Archive for the ‘Residential’ Category

Could Wall Street Save the Housing Market: Part 2

Thursday, August 2nd, 2012

My recent column on the Huffington Post reported on the advent on Wall Street into the housing market as companies like Blackstone and Colony Capital commit billions of dollars to bulk buying bank-owned (REO) single-family homes.

I agree that there are pros and cons to this program. The clear source of popular resentment is that the equity lost by homeowners as their home values plummet will be recaptured by large investors when they go to flip the assets once asset prices start to stabilize. Given the low cost of leverage and the low acquisition prices, the large-cap investor wouldn’t have to wait for prices to get back to par in order to make their targeted returns. So, is there another way? Well, yes. Homeowners could stay in their homes. That’s why the Obama administration created the Home Affordable Modification Program (HAMP) which has saved approximately 802,000 U.S. homeowners from foreclosure as of April 2012 – a worthy achievement but far from the 4 million expected and not enough to make a dent in the housing problem. HAMP was tempered by the lack of lender participation in the program. Of HAMP’s $30 billion budget, thus far it has only spent $3.23 billion.

To go back to the investment firms, remember that part of the strategy is to avoid evicting people from their homes. In the best of circumstances, these homes would be rented to their former owners who would also have an opportunity to acquire the home as the exit strategy. Each of these firms has their own strategy but I’ve spoken personally to private equity firms that are making a good faith attempt to prevent people being ejected from their homes for a simple reason – it’s preferable and cheaper than having to re-lease these homes. What are the alternatives? We could let the bad loans sit on the books of financial institutions which can cripple the credit system for years or decades (that’s what happened to Japan in the 1990s); or foreclosed homes can end up being acquired piecemeal in one-off or small auctions which isn’t efficacious in bringing back an enormous market. The argument to be made is that the Wall Street may be that critical intermediary step before the consumer sector is ready to take back the housing market.

A good analogy is what happened in commercial real estate. In 1989, the market hit bottom because of the Savings & Loan crisis.  S&L’s made hundreds of billions of dollars worth of loans on commercial real estate and saw asset prices freefall after Black Monday. Between 1989 and mid-1995, the government stepped in under the guise of the Resolution Trust Corporation which closed or otherwise resolved 747 thrifts with total assets of $394 billion. At the peak in early 1990 there were 350 failed savings and loan institutions under the agency’s control. Just like the GSEs today, they organized bulk sales of commercial buildings and loans.  Who bought them? Large Wall Street firms. It was an enormous transfer of wealth, no question,  but it also brought a new professionalism to the industry – portfolio-level strategy, transparency in pricing and underwriting, a new skill in operations, managing supply and demand, and accurate reporting. Our industry was transformed.  By the late 90s, asset prices shot back up and reached record levels. In 2007, when the recession hit, the industry was affected but far less than it would have been had it not been for how it had evolved. We simply didn’t have the levels of overbuilding that we did in previous recessions. And, incidentally, Wall Street allowed the person on the street into the industry.  The level of public ownership of commercial real estate today is unprecedented. For the first time, your 401K and stock broker could invest on your behalf in commercial buildings. And REIT stocks remain one of the strongest in all of the equity markets today. So, there will be struggles but the housing market will certainly benefit from this — the rigor and reporting that Wall Street will bring to the single family sector which will help make it much better prepared to face future recessions.

Could Wall Street Save the Housing Market?

Wednesday, July 25th, 2012

What will solve the housing crisis? The Keynesians think it’s a government bailout and the Hayekians think it will ultimately be the invisible hand and spontaneous order of supply and demand that will ameliorate the underwater single-family home sector. Well, could it both? In other words, the government steps in to structure a private sector solution?

On the heels of Bloomberg reports that Blackstone Group, the private equity giant and the country’s biggest buyer of real estate, has spent more than $250 million this year buying foreclosed single-family houses with plans to put them up for rent, we have more indications that large, yield-hungry Wall Street firms may provide the answer (or one of them) to the housing crisis.

The National Association of Realtors’ Investment and Vacation Home Buyers Survey reports that investment-home sales soared a whopping 64.5% in 2011, with investors purchasing 1.23 million homes compared to 749,000 in 2010.

