Tag: Real Estate

Categories
Real Estate News

Black Knight – Mortgage Monitor

Black Knight – Mortgage Monitor:

tappable equity at
all-time high, but tax code changes could impact
homeowners’ utilization
– As of Q3 2017, approximately 42 million homeowners
with a mortgage have nearly $5.4 trillion in equity
available to borrow against, assuming a maximum 80%
total loan-to-value ratio
– Over 80% of all mortgage holders now have available
equity to tap via a first-lien cash-out refinance or
home equity line of credit (HELOC)
– Under the recently passed tax reform plan, interest
on HELOCs is no longer deductible, increasing the
post-tax expense of such products for those who itemize
– HELOCs have been an attractive option for borrowers
to utilize available equity without sacrificing low
first- lien interest rates; with interest on these
products no longer deductible, the value proposition
has changed
– In many cases, for borrowers with high unpaid
princ ipal balances (UPB), taking out low-dollar lines
of credit, the math still favors HELOCs
– However, for low-to-moderate UPB borrowers taking
out larger amounts of equity – assuming interest on
cash-out refinances remains deductible – the post-tax
math may now favor such products instead, even if it
results in a slight increase to first lien interest
rates

The Data & Analytics division of Black Knight, Inc.
released its latest Mortgage Monitor Report, based on
data as of the end of November 2017. This month, Black
Knight finds that tappable equity – the amount of
equity available for homeowners to borrow against
before reaching a maximum 80% total loan-to-value (LTV)
ratio – is at an all-time high. However, as Black
Knight Data & Analytics Executive Vice President Ben
Graboske explained, recent changes to the US tax code
may have implications for homeowners’ utilization of
that equity. “As of the end of Q3 2017, 42 million
homeowners with a mortgage now have an aggregate of
nearly $5.4 trillion in equity available to borrow
against,” said Graboske. “That is an all-time high, and
up more than $3 trillion since the bottom of the market
in 2012. Over 80% of all mortgage holders now have
available equity to tap, whether via first-lien
cash-out refinances or home equity lines of credit
(HELOCs). We’ve noted in the past that as interest
rates rise from historic lows, HELOCs represented an
increasingly attractive option for these homeowners to
access their available equity without relinquishing
interest rates below today’s prevailing rate on their
first-lien mortgages. However, with the recently passed
tax reform package, interest on these lines of credit
will no longer be deductible, which increases the
post-tax expense of HELOCs for those who itemize. While
there are obviously multiple factors to consider when
identifying which method of equity extraction makes
more financial sense for a given borrower, in many
cases, for those with high unpaid principal balances
who are taking out lower line amounts, the math still
favors HELOCs. However – assuming interest on cash-out
refina nces remains deductible – for low-to-moderate UPB
borrowers taking out larger amounts of equity, the
post-tax math for those who will still itemize under
the increased standard deduction may now favor cash-out
refinances instead, even if the result is a slight
increase to first-lien interest rates.

“As rates continue to rise and the cost associated with
increasing the rate on an entire first-lien balance
rises as well, the benefit pendulum will likely swing
back toward HELOCs. Even so, the change could certainly
impact HELOC lending volumes and loan amounts in the
coming months and years. To a certain degree, the same
question holds true for cash-out refinances, since tax
debt for homeowners who will no longer itemize becomes
generally more expensive without mortgage interest
deduction in the equation. These refinances will likely
be an attractive source of secured debt in the future,
but increased post-tax costs may have a negative impact
on originations. That said, it still remains to be seen
whether and to what extent tax costs will impact
borrower decisions in terms of either HELOCs or
cash-out refinances. At this point, only time will
tell.” The increase in equity, driven by rising home
prices, has also continued to shrink the population of
underwater borrowers who owe more on their mortgages
than their homes are worth. The number of underwater
borrowers declined by 800,000 over the first nine
months of 2017, a 37% decline in negative equity since
the start of the year. Only 2.7% of homeowners with a
mortgage (approximately 1.36 million borrowers) now owe
more than their home is worth, the lowest such rate
since 2006. Though still elevated from pre-recession
levels, the negative equity rate continues to
normalize. Even so, home prices in large portions of
the country remain below pre-recession peaks. While 36
states and 70% of Core Based Statistical Areas (CBSAs)
have now surpassed pre-recession home price peaks, 43
of the nation’s 100 largest markets still lag behind.

As was reported in Black Knight’s most recent First
Look news release, other key results include:
– Total US loan delinquency rate: 4.55%
– Month-over-month change in delinquency rate: 2.54%
– Total US foreclosure pre-sale inventory rate: 0.66%
– Month-over-month change in foreclosure pre-sale
inventory rate: -3.15%
– States with highest percentage of non-current loans:
MS, FL, LA, AL, WV
– States with lowest percentage of non-current loans:
MT, MN, OR, ND, CO
– States with highest percentage of seriously
delinquent loans: MS, FL, LA, TX, AL

Wall Street new year rally pauses as healthcare, bank
stocks weigh

The benchmark S&P 500 opened lower for the first time
in 2018 on Monday, as losses in healthcare and
financial stocks cut short Wall Street’s strongest
start to a year in a decade. The S&P and the Nasdaq
last week recorded its strongest first four trading
days in a year since 2006, and the Dow industrials
posted its best since 2003. “We had a strong market in
the past week, and what generally happens in the first
week sets the trend for the remainder of the year. Now
that it’s established, there could be some profit-
taking,” said Peter Cardillo, chief market economist at
First Standard Financial in New York. At 9:41 a.m. ET,
the S&P 500 was down 2.84 points, or 0.10%, at
2,740.31. The Dow Jones Industrial Average was down
31.55 points, or 0.12%, at 25,264.32, and the Nasdaq
Composite was down 4.19 points, or 0. 06%, at 7,132.37.
The Dow and the Nasdaq still eked out record highs
briefly after open. The dollar inched higher against a
basket of major peers with data showing that slower US
jobs growth did little to dent expectations for further
interest rate increases this year.

