Posts Tagged ‘credit crisis’

House Prices At 2002 Levels

Monday, May 14th, 2012

The S&P/Case-Shiller home price index of 20 cities revealed a 3.5 percent decline when compared with last year.  Home prices are now at their lowest levels since November 2002.  “Nine (housing markets) hit post-bubble lows,” said David Blitzer, spokesman for S&P, including Atlanta, Charlotte, Chicago, Las Vegas and New York.  “While there might be pieces of good news in this report, such as some improvement in many annual rates of return, February 2012 data confirm that, broadly-speaking, home prices continued to decline in the early months of the year,” Blitzer said.

The primary challenge continues to be foreclosures and other distressed property sales, according to Pat Newport, an analyst for IHS Global Insight.  “We still have six million homeowners who are late on their payments,” he said.  “We’ll still have lots of foreclosures, which will depress prices.”  The good news is that some of the worst hit of the index’s 20 cities appear to be on the mend.

“Some (cities) which have declined considerably over the last five to six years now have begun to exhibit an uptick in home prices,” said Luis Vergara, a director with Mission Capital Advisors.  Phoenix prices climbed 3.3 percent year-over-year.  Miami recorded a gain of 0.8 percent over 2011.  Even Las Vegas appears to be turning more positive, with home prices down only 8.5 percent, compared with a drop of nine percent in January.

The weakening may be due to the typical pattern of minimal interest during winter and greater interest in housing during the spring and summer. According to S&P, the unadjusted series is a more reliable indicator.  House prices have fallen by more than one-third from their peak when the bubble burst.  The glut of distressed properties on the market have slowed the market, as has the unemployment rate and tough credit conditions, which have offset the benefit of mortgage rates near or at record lows.

“The broad prospect for home prices is at best flat over the course of the year,” said Tom Porcelli, chief economist at RBC Capital Markets.  “And as much as we have had progress with the supply and demand imbalance, it is still a challenge to gather any momentum here.”

According to the Commerce Department, March home sales fell 7.1 percent to a seasonally adjusted 328,000-unit annual rate.  February’s sales pace was revised higher to 353,000 units, the best showing since November of 2009, from the previously reported 313,000 units.  “The conditions in housing are still extremely weak, but there are some very subtle, less negative, signs suggesting stabilization there,” said Sean Incremona, economist at 4Cast Ltd.

Stabilizing home values are necessary for a sustained rebound in the housing industry by giving prospective buyers confidence. Near record-low borrowing costs and additional hiring may help the market absorb foreclosures, which may mean housing will no longer hinder economic growth.  “Mortgage rates are very, very low, but you really need to see strong job growth,” said Scott Brown, chief economist at Raymond James & Associates, Inc.  “It’s still a very long way to go before we get a full recovery.”

The latest reports indicate that homebuilders are still trying to get back on their feet.  The National Association of Home Builders/Wells Fargo sentiment index in April declined to a three-month low.  This measure of anticipated sales for the next six months was not good news.  Sales of existing houses fell in March for the third time in the last four months.  Home purchases fell 2.6 percent to a 4.48 million annual rate from 4.6 million in February, according to the National Association of Realtors.  The average rate on a 30-year fixed-rate mortgage hit an all-time low of 3.87 percent in February and was little changed at 3.90 percent in the week ended April 19, according to Freddie Mac.

Writing for the Index Universe website, Cinthia Murphy says that “A number of encouraging economic indicators such as an improving job market and slowly growing demand for homes loom as factors that some hope should start to help underpin housing values, even if consumer confidence remains low for now.  A clear recovery in housing is deemed crucial for a full-fledged economic recovery in the U.S. after the credit crisis of 2008 sent housing as well as the financial markets sharply lower.  U.S. housing was at the center of that crisis, and much of the developed world remains mired in slow, debt-constrained, growth.

Michael Feder, CEO of Radar Logic, a real estate data and analytics firm, thinks Case-Shiller is underselling the momentum in the housing recovery. Radar Logic’s 25-city index, which tracks daily activity, is expected to show a month-over-month increase of nearly two percent during February, Feder said.  The difference frequently comes when the market is turning, though Feder acknowledges that the mild winter may have created some demand.  Another thing to look at is investment buyers coming into the market, which Feder believes could create something of a “mini-bubble” in prices given their willingness to pay premiums.  News of that willingness spreads pretty quickly.  While it can draw in some fence-sitters who have been waiting for a bottom, there is little evidence of that to date, Feder said.