“In the next five to 10 years, you’ll see tens of billions, if not hundreds of billions, of dollars of private equity” pouring into the single-family rental business,” says Justin Chang, principal of investment firm Colony Capital. In the past six months, Colony has bought more than 1,000 homes to turn into rentals. Most are in Arizona, California and Nevada, though Colony expects to expand into Texas, Georgia and Florida. In the next year, it will invest at least $1.5 billion in single-family rentals, Chang says.  According to Forbes, “the concept is catching fire on Wall Street and with good reason: While a 10-year Treasury note yields little more than 2%, economists at Goldman Sachs calculate that rental property investments yield more than 6% on average, nationwide.”

Blogging on the real estate website, GlobeSt.com, Ernst & Young’s Howard Roth stresses the importance of geography: “The places attracting the most attention from rent-to-buy investors are all cities that, although hard hit, have good long-term fundamentals and strong rental demand, such as: Las Vegas, Miami, Phoenix and, in California, the Inland Empire and Sacramento. Homes in Phoenix, for example, have appreciated 15% to 20% since the start of the recovery, a trend that is expected to carry on if investors there continue to absorb supply from the market. Already, there is less than a two-month supply of homes to be sold in Phoenix, compared to a one-year backlog a year ago.”

The most coveted investment play today for the high-cap private equity player is to bulk buy REO (bank-owned) homes. As Forbes explains it, “the largest holders of distressed assets are the Government-Sponsored Enterprises Fannie Mae and Freddie Mac. Together the two mortgage giants own roughly 180,000 foreclosed homes.” In February, the Federal Housing Finance Agency announced the launching of a pilot program that puts 2,500 of Fannie Mae’s homes in eight locations, valued at $320 million, up for sale. On July 3, the FHFA announced that the winning bidders in the REO to Rental initiative had been chosen and transactions were expected to close early in the third quarter.

Investors were were evaluated on the basis of several factors, including financial strength, asset management experience, property management expertise and experience in the geographic area..

Even with big investors entering the space however, the housing problem remains outsized: Nearly 650,000 REO properties sit on the books of the nation’s banks and 710,000 more are pushing through the foreclosure process, according to RealtyTrac. Still, the entry of institutional and private investors into the housing space does raise several promising notions: a higher professionalism in the management and operation of the assets; a portfolio strategy that can raise the value of more challenged assets; and ultimately a way for renters to re-enter the home ownership by saving and re-building their equity while they rent. Could it be that Keynes and Hayek are both right?

The LIBOR Problem

Tuesday, July 17th, 2012

People who don’t follow the capital markets on a continuing basis might be forgiven for thinking that LIBOR was the name of a fitness instructor from Norway. But no, it’s actually what a lot of people in the business world, including those of us in real estate, look to benchmark the interest rates that we pay for loans. LIBOR, or the London InterBank Offered Rate, is the rate that 18 international banks charge to lend each other money. It affects consumer debt, corporate debt and about $10 trillion in mortgage loans.  When you’re structuring a loan, for example, the originator may assign a rate of 2% over LIBOR. So, when the news broke that a group of banks was under investigation for rigging the rate, it sent shockwaves across both sides of the Atlantic and much of the financial world. On Monday, Chief Executive Officer Robert Diamond and Chief Operating Officer Jerry Del Missier, both of Barclays, Britain’s second-largest bank,  resigned over the scandal. Barclays agreed to pay a $450 million fine. In testimony to Parliament last week, Diamond apologized and said 14 Barclays traders were involved.

The scandal implies that thousands of loans may have been made on the basis of rates that we artificially inflated. One fear is that it may deepen the housing crisis. The rate-fixing scandal may have caused people to lose their homes to foreclosure, according to London’s Daily News. Moreover, many people have mortgages linked to LIBOR and fluctuations in its rate can affect the size of their monthly home loan repayments. The U.K. Serious Fraud Office joins the U.S. Department of Justice in criminally investigating how derivatives traders and rate submitters colluded to rig interbank offered rates. The U.K. Financial Services Authority is seeking civil penalties against banks.

