Posts Tagged ‘Arizona’

Foreclosures Appear to Be Stabilizing

Monday, August 29th, 2011

Foreclosure filings fell a dramatic 35 percent in July to the lowest level in nearly four years as lenders and state and federal agencies ramped up their efforts to keep delinquent borrowers in their homes, according to RealtyTrac Inc.  A total of 212,764 properties received default, auction or repossession notices, the lowest number in 44 months.  Filings declined on a year- over-year basis for the 10th consecutive month, and were down four percent when compared with June.  One in every 611 households across the country received a notice.  “The downward trend in foreclosure activity has now taken on a life of its own,” RealtyTrac Chief Executive Officer James J. Saccacio said.  “Unfortunately, the fall-off in foreclosures is not based on a robust recovery in the housing market but on short-term interventions and delays that will extend the current housing market woes into 2012 and beyond.  It appears that processing delays, combined with the smorgasbord of national and state-level foreclosure prevention efforts, may be allowing more distressed homeowners to stave off foreclosure.” 

Nevada leads the nation with the highest foreclosure rate of any state, one filing for every 115 homes.  California, with one foreclosure for every 239 homes came in second, while Arizona, with one in every 273 homes, was third.  Las Vegas continued to record the nation’s highest foreclosure rate, with one in every 99 homes getting a foreclosure filing in July. 

Foreclosure auctions, the final step in the agonizing foreclosure process were also scheduled on five percent fewer properties in July.  The month’s auction total hit a three-year low and was nearly half (46 percent) below the March, 2010, peak.  An estimated four million vacant homes not yet accounted for by lenders constitute an immense inventory of residential properties, approximately 2.2-million of which are in default and have not yet been formally foreclosed known as the “shadow inventory” weigh down the marketplace. 

The Obama administration is proactively seeking ways to dispose of foreclosed homes that are under government control.  The goal is to “bring stability and liquidity” to the housing market, Edward J. DeMarco, acting director of the Federal Housing Finance Agency (FHFA), said.  The FHFA regulates Fannie Mae and Freddie Mac, which guarantee approximately 90 percent of American mortgages.  President Obama has proposed a program to encourage the rental of foreclosed homes owned by the Federal Housing Administration, Fannie Mae, and Freddie Mac.  Banks could adopt similar programs and offer homes at steep discounts to get residential real estate off their books.  Financial institutions typically get lucrative write-offs from these and so might prefer to rent some properties.  Other federal attempts to prop up the housing market have not been successful to date.  The Making Home Affordable Program operation was launched in March of 2009 with the main component the Home Affordable Modification Program.  This was created to cut mortgage payments for families who couldn’t afford them, but wanted to keep their houses.  A Congressional Oversight Panel report said the programs had failed and fell far short of its goal to modify mortgages for three million to four million homes.  The new Obama plan to rent foreclosed homes has the potential to positively impact home prices.

Writing on MSNBC, John W. Schoen says that “A sharp slowdown in the pace of home foreclosures may help ease the financial burden on bankers by helping them unload a glut of repossessed homes more slowly and delay booking losses from the sale of distressed properties.  But it will do little to help millions of Americans families at risk of being tossed from their homes in the next few years.  The slowdown follows a wave of legal challenges by homeowners that has all but shut down the machinery of bank repossession in some states.  Some homeowners are disputing the widespread practice of ‘robo-signing’, in which lenders process batches of foreclosure fillings with little or no formal review.  Other homeowners have successfully halted repossessions by questioning shoddy paperwork or broken paper trails that don’t establish clear title to a property.  The slowdown has left millions of American households in legal limbo, prolonged the housing market’s four-year recession and delayed hopes for a broader economic recovery.” 

“The process has more or less ground to a halt in a lot of states that do foreclosures through the court system,” said Rick Sharga, a senior vice president at RealtyTrac.

North Dakota’s Booming Economy Grew 7.1 percent in 2010

Wednesday, July 13th, 2011

Guess which state’s economy grew at a significantly faster pace than the nation’s measly 2.9 percent?  According to a report from the Department of Commerce, it’s North Dakota, whose economy expanded a robust 7.1 percent in 2010.The key driver behind both North Dakota’s success is drilling for oil.  Historically, North Dakota’s mining sector — which includes oil — was quite small compared to its overall economy.  That has undergone change in recent years due to new technology that makes it possible to tap billions of barrels of oil in a remote area of North Dakota known as Bakken. American oil demand was relatively flat last year — but that made no difference in North Dakota.  Mining surged 59 percent, primarily because businesses were working to build the infrastructure to support this young industry in the Bakken region.  “North Dakota has a lot of untapped shale oil, and developing that field may have attracted a lot of investment and a lot of employment into the state,” said Luke Popovich, a spokesman for the National Mining Association.

