Foreign Money Moving Off Side Lines

A recovery in the U.S. real estate market by the end of the second quarter of 2010, according to survey released by the Association of Foreign Investors in Real Estate (AFIRE.

7th Annual Survey, respondents named Washington, D.C., New York, and San Francisco respectively as the top three cities for their investment dollars. “In this survey, respondents echoed those choices saying they expected the same three cities to lead the recovery. The office sector would recover first, followed by the multifamily and industrial sectors.

Foreign Money Getting Interested

This group of 200 surveyed collectively hold approximately one trillion dollars of real estate, including $371 billion in the U.S. 53 percent surveyed rank the U.S. as the country providing the most stable and secure real estate investments. James A. Fetgatter, chief executive of AFIRE says “Their investment plans for 2009 for the U.S. resemble the flight to quality that is creating the demand for U.S. Treasuries.” Foreign real estate lenders say they plan to increase lending by 58 percent in the U.S.

Amazing since we see so much evaporation of wealth in this country - makes me wonder whats going on elsewhere.
* Chart Source: AFIRE

Howard Bell

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A web site of over 450 articles related to real estate focused primarily on property management.

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Wiki: LEED. The Leadership in Energy and Environmental Design (LEED) Green Building Rating System, developed by the U.S. Green Building Council (USGBC), provides a suite of standards for environmentally sustainable construction. Since its inception in 1998, LEED has grown to encompass more than 14,000 projects in the United States and 30 countries covering 1.062 billion square feet of development area.

Green Matters

Green can increase asset value, increase rent rates and lower vacancy rates. LEED buildings are first being understood as viable investments, in spite of the often increased upfront build out costs. Investors have noticed the better performance of green developments. Since 1994, LEED has grown to more than 14,000 projects in the United States and worldwide.

For example, AFIRE has just released its 17th annual survey and foreign investors holding more than a trillion dollars in US real estate were asked to what extent a building’s “green” attributes influenced their decision to purchase a property. 11 percent said “significantly so,” and 60 percent said “somewhat so.” In almost the exact same percentages, investors said that green attributes were worth a greater rental premium.

Green Cuts Operating Expenses

Building and operating green reduces costs and increases profitability. In fact, it is suggested that the industry is nearing a tipping point where green is the normal prudent choice

Green Increases Value

(Via National Real Estate Investor) A 2008 study by CoStar Group reports that green buildings outperform conventional buildings in terms of occupancy, sale price and rental rates, sometimes by significant margins. Specifically, the CoStar study found that LEED buildings command rent premiums of $11.33 per sq. ft. more than non-LEED buildings and have 4.1% higher occupancy.

Similarly, the study found that rental rates in Energy Star buildings have a $2.40 per sq. ft. premium over comparable non-Energy Star rated buildings, and as well have a 3.6% higher occupancy. In terms of increase in asset value, LEED-rated buildings commanded $171 more per sq. ft.

Other studies suggest higher initial costs can be offset by savings over time due to lower-than-industry-standard operational costs. Studies have suggested that an initial up front investment of 2% extra will yield over ten times the initial investment over the life cycle of the building.

Green Landlording

Green leases are traditional leases that also contain rules on green practices. Anything from energy efficiency, water conservation, recycling, green products, and indoor environmental quality.

Higher costs to convert an existing apartment to a more energy efficient platform are a problem. Everything from more expensive energy star appliances to better insulation and replacing or upgrading old doors and windows to energy efficient double pane gas filled beauties.

The benefits are to be measured. Adding costs to existing homes and apartment buildings are long term investments that are proven to pay off, throwing off higher rent rates and lower vacancies. Buyers are also interested in lower living costs and operating efficiencies. In tough markets anything that gives your property resale appeal is worth considering.

Howard Bell

yourpropertypath.com

A web site of over 450 articles related to real estate focused primarily on property management.

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A Functioning Market Niche

The amount you can borrow depends on age, current interest rates, and the appraised value of your home or FHAs mortgage limits,whichever is less. Generally, the more valuable your home is, the older you are and the lower the interest, the more you can borrow.