The reaction stateside has been mixed: While condemning the malfeasance of some traders, Forbes says the scandal shouldn’t be quite the cause celebre it’s become.  “The allegation is that the traders within the bank would try and get those who reported rates to the BBA, and thus influenced Libor, to report false rates so that their trading books would benefit. This is clearly wrong, unethical, immoral and we’ll find out soon enough whether it is in fact criminal. What it isn’t though is a huge thing for the wider economy. Firstly, such manipulations would have been up or down depending upon where the specific book was on any one day: it did not lead to continual over or under statement of Libor. Secondly, the amounts by which it was moved, if it ever was, were pretty small, one of two basis points at most is the generally accepted number.”

Maybe the biggest question going forward is whether LIBOR will survive or whether a global benchmark built on manipulable opinions might be replaced by one based on actual reported trades.

Stay tuned.

Mortgage Delinquencies on the Decline

Tuesday, July 3rd, 2012

The percentage of borrowers who are behind on making mortgage payments fell to a four-year low in the first three months of 2012, according to the Mortgage Bankers Association (MBA).  The percentage of loans that were delinquent or in the foreclosure process during the 1st quarter was 11.33 percent, the lowest level since 2008.  That was a decrease of 1.2 percentage points from a quarter earlier and 0.98 percentage point below the rate reported one year ago.

A flare up of the sovereign debt troubles in Europe once again led investors to flee to the safety of U.S. Treasury securities last week.  As a result, mortgage rates have reached new lows in our survey, and refinancing application volumes picked up substantially as a result,” Fratantoni said.  ”Survey participants indicated that this was not due primarily to HARP (Home Affordable Refinance Program) volume – the HARP share of refinances fell to 28 percent of refinance applications, down relative to last week and last month, when the share was just above 30 percent in April.”

These new delinquencies represent 3.1 percent of loans outstanding, said Jay Brinkmann, the MBA’s chief economist.  That corresponds to the historical average dating back to the 1990s, he said.  “Basically, we’re back to normal on that count,” he said.  “The short-term delinquencies are back to normal, longer-term delinquencies still continue to go down.  The remaining problem is this backlog of foreclosures in certain states,” Brinkmann said.

One cause that has slowed the recovery is the ongoing difficulty lenders face completing the foreclosure process, particularly in states that involve the courts in the foreclosure process.  In the judicial states, 6.9 percent of loans are in foreclosure inventory, loans that the banks have started the legal process of foreclosing on but have not yet taken control of the property through a foreclosure sale.  In states where foreclosures are handled by trustees such as title companies, only 2.9 percent of loans are in foreclosure inventory.

The delinquency rate peaked at 10.1 percent in the 1st quarter of 2010 and was last lower in the 3rd quarter of 2008, when it was 6.99 percent.  The majority of troubled loans were originated between 2005 and 2007.  Tighter lending standards and deflated prices for borrowers who got mortgages after the housing market collapsed are the reason for better performance of loans issued since 2008.  Loans that are more than 90 days overdue — the point at which lenders usually begin the process of seizing a property – fell to 3.06 percent from 3.11 percent in the 1st quarter and 3.62 percent one year ago.  The share of homes that had received a foreclosure notice and hadn’t been seized by banks increased to 4.39 percent, an increase of one basis point, or 0.01 percentage point, from the previous quarter.

The bad news is that the percentage of loans in the foreclosure process rose slightly to 4.39 percent in the 1st quarter from 4.38 percent in the 4th quarter, reflecting slow judicial-foreclosure systems in states such as Florida, according to the MBA.  The rate was at 4.52 percent a year ago.

According to the MBA, foreclosure starts fell in 41 states.  The MBA survey covers 42.8 million loans on one- to four-unit residential properties, or approximately 88 percent of all first-lien residential mortgages in the country.

The average rate on 30-year fixed-rate mortgages with conforming loan balances declined to 3.96 percent from 4.01 percent, while rates on similar mortgages with jumbo loan balances fell to 4.2 percent from 4.29 percent.  The typical rate on FHA-backed 30-year fixed-rate mortgages slipped to 3.75 percent from 3.81 percent.