Capital Region totals exceed height of subprime crisis
A decade after the subprime mortgage crisis put
millions of Americans out of their homes, dozens of
houses are still falling into foreclosure each month in
the Capital Region. The trend continues despite a
much-improved economy, more-careful mortgage industry
practices and an infrastructure of support that has
been created for borrowers facing the loss of their
homes. “We have noticed that the number of foreclosures
have not gone back to pre-Great Recession levels,” said
James Flacke, executive director of Better
Neighborhoods Inc., a Schenectady nonprofit that
provides assistance to homeowners facing mortgage
foreclosure. Statistics compiled by ATTOM Data
Solutions show the following combined foreclosure
totals for Albany, Fulton, Montgomery, Saratoga,
Schenectady and Schoharie counties:
2006: 156
2007: 386
2008: 495
2009: 451
2010: 554
2011: 211
2012: 330
2013: 377
2014: 625
2015: 902
2016: 1,056
2017: 777
The 2017 total is for 11 months — December numbers were
not yet available. The other years count all 12 months.
And the totals are only mortgage foreclosures by
lenders — foreclosures by municipalities for nonpayment
of taxes are not included.

The head of another non-profit that offers housing
counseling, the Affordable Housing Partnership in
Albany, said the foreclosure rate never really slowed
after the subprime crisis. “The basic reasons are still
loss of income, primarily, or health reasons, or
divorce,” Executive Director Susan Cotner said. “The
big economic downturn crisis has passed but still
people struggle with their mortgages all the time.”
ATTOM found that New York had the 10th highest rate of
foreclosure among the 50 states as of September: one
foreclosure for every 1,671 housing units. ATTOM also
found that foreclosure activity of all types — default
notices, repossessions and auctions — in the third
quarter of 2017 was at its lowest level in 11 years
nationwide. The Capital Region apparently has not been
following the downward trend. There were 1,681 such
notices issued in the Capital Region from Nov. 21 to
Dec. 20, 1,500 one month earlier, and 1,528 two months
earlier. They had been averaging about 1,400 a month.

Oil approaches 2015 highs on fewer US rigs,

OPEC
Oil prices rose on Monday, coming close to new
three-year highs on a slight decline in the number of
US rigs drilling for new production and sustained OPEC
output cuts. US West Texas Intermediate crude futures
had risen to $61.94 a barrel by 1140 GMT, 50 cents
above their last settlement. WTI last week reached
$62.21, the highest since May 2015. Brent crude futures
were at $67.95 a barrel, 33 cents above their last
close. Brent hit $68.27 last week, the highest since
May 2015. Traders said the gains were due to a slight
decline in the number of US rigs drilling for new
production. The rig count eased by five in the week to
Jan. 5 to 742, according to data from oil services firm
Baker Hughes. Despite this, US production is expected
soon to rise above 10 million barrels per day, largely
thanks to soaring output from shale drillers. Only
Russia and Saudi Arabia produce more.

Trump expected to dilute Dodd-Frank in 2018

Analysts at Goldman Sachs think two issues will be the
subject of reform in 2018. “First, a few smaller issues
stand a good chance of enactment,” said the global
analytics team in an email to clients. “Among these are
health legislation that would incrementally stabilize
the ACA and banking legislation that would make
incremental changes to the Dodd-Frank Act. So, say
“Adios, Dodd-Frank,” Goldman says the president is
coming for you. Here’s the rest of the prediction:
“Second, Congress faces new fiscal deadlines. Spending
authority expires January 19 and the debt limit must be
raised by March. These deadlines could lead to
near-term uncertainty but are also likely to lead to
some additional fiscal stimulus. We expect spending
caps to be lifted and a third round of disaster relief
funding to be approved as part of the process.”

See you at the top!

Categories
Real Estate News

Anticipation high as California rolls out retail pot sales

Anticipation high as California rolls out retail pot
sales

Californians may awake on New Year’s Day to a
stronger-than-normal whiff of marijuana as America’s
cannabis king lights up to celebrate the state’s first
legal retail pot sales. The historic day comes more
than two decades after California paved the way for
legal weed by passing the nation’s first medical
marijuana law, though other states were quicker to
allow the drug’s recreational use. From the small town
of Shasta Lake just south of Oregon to San Diego on the
Mexican border, the first of about 90 shops licensed by
the state will open Monday to customers who previously
needed a medical reason or a dope dealer to score pot.
In November 2016, California voters legalized
recreational marijuana for adults 21 and older, making
it legal to grow six plants and possess an ounce of
pot. The state was given a year to set retail market
regulations that are still being formalized and will be
phased in over the next year. “We’re thrilled,” said
Khalil Moutawakkil, founder of KindPeoples, which
grows, manufactures and sells weed in Santa Cruz. “We
can talk about the good, the bad and the ugly of the
specific regulations, but at the end of the day it’s a
giant step forward, and we’ll have to work out the
kinks as we go.” The long, strange trip to get here has
been a frustrating one for advocates of a drug that in
the federal government’s eyes remains illegal and in a
class with heroin.