1. No payments are necessary as long as the house is your principal residence.
2. No need to repay the loan as long as you or one of the borrowers continues to live in the house
3. You can never owe more than the value of your home at the time you or your heirs sell the home.
4. When you sell your home, you or your estate will repay the cash you received from the reverse mortgage plus interest and fees.
5. The rest is yours.

The Rules Just Changed

More seniors are turning to reverse mortgages to supplement their retirement savings, which have been decimated by market losses. At the same time, more seniors can qualify for a reverse mortgage since Congress recently raised the maximum home value that seniors can borrow against to $625,500 from $417,000. The bill also capped origination fees at 2% on the first $200,000 and 1% on any amount over that. Maximum fees are capped at $6,000 plus insurance and closing costs.

Only One Player Left

Banks were traditional lenders in the reverse mortgage market. No longer. The risk that the property will be worth less than the amount lent when its sold was too great and so they bailed. The FHA is effectively the only game in town, although there is some private equity money available. Fannie Mae has been buying up most of the reverse mortgages to keep this market alive and to provide an avenue of retirement planning for those who have been hit hard and won’t have the time to recover.

Senior Market

Retirement savings have been decimated and the housing markets are still in disarray. So selling is a none option in many cases. Many realize its going to be quite a while before they can down size or move to a retirement community. The best option now is to borrow out the equity and buy some time.

62 Or Over and Flush

You can buy a home using a purchase reverse mortgage.

You can purchase a principal residence without a mortgage payment using a Federally Insured Purchase Reverse Mortgage. For those individuals with cash who want to move closer to family or buy into a senior housing community, its an option. For Realtors, it’s a market.

Here is what the Wall Street Journal had to say about liquidity in this market: In March and April 2009, the number of reverse mortgages backed by the government jumped nearly 20% from the same period last year. In April alone, the government insured 11,660 reverse mortgages, the highest monthly total since the government-backed program began in 1990. By contrast, the number of new home-equity loans, which similarly allow homeowners to tap the equity in their homes, fell around 70% in the first quarter from the prior-year period, according to Inside Mortgage Finance.

Realtors: If you are interested in a senior market of individuals with high net worth, home equity and motivation driven by life cycle changes then look into the HECM Purchase Mortgage.

Here are some credible resource sites:

FHA

HUD
HUD: Housing Counseling Clearinghouse on (800) 569-4287 for the name and telephone number of a HUD-approved counseling agency and a list of FHA-approved lenders within your area.

Howard Bell

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A web site of over 450 articles related to real estate focused primarily on property management.

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How The Banks Lost Their Way

Broken

I have been wondering how an industry could be so stupid as to make such poor loans and accept such unbelievable risk. How so many good minds could not realize the magnitude of the danger.

Then I came across a paper written by a University of Michigan school of business professor, Amiyatosh K. Purnanandam. And he made it all come clear...

The Originate to Distribute (OTD) Model of Lending

This is the business model that became popular and is the reason why so many loans were made that collapsed and with it our economic health.

The lender, a bank or mortgage banker, originates a loan with the full intention of selling it to third party investors. It made sense. It was a way to create loan volume. The institution didnt have to hold the loan for 10, 20 or 30 years and so it became popular method of credit and liquidity and risk-management.

It all seemed good. Lenders could resell their loans and get back cash to lend again and they thought that by reselling packaged or securitzed loans, they were off loading default risk. Seemed reasonable, responsible and good business.

Bad Idea

Here I quote the professor: As the lending practice shifts from the originate-to-hold to originate-to-distribute model, it begins to interfere with the originating banks' ex-ante screening and ex-post monitoring incentives.

Knowing that they were going to make loans they had no intention of owning, they got lax ( kind word). If you know you wont be holding the loan and therefore are not going to feel the consequences of a bad business decision, why care. In other words, they had no skin in the game!

Once this started to fall apart, the secondary mortgage market shut down. The originating lenders could no longer sell their mortgages. Investors started to realize that the lenders had little incentive to screen as if it was their own money and even less incentive to monitor the loans they made.

Securitized mortgages were riddled with inferior loans and no one could tell good from bad. The rating systems were suspect and markets, which are built on trust, just evaporated. Game up.
* Flicker photo thanks to True Scot

Howard Bell

www.yourpropertypath.com

A web site of over 450 articles related to real estate focused primarily on property management.