Despite the good national news, the MBA survey found that Illinois still has a high foreclosure rate.  Nearly 7.5 percent of all one-to-four-unit mortgage loans in Illinois were in foreclosure in the 1st quarter, compared with a national average of 4.39 percent.  “Illinois and New Jersey trail only Florida as being the worst in the country, and they’re getting worse,” Brinkmann said.  “The rate in Illinois is more than twice that of California.  In the judicial states the problem continues to get worse in terms of the backlog of loans in the foreclosure process.”

House Prices Gradually on the Rise Again

Wednesday, June 27th, 2012

Home prices — including distressed sales (foreclosures and short sales), climbed 1.1 percent in April, according to a new report from CoreLogic.  If you don’t count distressed sales, prices rose 2.6 percent.  Prices have not risen for two consecutive months since June 2010, a time when the homebuyer tax credit was still available.

Although the national gains are welcome, they also reflect a fluctuating state-to-state housing market.  Home prices rose significantly in markets where distressed properties comprise the majority of sales, such as Arizona, which saw an 8.8 percent annual gain, and Florida, where prices rose 5.5 percent.  This is a result of shrunken foreclosure inventories due to slowdowns in bank processing.  States with relatively smaller shares of distressed sales saw prices take a nosedive.

According to Anand Nallathambi, chief executive officer of CoreLogic, “Home prices are responding to a restricted supply that will likely exist for some time to come — an optimistic sign for the future of our industry.  We see the consistent month-over-month increases within our Home Price Index (HPI) and Pending HPI as one sign that the housing market is stabilizing.  Home prices are responding to a restricted supply that will likely exist for some time to come-an optimistic sign for the future of our industry.”

“Excluding distressed sales, home prices in March and April are improving at a rate not seen since late 2006 and appreciating at a faster rate than during the tax-credit boomlet in 2010,” said Mark Fleming, chief economist for CoreLogic.  “Nationally, the supply of homes in current inventory is down to 6.5 months, a level not seen in more than five years, in part driven by the ‘locked in’ position of so many homeowners in negative equity.”

The spring sales season — while not vigorous — was busy, particularly for investors in distressed properties.  The summer numbers are not expected to be quite as strong.  After two months of gains, asking prices on for-sale homes, a two-month leading indicator, were unchanged in May, according to Trulia.com.  “Asking prices and employment both stagnated in May, yet one more reminder that the housing recovery depends on job growth,” said Jed Kolko, Trulia’s chief economist.  “The metros where prices rose the most have stronger demand from faster job growth.”  As home prices grew, so too did rents.  On a national basis, rents rose six percent in May when compared with 2011, according to Trulia, and the increases are accelerating monthly.

Despite the good news on the national front, S&P/Case-Shiller reports that home prices continued to fall in five states.  They are Delaware, where prices plunged 11.9 percent when distressed properties are added to the mix; Illinois, one of the nation’s largest housing markets, saw prices fall another 5.6 percent in one year; Alabama, with its large rural and poverty-stricken population, experienced a 6.6 percent decline; Rhode Island, a state where many small communities are in serious financial trouble, reported a 6.2 percent drop; and Georgia, a largely agricultural state with an 8.9 percent unemployment rate, saw house prices fall 5.6 percent.

Existing-House Sales Spike in April

Tuesday, May 29th, 2012

If you want to sell a product, price it correctly. That theory at long last appears to be working in the U.S. housing market.  The National Association of Realtors (NAR) reported that sales of existing homes rose 3.4 percent in April when compared with March.  One reason is that asking prices were remarkably affordable.  The interest rate on a 30-year fixed-rate mortgage was 3.79 percent, the lowest since record-keeping began in 1971, according to Freddie Mac.  The Realtors’ index of affordability hit a record high in the 1st quarter and factors in sales prices of existing homes, mortgage rates, and household income, which is gradually strengthening as the labor market improves.

The average sales price was 10.1 percent higher when compared with one year ago.  That has the potential to lure buyers who decide they can’t wait for even cheaper prices.  “Today’s data provide further evidence that the housing sector is turning the corner,” said economist Joseph Lavorgna of Deutsche Bank Securities.  The numbers could see more improvement in coming months.  Action Economics Chief Economist Michael Englund said that “The existing home sales data generally continue to underperform the recovery in the new home market and other indicators of real estate market activity.”  But, he added, “the trend is upward.”