The state banned “loco-weed” in 1913, according to a
history by the National Organization for the Reform of
Marijuana Laws, the pot advocacy group known as NORML.
The first attempt to undo that by voter initiative in
1972 failed, but three years later felony possession of
less than an ounce was downgraded to a misdemeanor. In
1996, over objections of law enforcement, the drug czar
under President Bill Clinton and three former
presidents who warned it was an enormous threat to the
public health of “all Americans,” California voters
approved marijuana for medicinal purposes. While the
rollout of grassroots collectives of growers and
dispensaries where marijuana could be sold to patients
was at times messy, the law led to wider acceptance of
the drug as medicine. “The heavens didn’t fall,” said
Dale Gieringer, director of California NORML. “We
didn’t see increased youth drug abuse or increased
accidents or crazy things happening as our opponents
predicted.” Today, 28 other states have adopted similar
laws. In 2012, Colorado and Washington became the first
states to legalize recreational marijuana. California
is one of five states, plus Washington, D.C., that
followed suit. Retail sales are scheduled to begin in
Massachusetts in July.

Fannie and Freddie regain capital reserves; withhold
billions from Treasury

Fannie Mae and Freddie Mac have capital reserves again.
As expected, the government-sponsored enterprises on
Friday made their quarterly dividend payments to the
Department of the Treasury. But, thanks to the new
agreement between the Federal Housing Finance Agency
and the Treasury, each of the GSEs withheld billions
from the Treasury to ensure that each has enough
capital on hand to “cover other fluctuations in income
in the normal course of each Enterprise’s
business.”Under the previous version of the Preferred
Stock Purchase Agreements that went into effect when
the government took the GSEs into conservatorship,
Fannie and Freddie send dividends to the Treasury each
quarter that they are profitable. The PSPAs also
stipulated that the GSEs were prohibited from
rebuilding capital and each of the GSEs’ capital base
was required to be reduced, with their capital reserves
scheduled to be drawn down to $0 in 2018. But that all
changed earlier this month when the FHFA announced a
new agreement with the Treasury that allows the GSEs to
hold a $3 billion capital reserve. Collectively, the
GSEs made dividend payments this week to the Treasury
of $2.897 billion. Of that, $2.249 billion came from
Freddie Mac and $648 million came from Fannie Mae.

But those amounts are far less than the amount of
profit that each GSE made in the third quarter. Freddie
Mac’s profit was $4.7 billion, while Fannie Mae’s
checked in at $3 billion, but unlike previous quarters,
the GSEs did not send all of their profits to the
Treasury. Based on some rough calculations, Freddie
withheld $2.451 billion from the Treasury, while Fannie
withheld $2.352 billion. As the chart from the FHFA
states: “As set forth in the Letter Agreement dated
December 21, 2017, amending the Certificate of
Designation of Terms of Variable Liquidation Preference
Senior Preferred Stock, Series 2008-2, the dividend
amount is the Net Worth Amount for the dividend period
minus the Applicable Capital Reserve Amount. Beginning
in 2018, the Capital Reserve Amount is set at $3
billion under most circumstances.” With the $2.897
billion sent to the Treasury for the third quarter,
Fannie and Freddie have now paid approximately $278.783
billion to the Treasury in dividend payments since the
fourth quarter of 2008.

US steelmakers raise their bets

Steelmakers are betting on the US again, building mills
they hope will help them compete against cheap imports
as demand rises. Steel companies have complained for
years that steel from China, South Korea, Vietnam,
Turkey and elsewhere is being sold in the US for less
than the cost to make it. While imports are still
increasing, steel prices are also on the rise globally.
And demand for US steel is starting to rebound, thanks
to rising oil prices and a strengthening manufacturing
sector, steel executives say. Still, others see
expansion as a risky bet. Some steel companies say they
can capture more customers with new plants that can
make more steel at less cost than older plants, and can
deliver it faster to customers. They’re also counting
on additional US tariffs to drive out cheap,
foreign-made steel, creating more opportunities for
domestic producers. S tiff tariffs imposed over the past
18 months have significantly slowed steel imports from
China, according to Commerce Department reports. Nucor
Corp. is building a $250 million steel mill in Sedalia,
Mo. Startup Big River Steel LLC in Osceola, Ark.,
accelerated production early this year at one of the
largest new steel sheet mills built in the US in years.
And Tenaris SA started making pipe for oil and gas
wells at a new $1.8 billion mill near Houston this
month.

