Entries Tagged '2007 Real Estate Forecast' ↓

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Okay, I understand it was a slow week, but when a major story coming out is that mortgage applications are down 15 percent week to week, then we do have a problem. If it is the middle of September that could be an indicator, sure. But when the week encompasses December 25^th, a day called Christmas even in some Muslim and Buddist countries, the fear mongering by headline writers is a bit excessive.

The latest data on mortgage applications came during a week shortened by the Christmas holiday, the Washington-based MBA noted.
Applications to refinance existing mortgages loan decreased a seasonally adjusted 15.4% on a week-to-week basis, while applications for loans to buy homes were down 8.5%, according to the MBA survey.
The four-week moving average for all loans was down 9.0%.
Refinancings accounted for 50.9% of all applications last week, down from 53.0% the previous week. Adjustable-rate mortgages decreased to 9.8% of all applications, down from 10.4% the previous week.
The average interest rate for 30-year fixed-rate mortgages was 6.05% last week, down from 6.10% the previous week.  via  MarketWatch.

This is why we are all feeling a pinch.

Click image to view full size.

via USA Today

Of the 71 thousand plus jobs that were cut in September, over 26 thousand of them came out of the housing industry. That means over a third of the jobs lost in the United States came from construction, mortgage lenders, and real estate firms.

While some see this as a painful transition the reality is that the real estate sector was bloated with to accommodate the speculative and bubble economy that built up in  the real estate sector. These cuts probably should have occurred earlier but all of the companies were holding out for a quick turn around. When it did not come, head count in the real estate industry was bound to drop.

And how is the economy reacting to this? Well, on a national basis, layoffs are down from 100,315 in September, 2006 to 71,739 in September, 2007. So the economy is taking  the slowdown in real estate with a nod but not a worry. Job creation is continuing at a high level and the real estate slowdown is not hurting the national job picture at all.

About 37 percent of September job cuts were connected to the housing industry as that sector continues to languish in a deep slump, consulting firm Challenger, Gray & Christmas Inc. said Wednesday.
Housing-related layoffs totaled 26,465 in September, while overall layoffs for the month totaled 71,739, according to Challenger, Gray & Christmas. The consulting firm considers mortgage lenders, construction companies and real estate firms the industries that make up housing-related sector. via Business Week

As the United States commercial and residential markets slow down, Wall Street is not prepared to wait for the next big thing domestically. Large players like Goldman Sachs and Morgan Stanley are already making large investments in Asia. Goldman announced a 200 billion yen investment in Japan real estate this year on the assumption that Japan has a great deal of upside after their long and painful housing recession.

And this is the lesson of the real estate markets and why we should not be so worried that their downturns will spark huge national recessions and upheavals. With the globalization of investment dollars, corporate America and Wall Street are not stuck in any one investment or region. If the US real estate market slows down, tough for the agents and builders, but corporate America will head overseas to the newest hot spot.

So for the agents and those dependent on local real estate for  their livelihood, their can be a great deal of angst and despair. But for the global economy issues like a slow market, credit crunch, or subprime fall out are potholes in the road to success. Not enough to stop Wall Street, but just inconveniences to be dealt with.

Japanese commercial land prices rose this year for the first time since the property bubble burst in 1991, crippling the world’s second-biggest economy with three recessions in the following 15 years. New York-based Goldman spent 2 trillion yen since 1998 buying Japanese properties including golf courses, spa resorts, jewelry stores and cinemas.
Morgan Stanley has also been on an acquisition spree spanning offices, hotels and residential developers. In April, Morgan Stanley agreed to buy 13 hotels in Japan from All Nippon Airways Co. for 281.3 billion yen in what was Japan’s largest real estate purchase by an overseas investor. via Bloomberg.com

Yesterday we published the list of the Top 10 Most Expensive Markets for an average home, today we are going to cover the least expensive markets in the country.

The average home in this survey by Caldwell Banker is 2,200 square feet with 4 bedrooms, 2 1/2 baths, a family room, and a 2 car garage. I some parts of the country the price tag can be over 2 million dollars, but these cities will find the average price all under 160,000 dollars.

6 of the ten cities in the survey are military towns which is a great thing. To live the average lifestyle our military should not have to suffer as pay is not the driving force for our soldiers and sailors.

