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- Morning MoneyBeat: Housing's Foundation on Shaky Ground - MoneyBeat - WSJ
The looming shift in Fed policy is taking a toll on the increasingly fragile housing recovery.
Rising mortgage rates, which reflect expectations the Fed will soon reduce its stimulus programs, are proving to be a significant headwind for potential home buyers. Sales of newly built homes slumped 13.4% in July, the steepest drop in three years, and fell well below what economists were anticipating, according to government housing data released Friday.
"It is certainly a warning signal that conditions in the housing market are nowhere near as rosy as homebuilders, real estate agents, and their enablers in the media are so keen to represent," said Joshua Shapiro, chief U.S. economist at MFR Inc. He added "speculative demand" continues to be one of the main drivers of the housing recovery.
From the downbeat data on new home sales to declining housing stocks to the news about American Homes 4 Rent, hedge-fund manager Doug Kass of Seabreeze Partners Management wonders: "Could there be more evidence in a single day that housing blew up on the rate 'surge' catalyst?"
"The obvious question is whether missing the new home sales estimate…prompts the Fed to postpone the expected taper in September," said Mike O'Rourke, chief market strategist at JonesTrading Institutional Services, a brokerage firm. "An even larger question is whether we are starting to see the economy weaken in the second half of the year."
However, interest rates have been falling, though we, of course, don't expect that to continue indefinitely.
Read the source article ... https://blogs.wsj.com/moneybeat/2013/08/ 26/morning-moneybeat-housings-foundation -on-shaky-ground/
- Eminent Domain Scheme Has a Tax Problem - Bloomberg
This aspect has been written up before, but we hadn't seen it repeated for many, many months. So, to refresh:
There's been plenty of carping about the plan by Richmond, California, to use eminent domain to seize mortgages and, with the help of the investment firm Mortgage Resolution Partners, lower the loan principal for more than 600 homeowners who owe more than their homes are worth.
Aside from the complaining by banks and investors that it's unconstitutional, unfair and will kill off new mortgage lending, there's one issue that hasn't gotten as much attention: Taxes, and how some think they make the plan unworkable.
The short story is that when a lender forgives all or part of a debt, as called for in the Richmond plan, the borrower incurs a tax liability. This represents the difference between the original amount borrowed and the lower amount that the lender has agreed to accept as repayment.
The reason is pretty simple. When someone is granted a loan, the money they receive isn't counted as income even though it functions as if it is. When debt is forgiven, though, that does represent a transfer of wealth to the borrower, so tax is owed.
Debt forgiveness emerged as an issue in the waning days of the George W. Bush administration, which wanted to help out millions of borrowers as the U.S. real-estate market crashed. In 2007, Congress passed legislation granting tax exemptions to homeowners who received principal writedowns through the end of 2012.
Luckily for homeowners still underwater who didn't make the 2012 deadline, along came the fiscal cliff and its package of expiring tax breaks and spending cuts: Congress has a soft spot for real estate and extended the debt-forgiveness legislation until the end of this year.
But w ill it be extended for two, three or four years, or however long it takes for the lawsuit to churn its way through the courts? Hard to say, and by that time Richmond's home prices -- which Zillow.com says rose 29 percent in the past year -- may have increased enough that the town's homeowners have positive equity in their properties.
Read the source article ... https://www.bloomberg.com/news/2013-08-2 6/eminent-domain-scheme-has-a-tax-proble m.html
- Multifamily Sector Continues to Lead Commercial Real Estate Resurgence
All four sectors of commercial real estate continue to experience growth, but at different rates, the National Association of Realtors® (NAR) said today [Aug. 26, 2013]. The Association's quarterly commercial real estate forecast sees vacancy rates for commercial property decreasing by 0.2 percentage point[s] over the next year, but office vacancy rates are unlikely to match the improvement in the retail and industrial sectors where vacancies are expected to fall by 0.6 point[s]. Multifamily properties are already experiencing low vacancies with demand supporting rapid rent increases and that is likely to continue.
Lawrence Yun, NAR chief economist said, "Office vacancies haven't declined much because total jobs today are still below that of the pre-recession level in 2007, but rising international trade is boosting demand for warehouse space. Consumer spending has been favorable for the retail market, and rising construction is keeping apartment availability fairly even, though at low vacancy levels. That, in turn, is pushing apartment rents to rise twice as fast as broad consumer prices and average wage growth."
Read the source article ... https://www.mortgagenewsdaily.com/082620 13_commercial_real_estate.asp