California’s record poverty and real-estate bubble are
creating a “wheel-estate” boom of people with good jobs
living in their cars

Extreme housing prices in California — driven by a
combination of speculation, favorable legal/tax
positions for landlords, foreclosures after the 2008
crisis, and an unwillingness to build public housing —
has created vast homeless encampments, but there’s a
less visible side to the crisis: working people in
“good jobs” who have to live in their cars. There’s a
whole subreddit devoted to these folks, a mix of maker
culture (modding cars to make them more comfortable as
homes), hobo chalk-marks (where can you park, and for
how long?), and generalized anxiety. It’s not just
single middle-class people, either — they’re roaming
America’s streets in company with a vast nomad army of
homeless seniors who drive from town to town looking
for seasonal work to repla ce their busted pensions.
What’s striking in California is that many communities
already accept people living in vehicles, despite there
often being rules or laws against it. This fall, the
city of San Diego expanded its Safe Parking Program,
which designates lots that can be used by those living
out of their cars, and many other cities have similar
programs. Under a law passed last year, Los Angeles
also allows overnight parking in some commercial
districts. In Mountain View, the mayor brags about the
services his city provides to those living in more than
330 cars, trucks and RVs. So long as vehicle dwellers
aren’t in residential areas, the NIMBY attitudes that
have helped spur California’s housing shortage seem to
be relatively in check. And given the many huge parking
lots that are empty overnight, capacity is not going to
be a problem if living in vehicles becomes a Califor nia
phenomenon — at least if owners of those lots have a
compassionate streak or can monetize this use of their
property. Given the centrality of Golden State’s car
culture to its image and history — reflected in movies
like “American Graffiti” and in the once-huge
popularity of drive-in restaurants and movie theaters —
a redefinition of the car in California as not being
about independence and adventurousness but about
shelter would be a twist that not many state residents
would have seen coming 25 years ago.

Foreclosure rate in Minnesota lowest in a decade

The foreclosure rate in Minnesota is now at the lowest
level in more than a decade, and far below the national
average.At the end of September, just 0.2% of all
Minnesota homeowners with a mortgage lost their homes
to foreclosure, according to CoreLogic, which tracks
mortgage delinquencies at several intervals. That rate
was down from 0.3% last year and was only about a third
of the national average. At the same time, far fewer
homeowners are having trouble staying current on their
mortgage payments. In Minnesota, 2.9% of all homeowners
were 30 or more days late on their payment compared
with 3.1% last year. “We’re encouraged to see another
year of flat or declining delinquency rates for
homeowners across Minnesota,” said Julie Gugin,
director of the Minnesota Homeownership Center. “It
shows people are in the right homes f or their families
and their wallets.” During the height of the
foreclosure crisis, the organization’s counselors were
overwhelmed by demand from homeowners who needed help
avoiding foreclosure, Gugin said. Today, the need has
shifted to providing unbiased information and hands-on
financial coaching for low-income families that want to
buy a home. “They want to make choices based on solid
and factual information,” Gugin said. “Rent prices are
on the rise and homeownership is a valuable
asset-building alternate for some families.”

Gugin said that while declining foreclosures are
clearly a positive sign, underlying problems linger.
Namely, the recession and subsequent economic recovery
only broadened the homeownership gap in Minnesota.
There are more low-income families than before that are
unable to own a home. “Our goal is to ensure that
homeownership’s benefits are fairly available and
sustainable to everyone, no matter their race or where
they live,” she said. “Next year — and even 10 years
from now — we want the delinquency rate to stay low,
and with a closed homeownership gap. Individuals and
families, communities and our state would be better off
as a result.” Foreclosure rates across the country are
also falling. Nationwide, the foreclosure rate fell
slightly from 0.8% to 0.6%, and the 30-day plus
delinquency rate fell from 5.2% last year to 5.0% in
September. There was a slight increase, however, in the
number of homeowners who were 30 to 59 days late on
their payments, mostly because of hurricane-related
troubles in Texas, Florida and Puerto Rico.

Categories
Real Estate News

NAHB – builders confident as market primed to expand in 2018

NAHB – builders confident as market primed to expand in
2018

Builder confidence in the market for newly-built
single-family homes increased five points to a level of
74 in December on the National Association of Home
Builders/Wells Fargo Housing Market Index (HMI) after a
downwardly revised November reading. This was the
highest report since July 1999, over 18 years ago.
“Housing market conditions are improving partially
because of new policies aimed at providing regulatory
relief to the business community,” said NAHB Chairman
Granger MacDonald, a home builder and developer from
Kerrville, Texas. “The HMI measure of home buyer
traffic rose eight points, showing that demand for
housing is on the rise,” said NAHB Chief Economist
Robert Dietz. “With low unemployment rates, favorable
demographics and a tight supply of existing home
inventory, we can expect continu ed upward movement of
the single-family construction sector next year.”
Derived from a monthly survey that NAHB has been
conducting for 30 years, the NAHB/Wells Fargo Housing
Market Index gauges builder perceptions of current
single-family home sales and sales expectations for the
next six months as “good,” “fair” or “poor.” The survey
also asks builders to rate traffic of prospective
buyers as “high to very high,” “average” or “low to
very low.” Scores for each component are then used to
calculate a seasonally adjusted index where any number
over 50 indicates that more builders view conditions as
good than poor. All three HMI components registered
gains in December. The component measuring buyer
traffic jumped eight points to 58, the index gauging
current sales conditions rose four points to 81 and the
index charting s ales expectations in the next six
months increased three points to 79. Looking at the
three-month moving averages for regional HMI scores,
the Midwest climbed six points to 69, the South rose
three points to 72, the West increased two points to 79
and Northeast inched up a single point to 54.