Your Property PathSF

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The California Foreclosure Prevention Act

First in the nation to impose a foreclosure moratorium

Lenders started foreclosure proceedings on a record number of California homeowners last quarter, 768 foreclosures and an astounding 68,000 preforeclosed properties in total.

John Walsh, DataQuick president said that The small increase in defaults from the first to the second quarter may indicate that we're nearing a plateau. We won't know until the end of the year, but it may be that some lenders are starting to prioritize workouts with homeowners instead of grinding things through the foreclosure process. Of course, they may just be swamped and can't handle processing any more paperwork,"

Either way the newly imposed moratorium on foreclosure in California will give everyone some breathing room. Following is a summary from California Assembly Member Ted Lieu's web site

1. Imposes a 90 day foreclosure moratorium to allow distressed homeowners time to work out loan modifications with their lenders.

2. Allows lenders to avoid the moratorium if they have a comprehensive loan modification program based, in part, on criteria set forth by the Federal Deposit Insurance Corporation. Loans may be modified several ways, including interest rate reductions, extension of the loan term, or principal reduction.

3. Provides oversight and accountability by requiring regular reports to the legislature on loan modifications and foreclosure reductions, and coordination with appropriate state regulators.
* Chart shows number of default notices filed in California during the first three months of 2009.
Thanks to dqnews.com

Howard Bell

www.yourpropertypath.com

A web site of over 450 articles related to real estate focused primarily on property management.

Your Property PathSF

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MORTGAGE RATES BACK DOWN

Low Inflation Figures Push Mortgage Rates Back Down

30-year fixed-rate mortgage: Averaged 5.38 percent with an average 0.7 point for the week ending June 18, 2009, down from last week when it averaged 5.59 percent. Last year at this time, the 30-year FRM averaged 6.42 percent.

The 15-year fixed-rate mortgage this week: Averaged 4.89 percent with an average 0.7 point, down from last week when it averaged 5.06 percent. A year ago at this time, the 15-year FRM averaged 6.02 percent.
Five-year Treasury-indexed hybrid ARMs: Averaged 4.97 percent this week, with an average 0.6 point, down from last week when it averaged 5.17 percent. A year ago, the 5-year ARM averaged 5.89 percent.

One-year Treasury-indexed ARMs: Averaged 4.95 percent this week with an average 0.6 point, down from last week when it averaged 5.04 percent. At this time last year, the 1-year ARM averaged 5.19 percent.

Freddie Sayz
Reports of benign inflation figures reversed the upward trend of mortgage rates this week, said Frank Nothaft, Freddie Mac vice president and chief economist. The producer price index rose only 0.2 percent in May, roughly a third less than the consensus forecast and the consumer price index increased by just 0.1 percent. Moreover, the 12-month drop of 5.0 percent in producer prices was the largest since 1949 and the 1.3 percent yearly decrease in consumer prices the biggest since 1950.

It’s still too early to tell whether the decline in housing market activity has hit bottom yet. The prior three-week run up in rates for 30-year fixed mortgages, which amounted to over 0.75 percentage points, is starting to slow homebuyer demand, at least temporarily. Mortgage applications for home purchases fell for the first time in four weeks, slipping 3.5 percent for the week ending June 12th, according to the Mortgage Bankers Association. In addition, although new construction of one-family homes rose for the third consecutive month in May by 7.5 percent, and the National Association of Home Builders reported that homebuilder assessments of market conditions in June and for the remainder of this year had weakened.

Howard Bell

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A web site of over 450 articles related to real estate focused primarily on property management.

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MORTGAGE RATES AT HIGHEST LEVEL IN SEVEN MONTHS

30-year fixed-rate mortgage: Averaged 5.59 percent with an average 0.7 point for the week ending June 11, 2009, up from last week when it averaged 5.29 percent. Last year at this time, the 30-year FRM averaged 6.32 percent. The last time the 30-year FRM was higher was the week ending November 26, 2008, when it averaged 5.97 percent.

15-year fixed-rate mortgage: Averaged 5.06 percent with an average 0.7 point, up from last week when it averaged 4.79 percent. A year ago at this time, the 15-year FRM averaged 5.93 percent. The last time the 15-year FRM was higher was the week ending December 11, 2008, when it averaged 5.20 percent.