So if you are looking to live in a place with a lower cost of living but having the ability to own the average American home, here are the places.

Top 10 Most Least Markets For “Average Home”

1. Killeen, Texas $136,725
2. Minot, N.D. $139,033
3. Arlington, Texas $139,175
4. Canton, Ohio $146,333
5. Muncie, Ind. $150,000
6. Topeka, Kan. $150,075
7. Fort Worth, Texas $151,250
8. Tulsa, Okla. $153,750
9. Grayling, Mich. $155,000
10. Wichita, Kansas $156,500

via CNN

Tags: Killeen, Minot, Arlington, Canton, Muncie, Topeka, Fort+Worth, Tulsa, Grayling, Wichita

If you are looking to buy the average home in the United States, these are the most expensive markets. The average home in this survey by Caldwell Banker is 2,200 square feet with 4 bedrooms, 2 1/2 baths, a family room, and a 2 car garage.

Looking over the list, California has 8 of the top 10 most expensive towns for the average home which is not a surprise with the fantastic run up in property values in 2007. Also on the list are Greenwich, Connecticut and Boston, Massachusetts in the northeast.

This has to account for the attention placed on housing out in California. When the average person is having to dig up nearly a million to get into a home housing becomes the leading discussion in the household. And if you held onto a home during the run-up you have a great deal of your wealth tied up in the real estate market.

Top 10 Most Expensive Markets For “Average Home”

1. Beverly Hills, Calif. $2,206,883
2. Greenwich, Conn. $2,018,750
3. La Jolla, Calif. $1,800,000
4. Santa Monica, Calif. $1,785,000
5. Palo Alto, Calif. $1,677,000
6. Newport Beach, Calif. $1,617,500
7. Santa Barbara, Calif. $1,599,667
8. San Mateo, Calif. $1,498,023
9. San Francisco, Calif. $1,451,250
10. Boston, Mass. $1,381,250

Tags: Beverly+Hills, Greenwich, La+Jolla, Santa+Monica, Palo+Alto, Newport+Beach, Santa+Barbara, San+Mateo, San+Francisco, Boston

Recently Sam Zell was interviewed at Wharton Business School about the recent volatility in the real estate markets. As you may know, Zell sold his Equity Office Products group to Blackstone near the peak of the market. He goes on to talk about that there is still credit available even though we are all calling it a credit crunch.  The problem lies in the confidence of the buyers to do the deal and take on the new risk premium in higher interest rates.

In a wide-ranging lecture at Wharton, moderated by real estate professor Peter Linneman, the Chicago-based investor said current markets are spooked by problems with U.S. subprime lending. However, they still have capital to deploy, unlike during other real estate busts, when financing could not be arranged at any price.
“We’re not really in a ‘credit crunch.’ I think we’re in a ‘confidence crunch,’” said Zell, funder of the Samuel Zell and Robert Lurie Real Estate Center at Wharton. “I would argue the excess liquidity that existed eight weeks ago still exists today. It has a different risk premium on it, but the actual amount of liquidity has not changed.”
Zell said the slump should come as no surprise: “Over the last three years, people were flippant. They bought anything they wanted and were proud that they didn’t do due diligence. I think they have all been chagrined and are scared out of their minds.”  via Forbes.com

If you have the time read the rest of the article. Sam Zell is one of the great minds in real estate this century as he has developed the insight to watch trends and counter the exuberance that tends to captivate real estate investors and players.

Heads up, this is going to be a bit of a rant.

I was reading through Ben Bernanke’s comments on the state of the economy and real estate from yesterday (transcript here) and I came across a nugget of information. Essentially, of the loans outstanding,

• 15% of subprime loans are 90 days or more late
• 3% of Alt-A loans are 90 days or more late
• less than 1% of Prime loans are 90 days or more late

So I said to myself, we have a group of financial companies that have access to the best in technology and brainpower to determine the risks in determining risk factors in loans. The have access to the best data in the world on actuary and risk assessment. Yet, these same lenders and financial titans have made some grievous errors in their calculations  and made billions of dollars of loans that can never be paid back.

Or have they?

If you follow Manhattan real estate, values there have been propped up by the incredible profits Wall Street has created over the past few years. Much, not all, but much of the money has been generated by the investment into securitized mortgages, consisting of subprime, Alt-A, and Prime loans.

