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Real Estate & Economic Jitters Everywhere

September 27th, 2011 by Bill Collins Leave a reply »

Are Record Low Interest Rates Enough "Stimulus" to Avoid Collapse of The Real Estate Market?

Recent economic and financial reports have led to some chilling predictions and headlines in recent weeks.  Here are some of the most recent, most fearsome that we have seen:

“Shadow housing stock looms in mired market (Homes in limbo by foreclosure or repossession could drag down prices for years in Iowa and the U.S.)”
This September 24th headline from the Des Moines Register illustrates how the media, on a local level, is attempting to describe the coming perils of the “shadow inventory”.  The report by Adam Belz and Donnelle Eller utilizes data from national firms (Zillow, RealtyTrac, Standard & Poors) along with local housing industry participants to describe what is happening and a link is found here: Shadow Housing Stock Looms in Mired Market

“U.S. in Depression or Recession?”
This CNBC video from September 23rd asks a question that is on the mind of many and a link to it is found here: US In Depression or Recession?

“Global Meltdown: Investors Are Dumping Nearly Everything”
This CNBC report by Patti Domm on September 22nd described the mood of that day last week when investors, fearful of no solution to European problems and of a global recession, dumped stocks and commodities and found safe haven in U.S. Treasurys.   A link to Ms. Domm’s report is found here: Global Meltdown: Investors Are Dumping Nearly Everything

“U.S. Banks Face Worst Revenue Decade since Depression: Pro”
Another CNBC report, this one from from September 21st,features an interview with CLSA bank analyst Mike Mayo in which he warns that “…the deterioration in Europe’s debt crisis that could trigger a liquidity crunch, and warned that U.S. lenders may be headed towards a period of very weak growth similar to what their Japanese counterparts experienced back in the late 1990s.” A link to the CNBC report is found here: U.S. Banks Face Worst Revenue Decade Since Depression

“Poverty pervades the suburbs”
This report by CNNMoney’s Tami Luhby on September 23rd graphically depicts the Brookings Institute findings, released one day earlier, that a record 15.4 million suburban residents live below the poverty line.  A link to Ms. Luhby’s report is found here: Poverty Pervades the Suburbs

“Welcome to the Suburban Depression”
This report was also released by CNBC on September 21st.  Written by their Senior Editor, John Carney, it notes that the suburban poverty rate has reached the highest level in almost 45 years (according to Census data reviewed by Pro Publica). Welcome to the Suburban Depression 

“Mortgage industry tanks, fraud continues at Countrywide”.
On September 23rd, Michael Hudson writing in iWatch News for the Center for Public Integrity discusses their investigation into the “legacy of corruption that still plagues Bank of America” from their Countrywide acquisition.  Details about internal investigations and cover-ups during the “go-go” years (including extensive evidence of “cut and paste” forged documents and a “unusual number of Wite-Out dispensers” on employees desks) abound.  At a time where Bank of America is preparing to lay off possibly 30,000 employees and there is talk of bankruptcy for their Countrywide unit, the iWatch News report reminds us of how the situation evolved and a link to this is found here: Mortgage Industry Tanks, Fraud Continues at Countrywide

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All Is Not Doom and Gloom?

Two reports recently released show modestly positive results: On September 21st, the National Association of Realtors (NAR) report on existing home sales for August showed a 7.7% increase in sales from the previous month and the Federal Housing Finance Agency (FHFA) monthly report for July showed a 0.8% increase in home prices from the previous month.  Both reports, however, showed declines from the previous year with the FHFA noting a 3.3% drop in price and the NAR a 5.1% decline in median prices from the prior year. 

On September 21st, Calculated Risk discussed the NAR findings that the inventory of existing homes had declined and highlighted the significance of this even with the large “shadow” inventory of distressed property that might be coming to market in the next year or two.  Calculated Risk noted that the NAR data was suspect and that the NAR would be (finally) providing revised sale figures within the next couple of months with preliminary projections that the downwardly revised sales numbers might show that the number of homes sold during 2010 was overstated by 10 to 15%.  A link to the Calculated Risk blog is found here: Calculated Risk: Existing Home Sales: Comments and NSA Graphs

On September 20th, however, the Commerce Department reported that housing starts declined approximately 5% in August, at the same time interest rates were declining to near record lows.  Bloomberg’s Alex Kowalski reported on this later that day and a link to his article is found here: US Housing Starts Fall to Three-Month Low – Bloomberg

Housing Wire’s Kerri Panchuk reported that day about the increase in building permits in August (+3.2%) and suggested that some of the decline in starts might have been weather related, particularly in the northeast where a 29% decline in starts was linked to severe hurricane activity.
Michelle Conlin, writing for HuffPost Business on September 22nd, notes that “…it’s starting to feel as if there are two housing markets. One for the rich and one for everyone else.” She uses an extreme example from Michigan where in “…historic Green Acres district, a haven for hipsters, a pristine, three-bedroom brick Tudor recently sold for $6,000 – about what a buyer would have paid during the Great Depression. Yet just 15 miles away, in the posh suburban enclave of Birmingham, bidding wars are back. Multi-million-dollar mansions are selling quickly.”  The entire article by Ms. Conlin can be read by clicking on the following link: Housing Market Split Between Very Rich and Everyone Else

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(Fleeting) Signs of Improvement in Commercial Market?