Owner-occupied houses and condominiums dominated the market, a change from all-cash deals by investors snapping up distressed properties.  Employment gains and record-low mortgage rates may make houses affordable Americans, eliminating a source of weakness for the world’s largest economy just as risks from the European debt crisis rise.  “We are making incremental progress,” said Millan Mulraine, a senior U.S. strategist at TD Securities, Inc., who correctly forecast the sales pace.  “People are becoming more confident about job prospects and about taking on mortgages.  This is all positive for the economy.”

Even with this uptick, sales are well below the nearly six million per year that economists equate with healthy markets.  The mild winter encouraged some people to buy homes, which drove up sales in January and February, while making March weaker.

First-time buyers, a key segment critical to residential recovery, rose in April and accounted for 35 percent of sales, up from 32 percent in March.  “First-time homebuyers are slowly making their way back,” said Jennifer Lee, an economist at BMO Capital Markets.  “That is still below the 40-to-45 percent range during healthy times, but the highest in almost half a year.”  Homes at risk of foreclosure accounted for 28 percent of sales.  That’s approximately the same as was seen in March sales statistics, but down from 37 percent of sales in April 2011.

Wall Street analysts expressed caution about seeing the increase as a sign that home values are about to make a big comeback.  NAR’s price calculations may have been skewed by larger homes coming onto the market, analysts said.  According to NAR economist Lawrence Yun, seasonal factors might have played a role in the price increase because families tend to buy in the spring, which means bigger homes comprise a larger share of total sales.  “It does echo the message sent by most other related measures that have shown house prices stabilizing or firming,” said Daniel Silver, an economist at JPMorgan.  Home prices, according to the S&P/Case Shiller composite index, have fallen by approximately one-third since the middle of 2006.  “Although the data seem to imply that there is a relative good balance between buyers and sellers, it is unlikely that home prices can recover on a sustained basis until the number of distressed properties is more significantly reduced,” said Steven Wood, chief economist at Insight Economics.

The housing inventory climbed 9.5 percent to 2.54 million, representing a 6 ½-month supply.  CoreLogic estimates that the shadow inventory — homes that aren’t on multiple listing services that are either seriously delinquent, in foreclosure or real-estate-owned — totaled 1.6 million units as of January.

CNBC’s Diana Olick is unimpressed with the price spike.  “The median price of an existing home that sold in April of this year was $177,400, an increase of just over 10 percent from a year ago.  That is the biggest price jump since January of 2006.  The difference between now and then, though, is the 2006 price jump was real, this latest spike is not.  As we reported here on the Realty Check last month, a lack of distressed supply, that is foreclosures and short sales, is pushing overall home sales lower.  That’s because the majority of the sales action for the past few years has been on the low end of the market.  Now, as banks try to modify more delinquent loans to comply with the recent $25 billion mortgage servicing settlement, and as investors rush in to buy distressed properties and take advantage of the hot rental market, the distressed market is drying up.  The share of home sales in the $0 — 250,000 price range made up over 73 percent of all sales in February; that has already dropped to 67 percent in April.  If you look at sales by price category, you see the most startling evidence of this shift in what’s selling on the low end out west.  Sales of homes $0 — 100,000 dropped over 26 percent out west in April, but rose 21 percent in the $250 — 500,000 price range.”

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.

Loudoun is the Nation’s Wealthiest County

Wednesday, May 2nd, 2012

Ten of the 15 richest counties in the United States are located in Washington, D.C.’s Virginia and Maryland suburbs. According to 2010 Census Bureau data, with three counties exceeding the $100,000 mark, life seems pretty good in these areas, even as the U.S. median household income declined 2.3 percent between 2009 to 2010.  Even so, the richest counties boast a median income that is about double the national average of $49,445.  Only one county west of the Mississippi River – Douglas County in Colorado – made the list.  The other counties are in the New York and New Jersey suburbs.

Loudoun County, VA, with a median household income of $119,540, takes first place. With a median household income that is $16,000 higher than second-place Fairfax County, VA, Loudoun has trounced the competition on its way to becoming the richest county in America.  Loudoun borders both West Virginia and Maryland and is the site of Washington Dulles International Airport.  The Appalachian Trail runs along its western border, and the area was principally agricultural until the airport was built in the 1960s.  The population has continued to increase since then, with the area nearly doubling between 2000 to 2010. The poverty level is just 3.2 percent.