Wall Street poised for record on tax bill hopes
Wall Street’s main indexes hit new highs on Monday as
the long-awaited tax overhaul plan looked set for
legislation and buoyed by a flurry of year-end
corporate dealmaking that has topped $11 billion so
far. More US Republicans Senators on Sunday threw their
weight behind the tax bill they expect Congress to pass
this week. A Senate vote is set for Tuesday and
President Donald Trump is expected to sign the bill
into law by the end of the week.US stocks have enjoyed
a near year-long rally, of late powered by increasing
expectations of the promised tax overhaul, which aims
to lower corporate taxes to 21% from 35%, coming to
fruition. The benchmark S&P 500 has gained 19.5% so far
in 2017, set for its best year since 2013, as investors
bet that lower taxes could boost corporate profits and
trigger share buybacks and higher dividend payouts.

“The market is going to continue its rally based on the
belief that we’re going to see the Congress pass tax
reform,” said Robert Pavlik, Chief Investment
Strategist at SlateStone Wealth in New York. “People
are a bit weary about how long the rally will last, but
earnings continue to grow, (the) tax package should
help and the economy is doing well,” Pavlik said. “I‘m
very positive about the overall market. Lower corporate
taxes could also trigger cash repatriation, which
market analysts say could be used for merger and
acquisitions. On Monday, investors were treated to a
flood of deals.

CoreLogic – home price winners and losers

Since the US began recovering from the home-price bust
in 2006, economists have used the peak-to-current
change in prices as a measure of recovery in markets.
However, the peak-to-current change hyper-focuses on
economic losses for those who bought at the peak. What
about consumers who bought homes while prices were at
the bottom of the cycle? If someone was lucky enough to
buy as a market hit bottom and began to recover, they
have seen large home-price gains. Our view of home
price changes shows the peak-to-trough and
peak-to-current changes in the CoreLogic Home Price
Index (HPI) for the US, the four states with the
largest peak-to-current declines, and the four states
with the largest peak-to-current gains. In the states
where the HPI has passed the pre-crisis peak, the peak
used to calculate the numbers in Figure 1 is the
pre-crisis peak. The U S HPI peaked in 2006, and
returned to the 2006 peak in September 2017. Nevada
has the largest peak-to-current decline of any state,
and had the largest peak-to-trough decrease at 60%. On
the other end, North Dakota had a shallow
peak-to-trough decline, and has risen 47% above the
prior peak seen in 2008. A different view of the HPI
illustrates the depths of the most notable state-level
price declines and the subsequent upward trajectory in
those states, including the peak-to-trough and
trough-to-current HPI changes for the US and the seven
states that had larger peak-to-trough declines than the
US For the nation, from the 2006 peak to the 2011
trough, the loss was 33%, but from the 2011 trough to
September 2017 the gain was 50%. The most extreme drop
in the HPI was in Nevada, but prices in that state have
gained 89% since hitting bottom in 2012. For reference,
we can compare the gains in the HPI to gains in the
stock market. The S&P 500 fell 51% from peak to trough,
but has gained 229% from the trough through September
2017. The large price gains since the home-price bottom
translate into large amounts of home equity gained by
homeowners, improving their balance sheets. As shown in
the CoreLogic Homeowner Equity Report, in the 12 months
ending in September 2017, the average homeowner gained
nearly $15,000 in equity. Only seven states had equity
gains over the past year, but California and Nevada
stand out with the largest gains at $37,000 and
$23,000, respectively.

Average US gas price drops 3 cents to $2.51 for regular
The average price of a gallon of regular-grade gasoline
dropped 3 cents nationally over the past two weeks to
$2.51. Industry analyst Trilby Lundberg of the Lundberg
Survey said Sunday that further declines are likely
because US gas supplies are flush. The current gas
price is 25 cents above where it was a year ago. Gas in
San Francisco was the highest in the contiguous United
States at an average of $3.22 a gallon. The lowest was
in Jackson, Mississippi, at $2.14 a gallon. The US
average diesel price is $2.88, holding steady from two
weeks ago.

Categories
Real Estate News

Zillow – new homes have ‘plenty of runway’ in 2015

Published on: Mar 5, 2015 @ 09:51 am

A proliferation of data and new data analysis methods
are changing the way builders buy, sell and develop
vacant land, according to experts, and builders are

cautiously optimistic that easier credit and more
flexibility will help the new homes market rebound in
2015. Several groups of real estate experts,
executives of large residential builders and land
advisors spoke this week at a building and building
products symposium held at Barclay’s New York City
headquarters. The state of the land market – a key
factor in determining what kinds of housing gets built,
where and at what price – was a common theme throughout
the various discussions. “The real opportunity of land
goes beyond the land itself,” said Steve Benson, CEO of
Phoenix-based land-banking and advisory firm Community
Development Capital Group. “Builders are looking at
land as much more than a piece of dirt now.”
Landowners and buyers alike are using multiple data
sources to examine what is being built in other areas,
which designs work best for certain parcels and which
builders are best suited to maximize certain features
of a given piece of land, Benson said. Rather than
plowing ahead and building a certain set of homes on a
given piece of land, developers today may be more apt
to sell their land to a different type of developer
rather than undergo a project themselves, or choose to
build a different type of home than they normally
would, based on data. “Real estate has always been
about location, location, location,” Benson said. “But
with land especially, it’s future location, future
location, future location. Today, data helps inform
that equation for builders much more than in the past.”