Five-year Treasury adjustable-rate mortgages ARMs: Averaged 5.17 percent this week, with an average 0.6 point, up from last week when it averaged 4.85 percent. A year ago, the 5-year ARM averaged 5.70 percent. The last time the 5-year ARM was higher was the week ending February 12, 2009, when it averaged 5.23 percent.

One-year ARMs: Averaged 5.04 percent this week with an average 0.7 point, up from last week when it averaged 4.81 percent. At this time last year, the 1-year ARM averaged 5.09 percent. The last time the 1-year ARM was higher was the week ending December 11, 2008, when it averaged 5.09 percent.

Freddie Says:

Mortgage rates followed the increase in bond yields this week as the May employment report showed that the economy lost fewer jobs than the market consensus had expected, said Frank Nothaft, Freddie Mac vice president and chief economist. Revisions to the jobs report for earlier months also showed the job loss was not as large as early estimates had indicated: March and April figures were revised to add an additional 82,000 jobs to the work force.

As a result, federal unds futures rose after the report, signaling that the market expects the Federal Reserve may raise its benchmark rate sooner rather than later. Higher mortgage rates are slowing refinancing activity but not demand for home purchases. Over the three-weeks ending June 5th, interest rates for 30-year fixed-rate mortgages rose nearly one-half of a percentage point. As a result, conventional mortgage applications for refinance fell each week during this period while applications for home purchases consecutively rose, according to the Mortgage Bankers Association.

Howard Bell
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A web site of over 450 articles related to real estate focused primarily on property management.

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Trade talk for the San Francisco real estate industry. Your source for property management tips, policies and market trends.

REITS: Alternatives To Buying Real Estate

There are a lot of us that would like to participate in the housing recovery, but wont or cant invest large dollars in a home....prices are still declining and if you are wrong you wont be able to get out. Thereby becoming a late stage victim of the housing collapse and feeling especially stupid for having done it. There are alternatives to real estate investments that wont take everything you got and they are liquid.

REITS

The traditional method is to use REITS. You might think of these as mutual funds that use real estate investments rather than company stock or bonds as the underlying tradable asset. There are REITS that specialize in apartments or storage or shopping malls, you can pick the sector you think will do best. If you are wrong you can sell. Its a stock market investment, they are as liquid as stocks.

RPX Index

Another method of virtual real estate investment is the RPX index, compiled by radarlogic. A real estate data and analytics company, they created a daily price index of property using the MSA as a basket. What makes Radar Logic interesting is that you can drill down to a single MSA, almost a micro market. REITS are using broad asset classes such as Mortgage REITS or Public Storage, Apartment or even state REITS. But MSA's, now thats quite a narrow slice. If you know your area and have deep convictions, you can make a bet on the direction of price.

The RPX March Index Report:

The report indicates the 25-MSA Composite has stabilized since January 2009, after being in a freefall for much of 2008. The Composite declined only 0.3 percent on a month-over-month basis in both February and March 2009, which compares favorably to the 1.2 percent and 0.9 percent declines in February and March 2008, respectively. The average monthly decline in 2008 was 2 percent. They have a nice chart breakout of the 20 MSA markets. Its a cool way to track real estate by sector and stay on top.

According to RPX, Prices improved on a month-over-month basis in 11 of the 25 MSAs tracked by Radar Logic. In six more MSAs, home prices declined less from February to March than they did from January to February. Buyers returned to California’s housing market en masse in February, attracted by 2001 and 2002 price levels and a fresh supply of foreclosed homes.

What is intriguing about the approach is that you can drill down to your own micro market, what you know best. If your wrong you can sell, quickly. This should improve risk levels and allow people to participate who might not yet be ready to buy in the physical world.

Chart Source: Atlantis Investment Company

Howard Bell

www.yourpropertypath.com

A web site of over 450 articles related to real estate focused primarily on property management.

Your Property PathSF

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24.4 Billion in Home Price Reductions to Date

Truilia reports that one in four homes listed have reduced listing price. 7% of homes currently on the market across the United States have experienced at least one price cut. In 15 major cities, including New York City, Chicago, Los Angeles, Boston and Atlanta, the average price reduction for homes ranged from $20,000 to $295,000.