Home Equity Loan Delinquencies Spiral as Values Contract

Wednesday, October 14th, 2009

Residences as ATMs Home equity loan delinquencies reached a record high of 3.52 percent during the first quarter of 2009, according to the American Bankers Association.  That contrasts with the 3.03 percent reported during the fourth quarter of 2008.  Late payments on loans climbed to a record 1.89 percent.

Home equity loans also are partly to blame for the current credit crisis.  Cheap credit set off a housing boom in the early 2000s.  Fast-rising house prices spurred homeowners to take out home equity loans – in effect, using their residences as ATMs – to pay for improvements, new cars and a list of discretionary purchases.

The U.S. residential real estate market lost $2.4 trillion in value last year, according to First American CoreLogic.  The Mortgage Bankers Association notes that seasonally adjusted numbers of mortgage delinquencies increased by 7.88 percent in the fourth quarter of 2008, the highest recorded numbers since 1972.

Recession Coming to an End: The Fed

Wednesday, September 16th, 2009

Eleven of the 12 regional Federal Reserve banks showed signs of a stabilizing or improving economy during July and August, according to the Fed’s latest Beige Book report.  The Beige Book’s anecdotal evidence found that the nation’s worst recession in 70 years is coming to an end.  The Fed expects the economy to grow by three or four percent in the fourth quarter of 2009.  That stands in sharp contrast to the one percent decline from April through June, and the 6.4 percent contraction during the first quarter of the year.good-business-growth-2

In the latest survey, the Dallas region reported that economic activity had “firmed”. The Fed regions of Boston, Cleveland, Philadelphia, Richmond and San Francisco reported “signs of improvement.” In Atlanta, Chicago, Kansas City, Minneapolis and New York, the Fed reported activity as “stable or  showing signs of stabilization.  The St. Louis region was the exception, where the contraction’s pace “appeared to be moderating.”

“We are slowly on the road to recovery,” former Fed Governor Robert Heller told Bloomberg Television.  The Beige Book “confirms that we have turned the corner.”

Despite the Beige Book’s declaration that stabilization is occurring, it still found weakness in the commercial real estate market where little new construction is underway.  According to the report, “Several participants noted that banks still faced a sizable risk of additional credit losses and that many small and medium-sized banks were vulnerable to deteriorating performance of commercial real estate loans.”

Commercial Real Estate Still Troubled

Monday, July 6th, 2009

Don’t look for the country’s commercial real estate market to improve any time soon.  In fact, expect it to continue to get worse for the next year or so.  That was the conclusion from a panel at the National Association of Real Estate Editors journalism conference in Washington, D.C., that addressed the question:  “Commercial Real Estate in the Obama Era:  Next Domino to Fall?”

“The (other) shoe has dropped,” NAREIT president Steve Wechsler said of commercial real estate.  While the public commercial real estate market of publicly traded REITs likely hit bottom in March, the remaining 90 percent of the market that is private won’t bottom out until next year.6a00e551d321cb883401157034b517970c-800wi

The $6 trillion property market is split evenly between debt and equity, thanks to the explosion of securitization that occurred in the 10 years prior to the current credit crisis, said Chip Rodgers, Jr., a senior vice president of the Real Estate Roundtable.  At the end of 2008, the commercial real estate industry had $3.5 trillion of outstanding debt.  Ten years ago, the industry’s outstanding debt was $1.3 trillion.

Washington-based Real Estate Roundtable has a plan to help end the crisis that’s paralyzed practically all speculative development on the commercial side.

First, Rodgers said, the Term Asset-Backed Loan Facility (TALF) program needs to be expanded to include commercial mortgage based securities.  Rodgers expects this to restart the securitization market.

Second, the United States needs to repeal or change tax laws that have curtailed foreign investment.  Changing the laws will attract new capital to the market.

Also, accounting rules and regulations need to be amended to ensure they do not create “a pro-cyclical impact on credit capacity,” Rodgers said.  And, banks that have existing cash flow need to be encouraged to extend loans.

The panel’s third member, Jamie Woodwell, a commercial real estate researcher at the Mortgage Bankers Association, said the current real estate recession differs from the 2001 recession.  In 2001, the dot-com bust results in large amounts of office vacancies while the retail market remained relatively stable.  Vacancy rates in office were closely tied to the country’s unemployment numbers.

“This time around,” Woodwell said, retail is more closely following unemployment numbers and being hit harder than the office market.  “More firms still have (office) leases in place,” he said.

But things will change, Woodwell said.  “Real estate is a very cyclical business, especially now.”

Our guest blogger is Tony Wilbert.  He is owner of Wilbert News Strategies, a public relations firm specializing in real estate.  Prior to moving into PR, Wilbert covered real estate at several newspapers and served as editor of National Real Estate Investor.