High land costs, and perhaps unrealistic value
assessments by landowners, are a big reason why
developers are having difficulty developing more
entry-level, lower-cost communities and homes, said
Greg Vogel, CEO and founder of Land Advisors
Organization, a Scottsdale, Ariz.-based land brokerage.
Developable tracts of land appreciated very quickly in
value during 2012 and 2013 in anticipation of a
building boom in 2014 that largely has yet to
materialize, Vogel said, calling 2014 “a dud” compared
to expectations for new development. But strong recent
years have convinced today’s landowners – tomorrow’s
land sellers – that their land may be worth more than
it is. “[Land] sellers are very sticky on the up,”
Vogel said, in reference to land price appreciation.
“We’ll offer a price, and they’ll tell us, ‘See you
next year.’” As a result, builders are increasingly
forced to put higher-priced homes on the developable
lots they do control, in order to recoup their higher
land-acquisition costs. This will create challenges for
larger builders looking to cater to lower-end and
first-time buyers, who are expected to enter the market
in higher numbers in coming years as younger buyers, in
particular, get married and start families. Most
observers agreed that it’s just a question of time
until we see millennial demand pick up. “If the
entry-level buyer does come back, I’m not sure there
will be a lot of opportunities to develop those kinds
of communities right away,” Vogel said.

Price Vs. Pace Vs. Margin

Beyond the kinds of large, multi-acre tracts on the
edge of cities and towns favored by big, publicly
traded homebuilding companies, smaller in-fill lots
located in downtowns and established communities also
represent opportunities for builders, particularly
smaller, private developers. Private developers can
build higher-density projects with a smaller overall
number of units on infill sites, Vogel said, though
these homes cannot compete on price with those built by
larger firms. But what they lack in price strength,
these developments can make up for in design
flexibility. “Private firms excel at being able to
simply hire an architect and ask, ‘What can you do with
this site?’” Vogel said. “And with those kinds of
projects, they don’t have to worry about competing with
the bigger builder down the street or on the other side
of town.” In recent years, data indicate that builders
seem content to trade high sales volumes in exchange
for lower volumes, but higher sales prices. Vogel said
the way to get higher sales volume is simply to have
more speculatively built homes completed and available
for sale in the first place. “If you have a house
ready to go, you’ll get a higher pace of sales,” Vogel
said. But the key question builders ask is not monthly
sales pace versus final sales prices, Benson said, but
instead is sales price versus profit margin at a given
pace. If a builder is selling three homes per month,
then that builder knows that overhead costs will total
a certain amount at that pace. If they wanted to adjust
the pace of sales to six homes per month, they need to
adjust their overhead costs and maximize their
efficiencies accordingly, which many may be unwilling
to do if they’re comfortable at a given margin.

“Plenty of Runway”

In order to begin building more homes, the one thing
builders would like to see more than anything else –
more than lower land costs and higher wages among
buyers – is simply more economic confidence among
potential buyers, said John Burns, CEO of John Burns
Real Estate Consulting. According to a recent Burns
survey, roughly one-third of builders said more
confidence topped their 2015 wish list. That bodes
well for 2015 and beyond, as recent Zillow research
indicates housing confidence, in particular, is on its
way up, especially among younger renters who may be
looking to buy in the next few years. But not all
demand for new homes is expected to come from younger,
entry-level and first-time homebuyers in coming months
and years. Douglas Yearley, CEO of Pennsylvania-based
residential construction firm Toll Brothers, said there
are plenty of existing homeowners looking to move up
into a larger or nicer home. The typical home built by
Toll Brothers sells for roughly $700,000, Yearley said,
certainly on the higher end of the price spectrum but
not outrageously so. “There’s plenty of runway left in
what we do,” Yearley said. Builders were also hopeful
that slowly easing access to mortgage credit would
convince more would-be buyers to enter the market.
Steve Hilton, CEO of Scottsdale-based homebuilder
Meritage Homes Corp., said there is currently more
demand for new homes than his company is able to
qualify, an indication that if credit conditions were
looser more homes could be sold. Hilton also indicated
there could be a kind of chicken or egg problem
preventing the credit market from easing further, as
borrowers with lower credit sometimes don’t apply in
the first place. “There’s a kind of perception gap
we’re seeing,” Hilton said. “We see a lot of people
with a 680 credit score, which is historically pretty
good, thinking that they can’t get a loan. So they
don’t apply in the first place. There’s a lot of good
loans out there that aren’t getting made.”

US consumer spending falls, inflation pressures muted

US consumer spending fell for a second straight month
in January, likely as lower gasoline prices continued
to weigh on receipts at service stations. The Commerce
Department said on Monday consumer spending slipped
0.2% after falling 0.3% in December. Economists polled
by Reuters had forecast consumer spending, which
accounts for more than two-thirds of US economic
activity, dipping 0.1% in January. When adjusted for
inflation, consumer spending increased 0.3% after
December’s 0.1% dip. Income increased 0.3% after a
similar rise in December. Income at the disposal of
households after accounting for inflation advanced
0.9%, the largest increase since December 2012. The
saving rate increased to 5.5%, the highest since
December 2012. Lower gasoline prices continued to put
downward pressure on inflation, with key consumer price
gauges slipping further below the Federal Reserve’s 2%
target. A price index for consumer spending braked to
show a 0.2% rise in the 12 months through January, the
weakest reading since October 2009. The personal
consumption expenditures (PCE) price index had
increased 0.8% in December. Excluding food and energy,
the so-called core PCE price index increased 1.3% in
the 12 months through January.

