NAR and The Commerce Dept Feb Figures

Sales of new single-family houses in February 2010 were at a seasonally adjusted annual rate of
308,000, according to estimates released jointly today by the U.S. Census Bureau and the Department of Housing and Urban Development. This is 13.0 percent below the February 2009 estimates. This represents a supply of 9.2 months.

Home sales are slumping again just as number of properties on the market is rising. So, prices will continue to drop. Low rates and tax incentives havent trumped a weak market. Even winter cant be used as the reason. NAR points to the weather as a reason but sales were actually strongest in the stormy Northeast and Midwest and weakest in the West.

Sales volume has retraced about two-thirds of its upward swing since last spring, said Sal
Guatieri of BMO Capital Markets Economics. Volume is only 7 percent above the level of February 2009, when many buyers expected the recession to develop into a depression.( Via NYTimes)

To date, we are looking at 2004 prices. A normal market has about six months of inventory,
today we are at 9.2 months of inventory and if Moodys forecast of another 3-6 million foreclosures come to market, we will see even lower prices. Nasty business this price
equilibrium process. 

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Maximizing The Rent

Maximizing The Rent Selling your property is harder know and likely to be that way for quite a while longer. If you relocate or just want to move you may find yourself a reluctant landlord. Consider the carrying costs, not just the resale value of your property when you buy.

Look at the price to rent ratio. Your property is a cash flow asset. Do a rent comparison as well as a price comparison when buying and factor in the cost of carrying the mortgage less the rental value of your property.

Are you comfortable carrying the difference? Dont make the assumption that rents will rise soon, it could be years before we see a strong rental market. When evaluating the rent range, be realistic. It can take time to rent and you may have to carry the whole payment until you find a qualified applicant.

Getting The Highest Rent

Location:  Commands the higher rental value, but owners dont realize that its harder to rent a unit located in a beautiful, but more remote location. A beautiful unit just five minutes away from another, but up a hill and needing a car, will take longer to rent and often for less.

Maintain It: Proper upkeep will help maintain good rental cash flow. Sharper, well maintained units will get the better price and rent sooner.

Go Green: Install water and energy saving devices such as low flow toilets or programmable thermostats to lower operating costs and appeal to tenants.

Comps: Compare your units to rentals nearby. Factor in parking, washer/dryers, paint hardwood floors etc. If you price right, you will rent sooner.

Cost of waiting: Waiting to get the higher price may cost you a months rent. That means your unit has drawn 11 months of income rather than 12.

Security: Tenants prefer safety features such as cameras and alarms. 
Offer Services: Contract with dry cleaners and other services to offer discounts. Washer Drywers, Microwaves and laundry facilities appeal to tenants and command a higher rent rate.

Staging: Paint and hardwood floors will pay for themselves as tenants look for bright and easier to clean attractive places to live.

There are two kinds of appreciation in property, there is property appreciation and rental appreciation. Be sure to evaluate both before buying.

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What Does the Stock Market Have to Say About Housing

Real Estate Investment Trusts
REITs are investment vehicles that trade like stocks or bonds.
                   

Looking at the REITs and the various real estate sectors can help us understand the underlying real estate trends we work with.

REITs have spent the past year raising money. All the sectors have been seriously damaged and therein lies the opportunity. REITs that have been able to raise money  are positioned for opportunistic buys. Cash heavy REITs wont have to rely on banks for loans and are waiting for banks have to unload non performing loans.These are going to be the winners here as some banks can no longer hold back on foreclosures. Stock market investors will often try to pre position themsleves, to buy before the rest and hope to reap greater profits. They arent always right and they can certainly be too early.
REIT Sector Performance

1. Regional Shopping Malls: Up 11.9% in February
2. Shopping Centers: Up 8.9%
3. Apartment Sector: Up 8.4%

Given that many of these same sectors dropped 20-25% this time last year, its another sign that investors are beginning to think the worst may be over. According to the recent Price Waterhouse survey: many commercial real estate investors who held investments, overleveraged, or bought late in the cycle now face struggles because 2010 is expected to present many challenges as capital remains limited, rents continue to decline, and vacancies. But even with these snags, the firm says next year will be a great time to buy commercial real estate assets.
The Price Watehouse survey goes on to note that Next year should open the gates on distressed properties as more community and regional banks fail and the Federal Deposit Insurance Corp. sells their assets. Surviving banks will keep their best performing commercial real estate loans alive but foreclose on the rest as their loan-loss cushions allow. Sounds like bottoming to me...
 
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30-Year Fixed-Rate Mortgage Drops Slightly

 

30-year fixed-rate mortgage: Averaged 4.95 percent with an average 0.7 point for the week ending March 11, 2010, down from last week when it averaged 4.97 percent.  Last year at this time, the 30-year FRM averaged 5.03 percent.

The 15-year fixed-rate mortgage: Averaged 4.32 percent with an average 0.7 point, down from last week when it averaged 4.33 percent.  A year ago at this time, the 15-year FRM averaged 4.64 percent. 