By 2015, the new fields could yield as much as two million barrels of oil a day — more than the entire Gulf of Mexico produces now.  This new drilling is expected to raise American production by a minimum of 20 percent over the next five years.  Within 10 years, it could reduce oil imports by more than half.  “That’s a significant contribution to energy security,” said Ed Morse, head of commodities research at Credit Suisse.

Among the other states, one of the prevailing themes impacting growth is the ongoing housing slump – which was most evident in Nevada and Arizona.  Several states — including Indiana, Massachusetts and Oregon — saw a manufacturing comeback for autos, high-tech equipment and machinery.

The states seeing the greatest growth in 2010 after North Dakota include New York at 5.1 percent; Indiana at 4.6 percent; Massachusetts at 4.2 percent; and West Virginia at 4.0 percent.

Wyoming was the loser with its $34 million GDP falling 0.3 percent in 2010. It’s because the majority of Wyoming’s coal is used to generate electricity — and when demand for energy declined. last year, it was a setback for Wyoming’s mining industry.  With the energy sector rebounding and coal prices soaring, Wyoming is likely to fare better in 2011. Wyoming performed very differently from North Dakota in 2010.  Mining is a well established segment of the economy, accounting for approximately one third of the entire state’s GDP.  When energy demand fell and oil prices barely picked up in 2010, Wyoming’s GDP was badly hurt.  “When the economy is just flat or just limping along, you can expect a state like Wyoming to really take it hard,” Popovich said.

After Wyoming, the slowest growing states are Nevada at -0.2 percent; Arizona at 0.7 percent; Oklahoma at 0.7 percent; and Montana at 1.1 percent.  States like Delaware, which rely heavily on manufacturing of soft goods such as plastic, struggled due to weak consumer demand and competition from producers overseas.

“It’s only been fleshed out over the last 12 months just how consequential this can be,” said Mark Papa, chief executive of EOG Resources, the first company to use horizontal drilling to tap shale oil.  “And there will be several additional plays that will come about in the next 12 to 18 months. We’re not done yet.”

Foreclosed Homes Total a Three-Year Supply

Tuesday, June 14th, 2011

The current national inventory of foreclosed homes represents a three-year supply, according to RealtyTrac.  Not surprisingly, that is depressing home prices.  “This is very bad for the economy,” said Rick Sharga, a RealtyTrac spokesman.

In Las Vegas, the foreclosure situation is so dire that more than half of all homes sold in Nevada are foreclosures.  In California and Arizona, 45 percent of sales are foreclosures; that totals 28 percent of all existing home sales during the 1st quarter of 2011.

Additionally, the nation’s stock of foreclosed homes are selling at deep discounts, particularly REOS, which are bank-owned homes.  The typical REO sold for about 35 percent less than comparable properties, according to RealtyTrac.  In some areas, the discounts were ever steeper: In New York, the discount for REOs was 53 percent during the 1st quarter and almost 50 percent in Illinois, Ohio, and Wisconsin.

“Short sales,” homes where the selling price is less than what is owed by the borrowers, are also dragging down the market.  These sell for an average nine percent discount.  When you consider both REOs and short sales, Ohio had the biggest discount of any state, at 41 percent.

During the 1st quarter, there were 158,000 sales involving distressed properties nationally, less than half the nearly 350,000 during the same period of 2009.  With the slower pace of sales, it will take three years to sell off the inventory of 1.9 million distressed properties, according to Sharga.  “Even if you look at REOs alone, it will take 24 months to clear them and that’s without any new foreclosures at all coming into the system,” he said.

RealtyTrac found that the average sales price of properties in some stage of foreclosure, scheduled for auction or bank-owned — was $168,321, down 1.89 percent from the 4th quarter of 2010.

A total of 158,434 bank-owned homes and those in some stage of foreclosure were purchased during the 1st quarter, a 16 percent decline from the 4th quarter of last year and down 36 percent from the 1st quarter 2010 total.  Bank-owned properties that sold in the 1st quarter had been repossessed an average of 176 days before the sale, while properties that sold in earlier stages of foreclosure in the 1st quarter were in foreclosure an average of 228 days before they were sold.  According to James J. Saccacio, chief executive officer of RealtyTrac, “While this is probably helping to keep home prices relatively stable, it is also delaying the housing recovery.  At the first quarter foreclosure sales pace, it would take exactly three years to clear the current inventory of 1.9 million properties already on the banks’ books, or in foreclosure.”

Foreclosures are particularly attractive to all-cash buyers who demand discounts,  pushing down the value of all properties.  More than 75 percent of American cities experienced price declines in the 1st quarter.  Bank-owned homes totaled 107,143 sales in the 1st quarter, down 11 percent from the 4th quarter and almost 30 percent from 2010.  Sales of homes in default or scheduled for auction totaled 51,291, a 26 percent decline, according to RealtyTrac.  That was less than half the peak of 348,629 distressed deals in the 1st quarter of 2009.