As of the 2010 Census, Loudoun County is estimated to be home to 312,311 people, an 84 percent increase over the 2000 figure of 169,599.  That increase makes Loudoun the fourth fastest-growing county in the United States.  Loudoun County is home to world headquarters for several high tech companies, including Verizon Business, Telos Corporation, Orbital Sciences Corporation, and Paxfire.  Like Fairfax County’s Dulles Corridor, Loudoun has economically benefited from the existence of the airport, which is mostly located in the county.  Western Loudoun County retains a strong rural economy and the equine industry has an estimated revenues of $78 million.

Second place Fairfax County, VA, is one of the largest counties in terms of population (1,081,726 residents in 2010), but it is also notable for its high-priced real estate.  Fairfax is one of only two counties to break the half-million mark in home values, with the median value of $507,800 for an owner-occupied home.

In descending order, the next richest counties in the Washington, D.C., area are Howard County, MD, with $101,771; Arlington County, VA, with $94,986; Stafford County, VA, with $94,317; Prince William County, VA, with $92,655; Montgomery County, MD, with $89,155; Calvert County, MD, with $88,862; St. Mary’s County, MD, with $88,444; and Charles County, MD, with $87,007.

Eugene Lauer, Charles County’s Economic Development Director, said he is not surprised that southern Maryland counties made the list.  “I think it’s great.  A lot of people may not know this, but we have ranked fairly high for a number of years,” he said.  “We know we have an affluent, highly-educated, qualified workforce in Charles County, and we have excellent students who will be in the workforce of tomorrow,” according to Charles County Commissioner Candace Quinn Kelly.  Lauer said Charles County’s low unemployment rate also helps drive up its ranking.  “Our unemployment rate is 5.4 percent.  That’s fourth or fifth best in the state, better than Maryland as a whole, which is 6.7 percent, and the U.S., which is 8.5 percent,” he said.

Dean Frutiger of the Council for Community and Economic Research though has a serious caveat.  “To rank something based on simply income does not take into account real cost of living issues,” said Frutiger, who calculates the nationwide Cost of Living Index.  After you factor in the local costs for items like housing, utilities, groceries, and transportation – D.C. metro area incomes go down by about 43 percent.  According to Frutiger “That $119,000 a year median income in Loudoun County, reduced by the cost of living index, means you’re down to $83,000.”

March Housing Starts Down, While Construction Permits Rise

Wednesday, April 25th, 2012

American homebuilders started construction on new houses in March at a slower pace, but in an ironic twist, the number of construction permits jumped to their highest level in 3 ½ years.  This is a positive signal for the slumping residential industry.  According to the Department of Commerce, housing starts fell 5.8 percent to an annual rate of 654,000, significantly below the MarketWatch forecast of economists who had projected an increase to 703,000.  Housing starts in February were also revised down slightly, to 694,000 from 698,000.  At the same time, building permits — a measure of future demand — rose 4.5 percent to 747,000 in March from February’s revised 715,000.  The increase occurred entirely in the multi-dwelling housing segment.

The increase in permits suggests builders are increasingly optimistic as the industry recovers from the worst slump in modern times. Multi-family permits rose 24.2 percent to 262,000.  On the other hand, permits for single-family homes fell 3.5 percent to 462,000 — evidence that builders still face pressure from a deluge of foreclosures.  Many buyers are looking for deals on existing homes instead of paying more for new construction.

Some economists speculate that warm weather contributed to the March decline in housing starts because it allowed builders to start new projects in January and February that they normally would have begun in spring.  “It appears that the payback from an unusually warm fall and winter came in March as record warm temperatures likely pulled new construction forward,” said Yelena Shulyatyeva of BNP Paribas.

The average March temperature was 51.1 degrees; that’s 38.6 degrees warmer than the 20th century average and the hottest March since records were first kept in 1895, according to the National Oceanic Atmospheric Administration.  Spring home sales are expected to outpace last year as record low mortgage rates produce an attractive market for home buyers.  The average fixed rate on a 30-year mortgage was 3.88 percent in mid-April, according to Freddie Mac and may fall again.