Urban Institute: the renter next door

An unexpected side effect of the mortgage crisis has
been the replacement in many neighborhoods of
single-family homeowners with renters. An article from
the Urban Institute, took a closer look at the 14.2
million single-family rental units in the US and found
that renters are living in smaller, older and slightly
less suburban homes than homeowners, and are poorer,
more racially and ethnically diverse and younger than
homeowners. From 2007 on in the aftermath of the
mortgage crisis, investors (mostly small) bought many
of the 7.5 million owner-occupied homes that were in
foreclosure or had experienced a short sale, and
converted them to rental properties. The result was a
huge increase in the number of occupied single-family
rental properties in the aftermath of the crisis, from
10.5 million units in 2005 to 14.2 million in 2013, a
35% increase, according to the American Housing Survey.
Rental units comprised 61% of the 6.1 million unit net
increase in single-family housing stock from 2005 to
2013, with the remainder split between vacant
single-family units (21%) and owner-occupied
single-family units (17%).

US 4Q economic growth rate revised lower

US economic growth braked more sharply than initially
thought in the fourth quarter amid a slow pace of stock
accumulation by businesses and a wider trade deficit,
but the underlying fundamentals remained solid. Gross
domestic product expanded at a 2.2% annual pace,
revised down from the 2.6% pace estimated last month,
the Commerce Department said on Friday. The economy
grew at a 5% rate in the third quarter. The
fourth-quarter revision was generally in line with
expectations. With both business and consumer spending
expanding in the fourth quarter, growth in final sales
to domestic purchasers was revised to a 3.2% pace from
the previous 2.8% rate. Businesses accumulated $88.4
billion worth of inventory in the fourth quarter, far
less than the $113.1 billion the government had
estimated last month. That resulted in the GDP growth
contribution from inventories being revised down to
one-tenth of a percentage point from 0.8 percentage
point previously. Residential construction spending
was revised down, while government spending was not as
weak in the fourth quarter as previously reported.

Categories
Real Estate News

WSJ – study reignites debate about broker interests

Published on: Dec 1, 2014 @ 7:22 am

A new study by George Washington University’s Center
for Real Estate

and Urban Analysis has rekindled the
debate over whether there are conflicts of interest at
some of the country’s largest commercial real estate
brokerages.  Brokers who represent only office tenants
have argued for years that conflicts exist at firms
that represent both landlords and tenants—and that
their tenant clients often suffer as a result. Brokers
at the so-called full-service firms that represent both
have argued back that such potential conflicts aren’t
an issue, partly because they typically disclose such
relationships to all of their clients.  The George
Washington study, written by Peter Smirniotopoulos, an
adjunct professor, supports the critics of the
full-service firms, arguing that conflicts may not be
resolved through current disclosure practices.  “The
conflicts of interest issue has not been addressed in
any systematic way benefiting tenants,” the study
says. “If legal ethics prohibit an attorney or a law
firm from representing both the landlord and a tenant
[in a lease]…how can the divergent interests of those
same parties nonetheless be adequately represented by
the same [real estate firm]?”

Executives at full-service firms who have read the
study, which was released late last month, have
challenged its conclusions, pointing out that their
professional ethics require them to represent their
clients’ best interests, whether they are landlords
or tenants.  They also noted that the study was
undertaken by the Center for Real Estate and Urban
Analysis in partnership with Boston-based Cresa, one of
the largest firms that represents only tenants and a
big critic of the full-service firms.  Mr.
Smirniotopoulos, who also is a consultant in the real
estate industry, said in an interview that Cresa
provided a “gift letter” that helped finance the
research. But the Center has complete control over the
study’s scope and objectivity. “It had to be
consistent with scholarly work,” he said.  New York
City long has been at the center of the
conflict-of-interest debate because Julien Studley, one
of the pioneers of the business of representing only
tenants, founded his firm here. Earlier this year, that
firm was acquired by Savills PLC in a deal that valued
Studley at up to $260 million. While Savills is full
service, its US division—now named Savills
Studley—has remained a tenant-only shop.  “The
industry is replete with conflicts,” said Mitchell
Steir, the head of Savills Studley, which represents a
number of major tenants in New York. “Each side
deserves an advocate.”

Cresa’s office in New York has been a relatively
small player, but it has grown since it was taken over
by Mark Jaccom, who worked at Studley at an earlier
stage in his career. Mr. Jaccom said the New York Cresa
office employs about 45 people and will represent
tenants in about 1.5 million square feet of deals this
year, up from 600,000 square feet in 2013. The deals
brokered by Cresa this year included Affinity Health
Plan’s lease of about 95,000 square feet of space at
Simone Development’s Metro Center Atrium in the
Bronx, Mr. Jaccom said.  Brokerages that only represent
tenants use the conflict-of-interest issue to lure
business from full-service firms. “You question how
hard [full-service firms] push the landlord who gives
them tens of millions of square feet of business for a
tenant looking for 20,000 square feet,” Mr. Jaccom
said.  But executives at the firms with the largest
offices in New York say that tenants clearly like the
service they get from full-service operations.  “We
represent more tenants for more space than any other
firm,” said a spokesman for CBRE Group Inc. “That
speaks volumes for the value that we deliver for
them.”