Now the combination of a hyperactive real estate market that is pulling back and interest rates that are creeping up have put many of these loans in jeopardy and thrown an industry into turmoil.

But my question to you is, why are we so concerned now with bailing out Wall Street? If anyone should have seen this coming, it is the financial institutions that have the brain power and technical prowess to predict this scenerio. I can not imagine that the powers that be could not see that there was a top to the housing market or that interest rates would come off their historic lows.

I typically am not a big conspiracy sort of person, but it is nagging at me that Wall Street pocketed the money on the upside and now are playing a game of chicken with the economy. Wall Street is counting on the Federal Reserve and the Federal Government to bail them out on the downside. With it being an election year the odds of a government bailout of the industry is going to be almost guaranteed.

So, essentially I am left to believe that Manhattan real estate prices and the huge profits generated by Wall Street are being subsidized by you and I, the American taxpayer.

And that does not thrill me.

While in many ways Malibu, California is an outlier. Home prices are through the roof, celebrities run around buying and selling homes, and the market is dependent on many factors that the rest of America never sees. But with all these differences Malibu may be showing us why housing prices are not dropping.

In Malibu the top end of the market is going strong while the bottom of the market is languishing. So while homes for sale are way up, the median and average price of homes sold this year are going to show increases. These numbers are showing up all over America and providing a great deal of confusion for sellers and buyers alike.

If you are selling a lower end home in Malibu and you hear that the average price of a home is up, would you lower the price of your home to get it to sell? That would be the right move as your strata of home is not selling, but it would take a great deal of fortitude when the average prices are going up.

Of course, if your home sold, it would lower these prices so there is a false economy. And if enough sellers on the low end continue to buy into the false economy it will perpetuate. And this is why I think that Malibu represents a microcosm of the national market. The top end of home sales is not hurting, the middle level is dependent on the region, and the bottom end is across the board.

But those on the bottom end are fighting for every dollar and thus NOT selling their homes. So when the average sales prices come out, they are a bit higher than they probably should be. And as the people on the bottom see the average prices not coming down, they are even more resistant to lowering their prices creating a glut of homes on the lower end that are not selling.

It looks like their is a little bit of Malibu in Anytown, USA.

The overall statistical picture of Malibu real estate is pretty good, amazingly. The number of homes sold for more than $5 million and $10 million has already matched recent years and will shatter past records. Though elite properties represent a small percentage of Malibu living, mammoth doses of money are keeping Malibu real estate healthy. As the chart indicates, already this year 33 sales have topped $5 million and 14 have topped $10 million through August, putting us on a projection of 50 and 21, respectively. As a result, 25 percent of all local home sales currently are above $5 million.

In contrast, the numbers of sales in the lower priced neighborhoods have dropped considerably. With only 34 deals concluded in such neighborhoods, the same 50 sales and 25 percent of the market will be represented by the low end. via the Malibu Times

The combination of saving the economy from the effects of the stock market bubble and 9/11 created the storm that is now the credit crunch and housing bubble. It does not take a rocket scientist to figure that out, but in reading interviews that Alan Greenspan is giving while promoting his book, The Age Of Turbulance, it seems that this is the tact the former head of the Federal Reserve is taking.

What scares me is that the markets spent years living and dying on Greenspan’s every word. Now that his is no longer the Fed chief and is focused on selling his book, will people recognize that he does not have the same careful methodology in what he says. To me it is the exact opposite.

Where in the past it was to Greenspan’s benefit to be circumspect, selling books is all about headlines. So making broad pronouncements are the tools of the trade and saying that housing will fall apart or that Iraq is about oil will fulfill his needs and not the general good of the public.

This is the madness of the publishing world, it takes a man like Greenspan who spent his career measuring phrases and turns him into a bombastic fool just to make the bestsellers list.

In 2004 we tried to raise mortgage rates by moving the 10-year Treasury note up and we failed,” Greenspan told CNBC, adding that the Fed failed again in 2005 and would have failed had it tried in 2002.
“We had no control, that I could see, which would have made any difference in the extent of the bubble that was emerging,” he said. “And we concluded, as we did with respect to the stock market bubble in the 1990s, that … as I pointed out previously, every time we tried to tighten … we weren’t trying to knock the stock market down. We were reacting to inflationary pressures. via CNBC