Writing on the website 24/7wallstreet.com,  Douglas A. McIntyer offers an interesting perspective.  “Any economist will say that when some homes are sold at 27 percent below the normal market, all home prices will be pulled lower.  That may be the key to the home market recovery.  Foreclosure inventory will continue to rise as banks put more backlogged homes onto the market.  The glut will probably push down the average of all homes by several percent. This may be a reason home prices are predicted to fall another 10 percent this year.  Buyers will not come back to the housing market until they believe that prices are too good to resist.  That may mean homes that sold for $500,000 in 2005 will have to sell for $300,000 next year.  Prices will not be driven down quickly without the reduction in inventory of foreclosed homes.  There has to be a bottom to prices.  The sooner it is found the better.  The housing market is more than half dead.  The only tonic is a belief by buyers that prices are so remarkably low that new buyers will make money on a house and not lose it.  If the housing market is to continue to drop, the drop needs to be swift.  Mortgage rates are near all-time lows.  Inflation and concerns about the value of Treasuries due to the U.S. national deficit could change that.  Home prices that are viewed as affordable need to be married with low mortgage rates for the market to catch fire.”

How Canada Avoided a Housing Bust

Wednesday, March 2nd, 2011

Canada avoided the collapse in housing prices that devastated American homeowners and the U.S. economy, thanks to tighter financial regulations, the lack of subprime lending and securitized mortgages. Foreclosures are rare.  As a result, Canadian real estate steadily appreciated while property values in Florida, Arizona and other hard-hit American markets tanked.

According to James MacGee of the Federal Reserve Bank of Cleveland, The United States’ and Canada’s “Monetary policy was very similar in both countries from 2000 to 2008, but housing prices rose much faster in the U.S. than in Canada. This suggests that some other factor both drove the more rapid appreciation in U.S. prices and set the stage for the housing bust.

And what is that other factor?  Canadians are a bit plodding: Perhaps the simplest story is that Canada was ‘lucky’ to be a late adopter of U.S. innovations rather than an innovator in mortgage finance.  In addition, bank capital regulation in Canada treats off-balance sheet vehicles more strictly than the U.S., and the stricter treatment reduces the incentive for Canadian banks to move mortgage loans to off-balance sheet vehicles.”

Relaxed lending standards in the United States, highlighted by the rise in subprime lending, played a vital role in creating the housing bubble. This weakening of standards led to an increase in housing demand.  Mortgages were frequently given to people who were likely to have trouble making payments.  Extending credit to risky borrowers helped fuel the housing boom and set the stage for the resulting surge in defaults and foreclosures, which were a big factor in the housing bust.  Additionally, according to the Case-Shiller Index, house prices in the United States from 2000 through 2006 appreciated at a rate nearly double that of Canadian residential real estate.  In contrast with the United States, Canadian house prices continued to appreciate until late 2008, and are now nearly 80 percent higher in value than in 2000.

MacGee said “The potential risks of increased household mortgage debt depend critically upon its distribution across borrowers. To see how the distribution of mortgage debt has changed, we examined the distribution of the ratio of the outstanding loan to house value (the LTV) of borrowers.  A high LTV implies that a small decline in the house price would leave the owner with negative equity.  Negative equity is problematic as it removes the option for a homeowner who is unable to meet their mortgage payments to sell their home to repay the mortgage.”

Canadian home prices are leveling off in 2011, though, with an overall decline of 0.9 percent anticipated for the year.  A home worth $100,000 will likely decline by $900 in 2011.  In some areas, home prices might actually increase while other areas might see prices fall two or three times as much. The Canadian Real Estate Association (CREA) expects a 7.3 percent decline in home sales in 2011.

“Canadians are debt-averse,” said Kevin Fritz, a Canadian who recently purchased a home and made a 40 percent downpayment. This is an attitude that is partly cultural and partly shaped by banking practices and regulations designed to keep people out of homes unless they can clearly afford them.  “People here don’t leverage.”

“It is a regulatory structure in Canada that created the Canadian mortgage system, and it was a regulatory and political structure in the U.S. that created the U.S. mortgage system,” said Ed Clark, chief executive of TD Bank.  “The irony is…that one of the primal causes of the crisis was the U.S. mortgage system.”

In an interesting aside, more Canadians are finding housing bargains in Florida, and today account for eight percent of residential sales in the state.  Doug Flood, who relocated to the Sunshine State from Toronto in 2008, now runs a business that helps his fellow Canadians find the home they want.  “There’s clearly a perfect storm.  If you’re Canadian, you’ve got very low interest rates at home if you want to borrow against your house.  You’ve got a foreign exchange par, dollar-for-dollar.  And prices down here that are 40 to 50 percent lower than what they were five years ago.”