Several recently released reports (Moody’s, CoStar Group and Green Street Advisors) indicate improvement in segments of the commercial real estate market.  On September 22nd, Bloomberg Businessweek’s Brian Louis discussed these reports which included a 5% increase in the Moody’s/REAL Commercial Property Price Index in July from the previous month along with a 1.2% increase from the previous year.  Overall economic conditions, however, suggest that this improvement might not last along with a slowdown in demand for commercial mortgage-backed securities.  A link to the Bloomberg Businessweek report is found here: Commercial-Property Prices Jumped 5% in July, Moody’s Says

On September 21st, the American Institute of Architects reported a surprising significant increase in billings in July after four months of decline.  The “architecture billings index” is considered a leading indicator of U.S. nonresidential construction activity and the increase above 50 is considered suggests a rising demand for design services and subsequent increase in construction spending 9 to 12 months ahead.

Global economic concerns, stressed financial markets and looming layoffs by financial firms of tens of thousands of employees is dampening expectations, however, regarding the future recovery in the commercial real estate market.  Writing in the Wall Street Journal on September 21st, Eliot Brown, Kris Hudson and Craig Karmin discussed these concerns along with the possibility of a large increase in troubled commercial real estate loans.  They noted that soured commercial real estate loans were one of the major contributory factors in the nearly 400 bank failures since the beginning of 2008 and suggested that more “headaches” would be coming over the $1.4 trillion in commercial real estate loans on their books.

The Journal cites the warning in a Deutsche Bank AG report from the prior week that “Many small and some medium sized institutions remain unprepared for the harsh realities ahead” due to their limited capital in relation to billions of troubled mortgages.  The Journal article also noted that 70% of the architecture firms surveyed by the American Institute of Architects reported at least one stalled project, suggesting a possible reversal in the “architecture billings index”, with the most common factor cited by developers being the inability to obtain financing.

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Rates & Dates

Freddie Mac and the Mortgage Bankers Association (MBA) both reported that mortgage interest rates remained stable in their most recent weekly reports.

Freddie Mac reported that rates for 30-year fixed-rate mortgages remained near record lows at 4.09% for the week ending September 22nd, unchanged from the prior week.   Frank Nothaft, vice president and chief economist for Freddie Mac noted that:
“A sluggish economy and investor concerns over the European debt markets left mortgage rates largely unchanged this week. Manufacturing activity in both the New York and Philadelphia regions contracted in September. Moreover, the Federal Reserve Board reported that households lost nearly $150 billion in net worth in the second quarter, representing the first quarterly decline in a year.”

The MBA in its most recent Weekly Mortgage Applications Survey for the week ending September 16th reported that 30 year rates remained unchanged from the prior week at 4.29%.   
In their press release of September 21st, the MBA reported a 0.6% increase in mortgage applications during this most recent week with refinance activity increasing to 78.3% of applications. 

Additional information from Freddie Mac can be found by going to: Primary Mortgage Market Survey PMMS – Freddie Mac

Additional information from the Mortgage Bankers Association can be found by going to their site at: Research and Forecasts – Mortgage Bankers Association

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Ask Angie

We would like to congratulate our most recent winner, Ann Kagan, a Certified Residential Appraiser from Philadelphia, Pennsylvania. Ann was the first to correctly answer all three questions in our last newsletter.

Here are the answers to those questions:  Nicole Kidman reportedly said “I have a different approach. I don’t file lawsuits because I really don’t care”, Soren Kirkegaard was the author of the quote “Life can only be understood backwards, but it must be lived forwards” and Bern Williams noted that “People who say, ‘Let the chips fall where they may,’ usually figure they will not be hit by a chip”. 

Today’s questions:

1. Who Said: “Markets and government institutions are visibly struggling to respond consistently to an unprecedented rash of crises and conflicts. These struggles diminish confidence, which compounds the underlying economic stresses and lowers expectations”.

a) Robert Shiller
b) Franklin Delano Roosevelt
c) John Maynard Keynes
d) Ben Bernanke
e) None of the above

2. Who said: “All Americans want decent homes to live in; they want to locate them where they can engage in productive work; and they want some safeguard against misfortunes which cannot be wholly eliminated in this man-made world of ours”.

a) Barack Obama
b) Franklin Delano Roosevelt
c) Shaun Donovan
d) Sarah Palin
e) None of the above

3. Who said: “Action may not always bring happiness, but there is no happiness without action."

a) Martin Seligman
b) Dalai Lama
c) Benjamin Disraeli
d) Napoleon Hill
e) None of the above

The first person to respond with the correct answers wins a choice of one of the following:

One Free Regular Listing on AppraiserHelp.com

A Free Copy of the 12/10 UPDATED Directory of Appraisal Management Companies (Available Now to Members of AppraiserHelp.com and FHAAppraisers.com FREE!)

One Free Trade Show Pass to Valuation Expo 2011 in Las Vegas

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Tell us what you think!

We invite your responses to any of the issues raised in this newsletter. Please e-mail us at: bill@appraiserhelp.com with your thoughts!

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We really hope you find our newsletter to be informative!  If you have any input on future topics for discussion, please email me your questions and I will do my best to address them in the next issue.  If you want to look back at past issues you can see our archive at www.appraisernews.com

Regards,

Bill Collins, Appraiser Help Inc.

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