The idea is to offer lower rates to individuals ho qualify and allow them to stay in their homes.

Affordable Housing Bill Passes the House

Now the House has just passed a bill, which Bush says he will veto if it gets to his desk. This is a much larger effort than Project Hope. The idea here is to create more affordable housing so that the boom that created such high prices cannot easily happen again. The House bill would create a federal trust fund to finance construction and rehabilitation of affordable housing. It would provide between $800 million to $1 billion a year with the goal of creating 1.5 million affordable housing units over the next decade by funding grants to a variety of housing providers.
The housing debacle has proven to many that housing has gotten beyond the reach of all but a few. I would like to see this bill pass so that homes remain within reach and job creation in America. Its how our money should be returned to us.

Howard Bell
Your Property Path

October 11, 2007

Time to Buy?

There was a good article on the Wall street Journal site that made an interesting point. A question was posed to author June Fletcher that has to do with days on the market. Is a home that has been on the market too long an bad buy?

June goes on to make a few interesting points:
1. Many people are waiting to catch the bottom and are not buying quickly. The property itself may be quality and even well priced in qa slow market and still sit. Dont assume all properties with many days on the market are poor candidates
2. She uses the phrase "shopworn Listings" and makes the good connect that these sellers are now tired and perhaps worried. It can be a very good time to negotiate price or improvements. If you are well heeled it can be a good time to leverage the bad times to your favor.
3. Days on market can be misleading....and this is a VERY good point - many listing services will reset the number back to zero when re-listing a property. You should call your local listing MLS or NLS and ask for their policy.

There is also a good article on Your Property Path on three indexes for home prices that all interested should follow for price fluctuations in your area. One new one is tarcking 25 metro areas daily.

Thanks for Reading
Howard Bell
Your Property Path

October 3, 2007

Stock Markets Telling Us The Worst is Over

Good article from CBSmarketwatch

The stock markets pay attention to interest rates and mortgage backed securities. The health of these markets is directly related to mortgage rates and availability of money for new homes sales.

The market hit a record high....thats right a high as it broke through 14000 before sliding back a little. One can never tell for sure but it seems that the mortgage crises is now behind us. Liquididty is back

1. Libor was 5.7% in early September and now trades at 5.24%.

2. The credit market is now functioning in a way that is conducive toward economic expansion, certainly much better than was the case in early August," said Tony Crescenzi, fixed-income strategist at Miller Tabak.

3. Fed Chairman Alan Greenspan kept up the upbeat tone: "Is this August-September credit crisis about to be over? Possibly," the Times of London quoted him as saying.

4. The Fed did lower rates a half a point recently

5. Kim Rupert, managing director of fixed income at Action Economics. "There's still a lot of nervousness, even if there are no reports of the illiquidity that we saw in asset markets back in August."

6. My blog of 09.18.07 - "foreclosures are declining" and other pieces of news point to the early beginnings of a more positive change in the markets

Surely, there is more pain in the pipeline, because the variable mortgages are resetting and higher monthly costs will force more supply and lower prices and then there is the psychology of boom /busts...it takes a while for people to regain some trust and be sure that the worst is oveR...BUT THERE ARE REAL SIGNS OF HOPE

Thanks for Reading

Howard Bell

Your Property Path