Five-year indexed hybrid adjustable-rate mortgages ARMs: Averaged 4.05 percent this week, with an average 0.6 point, down from last week when it averaged 4.11 percent.  A year ago, the 5-year ARM averaged 4.99 percent.  Averaged 4.11 percent this week, with an average 0.6 point, down from last week when it averaged 4.16 percent. A year ago, the 5-year ARM averaged 5.08 percent.

One-year Treasury-indexed ARMs: Averaged 4.22 percent this week with an average 0.6 point, down from last week when it averaged 4.27 percent.  At this time last year, the 1-year ARM averaged 4.80 percent. 

Freddie Sayz

During a light week of mixed economic reports, mortgage rates eased somewhat, said Frank Nothaft, Freddie Mac vice president and chief economist.  Pending existing home sales fell 7.6 percent in January, well below the market consensus of a 1 percent gain.  Meanwhile, the economy lost only 36,000 jobs in February, fewer than market forecasts, and the unemployment rate held steady at 9.7 percent.  In addition, revisions added a net 35,000 workers to January and December combined. Freddie Mac was established by Congress in 1970 to provide liquidity, stability and affordability to the nations residential mortgage markets. Freddie Mac supports communities across the nation by providing mortgage capital to lenders. Over the years, Freddie Mac has made home possible for one in six homebuyers and more than five million renters.

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Mortgage Bankers Weekly UPdate

Mortgage Bankers Association for the week of  3/10/2010

Market Composite Index: (loan application volume) increased 0.5 percent on a seasonally adjusted basis from one week earlier.  On an unadjusted basis, the Index increased 1.2 percent compared with the previous week.

Refinance Index: decreased 1.5 percent the previous week and the seasonally adjusted Purchase Index increased 5.7 percent from one week earlier. 

Purchase Index:  increased 7.2 percent compared with the previous week and was 10.7 percent lower than the same week one year ago.

Refinance Share of Mortgage Activity:  decreased to 67.2 percent of total applications from 69.1 percent the previous week. The refinance share is at its lowest level since it was 66.1 percent in October 2009.

Arm Share: increased to 4.8 percent from 4.7 percent of total applications from the previous week.

MBA outlook: (Excerpted from mbaa.org)
The economy is growing again. 4Q growth of 2009 exceeded expectations due to strong growth in business inventories. However inventory replacement is a short lived spurt, unless consumers buy. Weakness in the job market and a fragile recovery are likely to keep consumers from spending on big ticket items like houses and cars.

Existing home sales fell back in December and new home builders are not upbeat. The Fed remains unlikely to raise rates, however, they are going to end their MBS purchase program. This will certainly cause a rise in interest rates as the marketplace demands higher rates to compensate for risk. 

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Expect Interest Rates To Rise

Follow the Dollar

 

The Federal Reserve yesterday plans to remove its support from the financial marketplace. The Fed purchased $300 billion of Treasury securities and currently anticipates another $1.25 trillion of agency MBS and about $175 billion of agency debt securities at the end of March. In other words, the Fed plans a soft exit and is on schedule to complete the program end of March. The expectation is that investors are now ready to step in and fill the vacuum and the markets will begin a return to normalcy.

You can take the view that this is a nod towards the ability of the economy to lift itself. But the timing of this move has increased nervousness for housing. The Fed will be exiting the mortgage market just time for the spring/summer home buying season. So the question is how much will rates rise to accommodate new investors for the risk of buying mortgages that have lots of uncertainty built in. After all, job loss is still on the decline and shot sales, foreclosures and a lot of pain will have to be reflected in the price for investors to step up. Eveyones understandably nervous.

The Fed's asset purchases kept rates artificially low. They replaced the banks and insurance comppanies as well as sovereign nation funds and others. These private investors are a little spooked. Yes, they will buy, but they will be looking for deals and higher rates to compensate for the risk. This will certainly force mortgage rates higher.

The Mortgage Bankers Association notes: The Fed remains unlikely to raise rates anytime soon. However, they have clearly indicated that they are going to end their MBS purchase program, as well as ending a number of other liquidity facilities begun during the financial crisis. Yields on mortgage securities will need to increase to get private investors back into the market once the Fed stops its purchases.

1. We expect that mortgage rates will rise by about a percentage point by the end of the year, to a little over 6 percent, primarily as a result of the Fed ending their purchases.
2. Mortgage originations will fall to $1.3 trillion in 2010 from an estimated $2.1 trillion in 2009.
3. Purchase originations will be essentially flat at $745 billion, as home prices stabilize, and home sales increase.
4. Refinance originations will fall by more than 60 percent to $529 billion as mortgage rates rise through the year.(Via the MBAA)

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Home Trends Price Stability

Prevailing Head Winds

The MBAA reports that the trend of mortgage failures is slowing and those in the foreclosure process also slowed in the fourth quarter. More and more, we are hearing people call this a bottom.