Executives at the top firms also pointed out that
tenants get more insight into the market when brokerage
firms also represent landlords.  “Having a broad
perspective from all angles in the market coupled with
a strong adherence to confidentiality is a clear
advantage to our clients,” a spokeswoman for JLL said
in an email.  Some brokers at full-service firms
acknowledged that the potential for conflicts of
interest exists. But they said it happens very rarely
because both tenants and brokers are becoming more
sophisticated.  The issues raised in the George
Washington report “are valid issues,” said Peter
Hennessy, head of the New York region for Cassidy
Turley. “But the level of sophistication of brokers
is such that they’re able to manage the conflict
issue,” he said.  The report recommends further
study, better self-regulation and the development of a
“model code of conduct” in the commercial brokerage
industry.

WSJ – ISM manufacturing index slows slightly in
November

The US manufacturing expansion slowed only a bit in
November, even as foreign producers struggled,
according to a survey released Monday by the Institute
for Supply Management (ISM).  The ISM’s manufacturing
purchasing managers index fell slightly to 58.7 in
November from 59.0 in October. Of the 18 industries in
the survey, 14 reported growth.  Economists surveyed by
The Wall Street Journal had expected the latest PMI to
drop to 58.0.  Other factory sectors around the world
aren’t doing as well as US goods producers. In
November, China’s two factory readings and the
Eurozone PMI were barely above 50. The readings for
Germany, France and Italy stood at contractionary
levels.  In the US, however, manufacturing is still
fairly robust although a little off the boil from
September and October.  “Comments from the panel are
upbeat about strong demand and new orders, with some
expressing concerns about West Coast port slowdowns and
the threat of a potential dock strike,” the ISM
report said.  The new orders index edged up to 66.0 in
November after it jumped to 65.8 in October. Moreover,
the exports index rebounded to 55.0 from 51.5 in
October.  The ISM production index slowed to 64.4 after
it hit a multi-year high of 64.8 in October.  Labor
demand remained solid last month. The employment index
eased to 54.9 from 55.5.  The ISM’s prices paid index
plunged to 44.5 from 53.5. The ISM said it was the
first report of falling input prices since July 2013.
US manufacturers continued to build inventories last
month. The ISM inventory index stood at 51.5 from 52.5
in October.

The great divide in California’s housing market

The divide in California’s housing market is vast and
shows no signs of stopping. According to an article in
Zero Hedge, the upper end of the housing is market on
fire, while everyone else struggles.  For majority of
the borrowers, record-low mortgage rates are not enough
to boost originations and offset tight lending
standards.  But the luxury housing market in California
depicts a completely different story.  “It’s pretty
mind-blowing, to be honest,” Los Angeles real estate
agent Cindy Ambuehl told the LA Times. “The luxury
market has been completely on fire.”  “It’s just
a completely different story between the two segments
of the market,” said Selma Hepp, senior economist for
the California Assn. of Realtors. “Those who are
doing well are doing really well.”  To put this in
perspective, the article noted that in the third
quarter, 1,431 homes worth over $2 million were sold in
the six-county Southland, up 14% from a year ago. In
the second quarter, 1,436 of such homes were sold, the
highest number ever. Sales of homes worth over $10
million are on track this year to double the prior
record set during the peak of the last housing bubble.
Meanwhile, for the overall California housing market,
Madeline Schnapp, director of economic research for
Property Radar, said in its September housing report,
“The California real estate market is stuck in low
gear. High prices and relatively tough lending
standards have pushed many would be homeowners to the
sidelines.”

For many Americans, retirement won’t be golden

The blissful vision of retirement may die hard, but the
financial contours of most Americans’ post-career years
are changing rapidly and radically.  Born of the
optimism during the post-World War II economic boom,
when private and public pension systems expanded,
“retirement” for decades became a distinct period when
people could expect to spend more time with
grandchildren, indulge in their hobbies and generally
enjoy the fruits of their labor.  But demographic,
economic and political factors have altered that
landscape.  Although the needs of longer-lived retirees
are increasing, most notably from a health-care
perspective, traditional sources of income are
dwindling.  Gone are defined-benefit pension plans and
retiree health benefits, and going are Social Security
benefits. Retirement costs are rising, while expected
returns on personal savings are falling.  The upshot is
that Americans of all ages and most income levels will
have to alter their plans. They will have to work
longer and change their lifestyles both before and
during retirement.  And in many cases, they will have
to rein in their expectations about their “golden”
years.  “Retirement was a 20th-century idea that won’t
exist in the same way in this century,” said certified
financial planner Ric Edelman, chairman and CEO of
Edelman Financial Services, which has about 25,000
clients.

For millions of Americans, the retirement outlook is
bleak. The latest annual study of the retirement
readiness of baby boomers and Generation X by the
Employee Benefits Research Institute found that 38% of
Americans in the lowest-income quartile of those
generations will likely run out of money during their
first year of retirement.  By year 10, 64% of them will
be penniless and 11% of those in the next-lowest
quartile will be in the same predicament. When
long-term-care costs—the biggest wild card—is
factored in, the numbers get worse.  “It’s astounding
how fast retirees in the lowest-income quartile will
run out of money,” said Jack VanDerhei, research
director at EBRI. “An abundance of other people are
going to become indigent when they need nursing care,
and no one knows who is going to pay for it.”