An Apple a Day

Friday, June 12th, 2009

steve_jobsApple may be the Great American Company — the heir to the spirit of Henry Ford who revolutionized corporations worldwide by modernizing the assembly line to facilitate production of his legendary Model T car.  Similarly, Apple under Steve Jobs’ leadership expresses everything that Americans naturally do well — innovation, high quality, smart growth, and nimbleness.

The recession and credit crisis are not slowing Apple, Inc.’s growth as the firm announced plans to open 25 new stores worldwide this year. Two of the new stores are in the Chicago area – one a 15,000 SF boutique in the city’s Clybourn Corridor and another in 42,000 SF in west suburban Naperville.

Apple’s balance sheet is firmly in the black, and the firm employs 35,000 individuals  globally.  After 30 years, the firm’s brand personality is still groundbreaking, sleek and cool.  Think how the iPod changed the music business and the iPhone has redefined the P.D.A.

Apple’s culture of collaboration is legendary (the ipod, for example, was created by 4 people under the aegis of Steve Jobs) with a belief in also fostering individuality that draws very talented people. To recognize its top employees, Apple created the Apple Fellows program for those who have made extraordinary technical or leadership contributions to personal computing while at the company. The Apple Fellows include Bill Atkinson an and  Steve Capps (two of the creators of the Mac), Guy Kawasaki (marketing guru and legendary blogger) Al Alcorn (one of the brains behind Atari), and Don Norman (cognitive scientist and usability expert).  All that talent has translated to a product that is still peerless in its reputation.  According to surveys by J. D. Power. Apple has the highest brand and repurchase loyalty of any computer manufacturer worldwide.

It is ironic that Apple’s rejuvenation comes during a time when the automakers – the symbol of the primacy of the American corporate model – have seen their fortunes tumble because of antiquated systems, an ossified culture and diluted brands.  As they emerge from Chapter 11, there are few better companies to study than Apple – a firm that Henry Ford would have been proud of.

Sovereign Wealth Funds Still Interested in U.S. Real Estate

Wednesday, May 13th, 2009

Sovereign wealth funds (SWFs) have been closely watching the credit crisis evolve, according to a Deloitte LLP report.  The good news is that they haven’t entirely lost their taste for American commercial real estate. water-academy-wokshop-dsc_0451

Consider that two of 2008’s highest profile transactions were the Abu Dhabi Investment Authority’s $800 million acquisition of the iconic Chrysler Building and the Kuwait Investment Authority’s $3.95 billion joint venture to acquire the General Motors Building and three additional office towers.

Deloitte notes that SWFs are breaking with their “traditionally conservative, passive investment practices” to pursue interests in partnerships and joint ventures with American real estate firms and investors.  “This shift to broader and more active investment relationships may require that SWFs pay greater attention to increased political, media and public scrutiny, as well as their need for greater operational transparency,” according to the report.

SWFs will stick to the playbook of acquiring trophy and other Class A assets.  It’s unlikely that SWFs will focus on non-performing loans since that would require extensive involvement in the American legal system of foreclosure/bankruptcy in order to protect their rights as lenders.  The relative strength of the dollar — to the extent it is an indicator of future strengthening of the U.S. economy ahead of other countries — could be considered a way to protect the risk of any further currency decline in the home currencies of the SWFs.

Paul Volcker: U.S. Is in a Recession

Wednesday, October 22nd, 2008

“It’s not going to be a problem in the short run.  Inflation doesn’t flourish in the face of recession,” said Paul Volcker, who served as chairman of the Federal Reserve from 1979 until 1987.  “It’s something we have to worry about when we get out of this recession.  I have been around for a while.  I have seen a lot of crises, but I have never seen anything quite like this one.  This crisis is an exception.  I don’t think we can escape damage to the real economy.” Volcker believes that the United States is officially in a state of recession.  In a Reuters’ article, Volcker affirms that stabilizing the financial system to ease the credit crisis is a government priority, even if it requires significant intrusion into the private sector.

“The first priority is to stabilize the financial system.  It is necessary, even though the cost is heavy government intrusion in markets that should be private,” Volcker told an audience at a seminar in Singapore.  “Housing prices in the U.S. are still declining.  There are more losses to come.”

Volcker, who is credited with battling the double-digit inflation of the 1970s, believes that the massive infusion of liquidity by the Federal Reserve ultimately could result in inflation or even stagflation.

Volcker is currently chairman of the board of trustees of the Group of 30, an international body composed of central-bank governors, leading economists and private financial-sector experts.  Additionally, the former Federal Reserve chairman is serving as an economic advisor to Barack Obama’s presidential campaign.