Trulia does a breakout of homes that have reduced price to see which tiers are holding up best. In San Francisco, for example, million dollar homes that had price reductions were reduced, on average, by 13%. Homes listed for less than a million that had price reductions averaged 8%.

24.4 billion in home price reductions to date. and still, according to Trulias VP, Heather Fernandez, its not yet priced to sell. The thesis that expensive homes will always hold their value because the wealthy are less affected by economic cycles is just not true. At least not this economic cycle...it has severely wacked the wealthy and they are shopping just as hard for price as everyone else. This recession has been the great equalizer...

Howard Bell

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A web site of over 450 articles related to real estate focused primarily on property management.

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MORTGAGE RATES CLIMB: RECENT RISE IN BOND YIELDS

30-Year At Highest Rate Since Week Ending December 08

30-year fixed-rate mortgage: Averaged 5.29 percent with an average 0.7 point for the week ending June 4, 2009, up from last week when it averaged 4.91 percent. Last year at this time, the 30-year FRM averaged 6.09 percent.

15-year fixed-rate mortgage: Averaged 4.79 percent with an average 0.7 point, up from last week when it averaged 4.53 percent. A year ago at this time, the 15-year FRM averaged 5.65 percent.
Five-year Treasury adjustable-rate mortgages ARMs: Averaged 4.79 percent this week, with an average 0.6 point, down from last week when it averaged 4.82 percent. A year ago, the 5-year ARM averaged 5.61 percent.

One-year ARMs: Averaged 4.81 percent this week with an average 0.6 point, up from last week when it averaged 4.69 percent. At this time last year, the 1-year ARM averaged 5.06 percent

Freddie Says:

30-year fixed-rate mortgage rates caught up to the recent rise in long-term bond yields this week to reach a 25-week high said Frank Nothaft, Freddie Mac vice president and chief economist. And the slowdown in the housing market has now detracted from economic growth for the past 13 quarters, the longest quarterly stretch since at least 1947, according to the Bureau of Economic Analysis. In the first quarter of 2009 alone, residential fixed investment shaved 1.4 percentage points off of real GDP growth, the most since third quarter of 2006.

Yet, there are signs that the housing market may be moderating.Housing affordability rose in April to the second highest reading since January 1971 when records began, according the National Association of Realtors® (NAR). As a result, pending existing home sales rose for the third consecutive month by 6.7 percent in April and represented the largest monthly increase since October 2001. Three of the four regions experienced increases, led by a 33 percent jump in the Northeast, the NAR reported

Howard Bell

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A web site of over 450 articles related to real estate focused primarily on property management.

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NAR Report: Existing Home Sales Surge 6.7 Percent

Bottom Fishers Snap Up Foreclosures

Boosted by bottom fishers snapping up foreclosures and by incentives for first-time buyers, the number of U.S. homebuyers who purchased an existing home in April surged 6.7 percent! Thats the largest monthly increase in more than seven years. The big boost probably reflects the $8,000 tax credit for first-time homebuyers coupled with low interest rates and even lower home prices. Clearly, we are now in a bottoming process and the stock market seems to confirm.

But prices continue to decline. Sales foreclosures and other distressed have even seen bidding wars in places like Vegas, Phoenix and Miami. But the market for high-end properties is DOA.

Job loss has caused good mortgage defaults to overtake the sub prime numbers. Whats going on is enourmous oin size. Obama is doing a complete rehaul of the auto industry. This amounts to remaking our industrial base, all in a matter of months. The same is happening to our financial services industry. The dislocations taking place will continue to cause job loss and that will drive foreclosures. NAR reports that the national median sales price in April plunged more than 15 percent year over year , making it the second largest price drop on record.

All in all its good news. But the underlying fundamentals cannot be ignored. These results are generally unspectacular and homes, apartments and commercial are still deteriorating. Real estate still shows large y/y declines in property values and commercial loan delinquencies are increasing every quarter.

As property values fall its a race between a supply surge and newbie demand.The bottom may be in sight in some places, but nationally home values are in decline. If you look at the broad middle market, price adjustment has a long way to go because of this whole inventory thing. Until we see some real price stabilization the supply side is winning.

Howard Bell

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A web site of over 450 articles related to real estate focused primarily on property management.

Your Property PathSF

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