To listen to our interview with the Brookings Institution about financial regulations, click here.

Migration Leads Thousands to Georgia, Arizona, Despite Recession

Monday, March 1st, 2010

Arizona, Georgia and Texas lead the nation in new household formations.  Arizona, Georgia and Texas are the growth centers in terms of new residents in the last few years, according to an Associated Press analysis of Internal Revenue Service migration data. The IRS compared the states where taxpayers filed their returns from 2007 to 2008 to arrive at their conclusions.

Texas led the nation, with 62,827 new households; the largest number of families moved there from California and overseas.  Georgia ranked second, with 37,559 new households, many of whom moved there primarily from Florida and New York.  Arizona reported a net gain of 20,300 new households, with the majority relocating there from California and Michigan.

The IRS statistics indicate that Americans are not moving much at present, with the annual migration rate at 11.9 percent – the lowest number in decades.  United States Census Bureau estimates released at the end of 2009 confirm the IRS numbers.  According to the AP analysis, counties with better-educated taxpayers typically see the highest county-to-county migration gains.

“People who move tend to be younger and have lower incomes,” according to William Frey, a demographer with the Brookings Institution.  “Normally, if there is a big influx of young people, that could pull down the income of an area; and if there is a big outflux of young people, that can raise income in an area.”

Arizona Ponders Sale/Leaseback of Some State Buildings to Cover $3.4 Billion Deficit

Tuesday, December 15th, 2009

Arizona looking to do sale/leasebacks on some state buildings to raise fast cash.  The cash-strapped State of Arizona may sell the identical House and Senate buildings where legislative business has been conducted for 50 years. A total of 32 properties within the Capitol complex, valued in excess of $1 billion, may be sold and leased for several years prior to assuming ownership again.  Investors would benefit from long-term lease payments from a stable tenant.  According to projections, the sale/leaseback arrangement would infuse as much as $735 million into the state’s coffers.  The plan, which has bipartisan support, isn’t popular with Arizona’s taxpayers, who once owned the buildings free and clear.

Although Governor Jan Brewer vetoed a sale/leaseback proposal during the summer, the provision is expected to return as a solution to the state’s $3.4 billion deficit.  The list of properties targeted for possible sale and leaseback encompasses buildings that provide necessary government services.  Included are the House and Senate buildings, the Phoenix and Tucson headquarters of the Arizona Department of Public Safety, the State Hospital, state fairgrounds and several prisons.  The properties were selected based on their appeal to potential investors.

“We’ve mortgaged the legislative halls,” said Representative Steve Yarbrough.  “That just tells you how extraordinary the times are.  To me, it’s something we’re going to have to do no matter how much we find it undesirable.”

The 1900 State Capitol building, now a museum, is not up for sale.

Manufacturing Showing a Glimmer of Hope

Monday, May 11th, 2009

A significant measure of manufacturing activity rose for the fourth straight month in April. This could mean that the sector is starting to stabilize, even though the index has been at contraction level for 15 consecutive months.gm1

According to the Tempe, AZ-based Institute for Supply Management (ISM), its manufacturing index climbed to 40.1 in April, a welcome increase over the 36.3 reported during March.  While it should be noted that a reading below 50 is a sign that manufacturing activity is down.  Economists had predicted a reading of 38.4 – so the manufacturing marker is performing slightly better than expected.  According to Norbert Ore, chair of the ISM’s survey committee, “The decline in the manufacturing sector continues to moderate.  This is definitely a good start for the second quarter.”

Although the index fell to a record low in December, it has risen every month in 2009.  It is gradually approaching 41.

“The index suggests we have come off the bottom but are still in recession,” according to John Silvia, chief economist at the Wachovia Economics Group.

One of the issues that may affect the index is the fallout of the Chapter 11 bankruptcy of Chrysler, which has closed all of its 22 U.S. plans for at least 60 days.  The fate of the company will affect a huge swath of suppliers since Chrysler buys 78 percent of its parts and services domestically.  General Motors will also idle 13 assembly plants in North America for at least nine weeks.

Study Break

Wednesday, April 23rd, 2008

On NAIOP member Jack Schultz’s list of Top 10 Development Trends for 2008, one really stands out. Following Kalamazoo, MI; Newton, IA; and El Dorado, AZ, have promised to pay for the college education of anyone who completes grade and high schools.  In light of of the economic flux that we are currently in, this seems like a bold incentive package that inverts the traditional concentric circles of economic development.  Instead of corporate tax incentives to bring jobs and improvements to the community, these communities are funding higher education to attract (and educate) people, then entice employers needing educated labor, with the net effect of driving retail, and higher-end residential development as a way to lift the general economy.