Archive for June 22nd, 2009
Continue Reading June 22nd, 2009
You don’t need an Ivy League degree to figure out the housing market stinks. Harvard University released its annual State of the Nation’s Housing report today. Among its conclusions: “Despite some stabilization in homebuilding and home sales in the spring, real home prices continued to fall and foreclosures mount in most areas in the first quarter of the 2009.”
Adds Eric S. Belsky, executive director of the Joint Center for Housing Studies at Harvard: “The best that can be said of the market is that house price corrections and steep cuts in housing production are creating the conditions that will lead to an eventual recovery.”
Interestingly the report touches on many of the same themes we at BusinessWeek wrote about in this week’s cover story Housing Market 2012. Yes the market stinks, but the same demographic trends that existed before the bust will help bring prices back. These trends include immigration, migration from pricier northern cites to the more affordable sunbelt, growth in high-tech jobs and the echo boom generation entering its home buying years.
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Continue Reading June 22nd, 2009
The Mortgage Bankers Association today significantly lowered its 2009 mortgage origination forecast to 2.03 trillion, a drop of $700 million below its March projection. The primary reason: higher interest rates. Interest rates climbed from 5.19 on March 25 to 5.76 on June 17, according to Bankrate.com.
Rising interest rates have put a serious damper on refinancing.
“The March increase in refinance origination was driven by two factors,” Jay Brinkmann, the group’s chief economist said in a prepared statement. “The subsequent increase in interest rates, however, began to choke off the refinance wave in May, much earlier than expected in the March forecast.”
Brinkmann said another reason the group lowered the forecast was the weak response so far to the Home Affordable Refinance Program being overseen by Fannie Mae and Freddie Mac. The Obama administration said in March that it expected 1.5 million to 2 million borrowers to take advantage of the program, which is designed to help borrowers who are current on their payments to refinance up to 105% of a home’s value. But only 13,000 loans have been refinanced through the program, although Brinkmann said he expects the numbers to rise over time.
Interestingly, the MBA is forecasting that interest rates will rise through the end of the year and through 2010. Other analysts say they expect interest rates to fall.
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Continue Reading June 22nd, 2009
These are tempting times for real estate bargain hunters. Whether it’s the tony house down the street with an asking price that keeps dropping or office space at a deep discount, if you have the means, there are deals to be had. Individual investors snapping up foreclosed houses have helped boost home-sale figures sharply in recent months (although prices have remained depressed). And now some real estate investment trusts are raising money to fund acquisitions of distressed commercial properties.
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Continue Reading June 22nd, 2009
Real estate broker Rodrigo Nino has found a tempting way to sell high-end condos to skittish investors—he sells them with a few years worth of rent already in the bank. Nino, the founder of the real estate agency Prodigy Network, calls the arrangements “guaranteed income assets” but they are more commonly known as master leases. They are becoming somewhat more common in markets such as New York and Miami where struggling developers are looking for creative ways to unload condos.
The arrangements work like this. The developer either leases out the condo to a tenant or promises to do so, putting an amount equal to as much as three years worth of rent into an escrow account. The developer then sells the property to an investor who is guaranteed to get some income for as long as there is money left in the escrow account.
Nino is selling units in a building called the William Beaver House in New York’s financial district. The one bedroom condos there sell for $1.4 million. The monthly rent on such a unit is $3,500. So the developer agrees to put $126,000 ($3,500 times 36 months) in escrow so the investor knows he will have income for at least three years. The strategy is really a just a way for the developer to discount the sale price and use the reduced proceeds to pay down his debt on the building. One plus for the developer in this arrangement is that if the unit ends up renting for more than the agreed on amount over the course of the three years, he can keep any upside.
“The investor doesn’t want to take a chance on what the rent could be,” Nino explains. “It’s an interesting mechanism that helps you deal with the uncertainty.”
During the boom Nino sold high end condos in Miami and New York, representing developers. Now that developers are in trouble he’s switched to representing buyers. He says he only works with folks who meet the SEC definition of “accredited investors.” That usually means they have at least one million in cash or marketable securities to invest. Nino says he’s lined up a $500 million pool of foreign investors looking to buy high-end condo properties, only this time at steep discounts.
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