An oversupply of unsold homes is holding prices down, creating a major difficulty for the sector, said Gregory Miller, an economist at Suntrust Banks in Atlanta.  “The production side of the housing market is in the early stages of recovery, but builders are shifting their composition of products from condos and single-family homes to apartment construction.  It’s going to be rocky for awhile.  You still have inventory overhang.  There are also issues on the financing side of production as well as the mortgage side.  The problem is getting over the financing hurdle. Lenders are still very concerned about where they put their capital.  From a trend perspective, it is still on a rising path.  Tentative is the best we could say about this.”

Even a slow-growing housing market is a big plus because it is no longer a drag on the broader economy. Residential real estate was the cause of the financial crisis and the recession, so it’s encouraging to see this sector moving in the right direction.  It’s early to expect strong, sustained growth in the immediate future.  “Housing continues to bump along the bottom,” said Jacob Oubina, a senior economist at RBC Capital Markets.  “The best we can hope from housing over the next couple years is that it won’t subtract from growth.”

According to Omer Esiner, Chief Market Analyst, Commonwealth Foreign Exchange, “The housing data is mixed.  On the one hand housing starts came in below expectations and on the other hand it was a strong month for permits, which bodes well for the months ahead.  So the rise in permits kind of offsets the disappointing data.”

Foreclosures Decline, But Expect a Spike Thanks to Banks Settlement

Monday, March 26th, 2012

Foreclosure filings declined eight percent in February, the smallest year-over-year decrease since October 2010, as lenders began working through a backlog of seized properties, according to RealtyTrac Inc. A total of 206,900 homes received notices of default, auction or repossession last month, down two percent from January, according to the data firm, which noted that one in every 637 households received a filing.  Those numbers could rise sharply in coming months.

Banks slowed foreclosures for more than a year as attorneys general in every state investigated charges of shoddy and incomplete paperwork.  A $25 billion settlement with the five largest lenders removed some roadblocks to property seizures and gave the go-ahead for future actions, Brandon Moore, RealtyTrac’s chief executive officer, said.  “February’s numbers point to a gradually rising foreclosure tide.  That should result in more states posting annual increases in the coming months.”

“The pig is starting to move through the python,” said Daren Blomquist, RealtyTrac’s director of marketing.  The banks “have already adjusted their foreclosure practices to fit the terms of the settlement.  We expect that to continue as (the settlement) gets finalized,” Blomquist said.

The settlement clarifies the way in which foreclosures must be handled.  That is expected to let banks speed up their processing, putting many delinquent homeowners into the foreclosure process.  Cases could move forward after being on hold for months — even years — with their delinquent owners still living illegally in the properties.

“The foreclosure and mortgage settlement filed in court earlier this week will help pave the way to a properly functioning foreclosure process by providing a clear roadmap for necessary foreclosures,” Moore continued.  “That should result in more states posting annual increases in the coming months.  Not surprisingly, many of the biggest annual increases in February were in states with the more bureaucratic judicial foreclosure process, which resulted in a larger backlog of foreclosures built up over the last 18 months in those states.”

Cities with the highest foreclosure rates were Riverside-San Bernardino in California (one in 166 housing units); Atlanta (one in 244); Phoenix (one in 259); Miami (one in 264); and Chicago (one in 302).

The Department of Housing and Urban Development’s (HUD) Office of the Inspector General’s report found that several banks violated servicing standards and foreclosure procedures and engaged in extensive robo signing.  The banks agreed to follow new servicing standards and offer relief to borrowers by providing $10 billion in principal reductions, $3 billion in refinancing loans and $7 billion in alternatives to foreclosure.  Foreclosures in the 26 states with a judicial foreclosure process rose 24 percent over last year, while activity in the 24 states that follow a non-judicial foreclosure process fell by 23 percent

Default notices, the initial step in the foreclosure process increased more than 20 percent in 12 states, including Hawaii, Maryland, Connecticut, South Carolina, Indiana, Pennsylvania and Florida.  State attorneys general have filed lawsuits against major lenders in New York, California and Nevada in recent months, further slowing the pace of foreclosures in those states.