The Real Estate Bloggers

Get ready for the roller coaster if the Cap and Trade Bill that was passed by the House of Representatives last week becomes law. Those who are living in older homes or homes that are not the most energy efficient are essentially screwed.

Over the next few days I will be outlining what is in the bill and scaring the crap out of you. Can you imagine how expensive it will be to retrofit your home to hit these mandates?

I did a quick excel spreadsheet and according to the numbers the Secretary of Energy will expect by 2029 that homes will use 62 percent less energy, or else they will be subject to Federal intervention. We will get into Federal intervention and inspectors on a later post.

(A) effective on the date of enactment of the American Clean Energy and Security Act of 2009, 30 percent reduction in energy use relative to a comparable building constructed in compliance with the baseline code;

(B) effective January 1, 2014, for residential buildings, and January 1, 2015, for commercial buildings, 50 percent reduction in energy use relative to the baseline code; and

(C) effective January 1, 2017, for residential buildings, and January 1, 2018, for commercial buildings, and every 3 years there after, respectively, through January 1, 2029, and January 1, 2030, 5 percent additional reduction in energy use relative to the baseline code. US Congress Bill 2454 page 200

And if this is not scary enough, look at the power it gives the Secretary of Energy:

(4) ADDITIONAL REDUCTIONS IN ENERGY USE.—Effective on January 1, 2033, and once every 3 years thereafter, the Secretary shall determine, after notice and opportunity for comment, whether further energy efficiency building code improvements for residential or commercial buildings, respectively, are life cycle cost-justified and technically feasible, and shall establish updated national building code energy efficiency targets that meet such criteria. US Congress Bill 2454 page 202

You will have given the Secretary of Energy the power to decide unilaterally what the energy use codes for the country will be. One person will have the power to decide what homes have to do to comply with his or her whims.

And you think we have problems now with real estate, just think of the fun times we will have if this bill gets enacted into the law of the land.

As the Treasury Department training company, Goldman Sachs, records incredible profits, the housing market is fighting a battle to save the economy. The 275 billion that the Federal Government allocated to infuse into the housing market is failing to get into the hand of the borrowers. It is staying with the bankers paying down their debt and fix their bottom line.

And if you are looking to buy an investment property, God bless you. With 2.1 million empty homes on the market, there is a great deal of excess inventory that needs to be absorbed before the market will have a firm foundation.

The group that could buy up this excess housing is the investor class to turn it into productive rental properties or fix them up (spending more money) and sell them. Instead the assets are sitting idle, a weight on the market and the economy.

Four months after President Barack Obama pledged $275 billion to shore up home sales, the engine that powered every U.S. recovery since 1960 is stalled. Bankers’ reluctance to finance buyers who won’t live in properties is one barrier to a turnaround. Stricter qualifying rules and a rise in the cost of residential loans to 5.42 percent have impeded new mortgage lending, which is at a 13-year low. An inventory of 2.1 million unoccupied houses on the market, created by the fastest foreclosure pace in history, may be a drag on a revival.  Bloomberg.com

But as the late Billy Mays said, that’s not all:

If we do not see a housing stabilization soon, many more families will be underwater on their mortgages. Even Alan Greenspan, the retired Fed Chief, is scared. While things are slow right now, restaurants are still humming and people are still spending. Housing is the vehicle that will lead the recovery, but housing could also plunge us into another level of recession just as quickly.

The consequences of a further steep decline in house prices on the overall economy are severe because it would cut so significantly into the American middle class, the vast army of consumers, the ones with conventional Fannie- and Freddie-backed mortgages, dubbed “conforming” in the trade. Any equity that subprime-mortgage borrowers had in their homes is gone. But about eight million conventional mortgages were made for home buyers in 2005 and 2006. House prices have fallen significantly since then.

“The bulk of conforming mortgages made since 2005 are close to being underwater,” says Mr. Greenspan, meaning their mortgages are greater than the market price of their homes. Wow. Although many underwater homeowners will keep making monthly mortgage payments, they can’t refinance or take out home-equity loans — and are at greater risk of default and foreclosure.

“We can take another 5% decline in house prices without much macroeconomic impact,” Mr. Greenspan says. But if prices fall by 12%, more than four million additional homeowners will be underwater. via WSJ

I wonder how often this is happening these days.

Sad but true…

What happens when you give special deals to politician?

You tend to get away with it.

That is the lesson that the investigation into the Friends of Angelo program that Countrywide and Angelo Mozilo offered influential politicians to get below market loans. They got cheap mortgages, he got an ear to listen to how regulations were written. And we all saw how that turned out…

Now the secondary payoff is coming. Instead of investigating the bribery that occurred, we are getting the whitewash in Congress. Hey if you don’t investigate the crime no one can get into trouble. Right?

Mr. Issa said he understands there is some resistance within the committee to issuing a subpoena, but he still hopes one will go out.

The Friends of Angelo program has proved embarrassing for some loan recipients, whose ranks included two U.S. senators, Democrat Christopher Dodd of Connecticut and Democrat Kent Conrad of North Dakota. Both men, subjects of a Senate Ethics Committee investigation, have denied wrongdoing and said they didn’t do any favors to Countrywide.

Mr. Dodd has said his mortgage was at a market rate. Both senators, who also have said they weren’t aware of receiving special treatment, are cooperating with the ethics probe. The ethics committee didn’t return a call for comment.

Mr. Issa says investigations have shown that loans also went to influential Republicans. “This is a bipartisan problem,” he says. via  WSJ.com.

We are all thrilled that real estate sales volume has increased, but is it because the investors have returned to the marketplace? When the bubble burst, real estate investors in parts of the country were hit hard. They fled the market, some with moderate losses, some losing the shirt off their back.

But as the banks unload their foreclosures and deals start floating around, the investors have returned. One out of five homes sold last year were to investors. That is a significant amount of properties changing hands and is what is setting the floor right now of the housing market. The investors are looking for the deals and keeping prices from dropping further by taking inventory off the market.

So thank you real estate investors for coming back.

They bought one out of every five homes last year, according to the National Association of Realtors. And many are snapping up deeply discounted foreclosed homes and other distressed properties in places like Las Vegas and Phoenix.  San Jose Mercury News.