We are likely seeing the beginning of the end of the unprecedented wave of mortgage delinquencies and foreclosures that started with the subprime defaults in early 2007," said Jay Brinkmann, chief economist of the Mortgage Bankers Association.(Via MBAA.org.) He adds, there are fewer problem loans actually entering delinquency. >>>> link to mbaa report

NARs economist, Lawrence Yun notes: Regardless of whether they read the story of the largest sales decline in 40 years or the fourth highest home sales in two years (whichever the media report), consumers are "smarting up" to the fundamentals in the housing market. They are seeing consistent declines in inventory and prices beginning to stabilize in many parts of the country. Indeed, median home prices (on a national basis) recorded their first 12-month gain in over two years in December. Other price data - such as that from Case-Shiller and the government's Federal Housing Finance Agency have also shown price stability in recent months

FHA monthly reports growth. U.S. house prices rose 0.7 percent on a seasonally adjusted basis from October to November, according to the Federal Housing Finance Agency’s monthly House Price Index. October’s previously reported 0.6 percent increase was revised downward to a 0.4 percent increase. For the 12 months ending in November, U.S. house prices rose 0.5 percent


Price to rent Ratio
Economists use the home price/rent ratio as one way to gauge whether or not home prices are inflated or undervalued. A price/rent ratio is similar to the price/earnings ratio for stocks. If a stock isw priced at $10.00 per share and has $1 of earnings per share, then you are effectively paying $10 for a dollars worth of earnings.

When the price of a stock is high, and its earnings per share relatively low, the P/E is high. At what point one is paying too much for a dollars worth of earnings or rent is what investing is all about. There is a buyer for every seller and when there isnt, you crash.The Moodys data suggests that the balance of buyers and sellers is retuning to something more normal. There is data that shows the ratio down to about 20, which is closer to its long term average of 16.

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Freddie Mac weekly Update

30-Year Fixed-Rate Mortgage Below 5 Percent 

30-year fixed-rate mortgage: Averaged 4.97 percent with an average 0.7 point for the week ending March 4, 2010, down from last week when it averaged 5.05 percent. Last year at this time, the 30-year FRM averaged 5.15 percent.

The 15-year fixed-rate mortgage: veraged 4.33 percent with an average 0.7 point, down from last week when it averaged 4.40 percent. A year ago at this time, the 15-year FRM averaged 4.72 percent.

Five-year indexed hybrid adjustable-rate mortgages ARMs: Averaged 4.11 percent this week, with an average 0.6 point, down from last week when it averaged 4.16 percent. A year ago, the 5-year ARM averaged 5.08 percent.

One-year Treasury-indexed ARMs: Average 0.6 point, up from last week when it averaged 4.15 percent. At this time last year, the 1-year ARM averaged 4.86 percent.

Freddie Sayz

30-year fixed mortgages fell below 5 percent to match levels seen two weeks ago and are helping to maintain affordable home-purchase conditions, said Frank Nothaft, Freddie Mac vice president and chief economist. In fact, monthly principal and interest mortgage payments for a typical family buying a median-priced home of $163,800 were just $709 in January, the lowest amount since February 1998, according to the National Association of Realtors .

For first time homebuyers, the fourth quarter of 2009 was the third most affordable quarter since 1981 behind the first and second quarter of 2009. The federal tax credit for homebuyers, which expires on April 30th, may make housing even more affordable for some families already in the middle of the home buying process. In fact, the Federal Reserve's March 3rd regional economic review noted that several districts attributed stronger home sales to the homebuyer tax credit. 


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Mortgage Bankers Weekly Update : Mortgage Applications Decrease

 Mortgage Bankers Association for the week of 3/3/2010

Market Composite Index: (loan application volume) increased 14.6 percent on a seasonally adjusted basis from one week earlier.

Refinance Index: increased 17.2 percent from the previous week and the seasonally adjusted Purchase Index increased 9.0 percent from one week earlier. The unadjusted Purchase Index increased 11.7 percent compared with the previous week and was 9.8 percent lower than the same week one year ago.

Purchase Index: increased to 69.1 percent of total applications from 68.1 percent the previous week.


Refinance Share of Mortgage Activity: increased to 69.1 percent of total applications from 68.1 percent the previous week.

Arm Share: increased to 4.8 percent from 4.7 percent of total applications from the previous week.

MBA outlook: (Excerpted from mbaa.org)

The economy is growing again. 4Q growth of 2009 exceeded expectations due to strong growth in business inventories. However inventory replacement is a short lived spurt, unless consumers buy. Weakness in the job market and a fragile recovery are likely to keep consumers from spending on big ticket items like houses and cars.

Existing home sales fell back in December and new home builders are not upbeat. The Fed remains unlikely to raise rates, however, they are going to end their MBS purchase program. This will certainly cause a rise in interest rates as the marketplace demands higher rates to compensate for risk.

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