Linking ≠ endorsement. Enjoy and share:
- Architects as developers | Crain’s New York Business
More firms morph into design-focused integrated practices; the approach may even help in rounding up funding.
- NYC Real Estate 2014 | Real Estate Forecast 2014
… what can the real estate industry [in New York City] expect from 2014? Read on for a closer look at the key issues and projects set to make waves in the coming year.
The article covers the following:
- Interest rate jitters
- The de Blasio agenda
- Midtown East rezoning
- The condo concern
- Redevelopment of the South Street Seaport
- The renewal of Seward Park
- Legislative issues
Here’s an extensive insurance-related excerpt:
There are several little-known but potentially important pieces of legislation that real estate players will be following in 2014.
Among them is the slated expiration of the Terrorism Risk Insurance Act. Sources say the federal program — which financially subsidizes insurers in the event an act of terrorism leads to exceptional damages on a property — is crucial for New York City landlords because it provides them with reasonably priced terrorism insurance. Without it they might be left with few — if any — options for where to buy insurance, and might only be able to secure it at exorbitantly high prices.
At a NYU panel discussion last month, developer William Rudin called the scheduled expiration of TRIA “one of the scariest things” he was facing as a landlord.
But the industry is not sitting back and waiting to see how things unfold. The Real Estate Roundtable and the National Association of Real Estate Investment Trusts, both industry organizations, are not just lobbying to have the legislation extended but are also pushing to reform the way terrorism insurance is issued generally. (They’ve created the Coalition to Insure Against Terrorism to do so.)
Ric Clark, chairman of commercial landlord Brookfield Properties, told TRD he was concerned that lenders would not issue loans without terrorism-risk coverage on the collateral.
“Property owners depend on their ability to obtain adequate all-risk insurance coverage for financing,” Clark said. “Approximately $1.7 trillion of commercial real estate loans are scheduled to mature over the next five years. Without terrorism-risk insurance, these loans face the risk of not being eligible for refinancing and going into default. Given the scale of this market, the financial markets face serious safety and soundness issues if TRIA is not renewed.”
TRIA was, not surprisingly, introduced in the wake of the 2001 terrorist attacks to address a shortage of available terrorism insurance. Congress has renewed it twice since it first passed in 2002, but a recent congressional poll found that it might not have enough support to win another renewal.
Clark said post-9/11 lenders would only offer terrorism insurance at “exorbitant prices,” and even then it was “woefully inadequate.”
“We remember all too well what happens when terrorism coverage is not available,” he said. “Commercial borrowers lose their ability to get financing, billions of dollars in real estate-related transactions stall or get canceled, hundreds of thousands of jobs [are] lost.”
Another potentially transformative piece of legislation set to go before Congress in 2014 is the Marketplace Fairness Act.
Guntram B. Wolff:
A complete failure and no agreement on any form of common bank resolution would be seen by citizens and markets as a clear failure, and as a signal that Europe is not ready to proceed any further on integration. The consequences would be radical. Markets would re-fragment along national borders. Banks would retreat behind national borders, and funding costs would start to diverge dramatically again. With an increasingly fragmented financial system, the fear of a break-up of the euro area would resurface, as markets would rightly see an inconsistency between purely national finance and monetary integration. This would undermine the little investment and growth prospects that returned this year. A deep recession would result.
- Simon Johnson takes on the argument that proper bank regulation will drive financial activity into the shadows. – Project Syndicate
… there are three kinds of “shadow” activities, all of which are obvious, operate in plain sight, and could be controlled in a straightforward and responsible fashion. Whether we have the political will to implement effective controls is, as always, another question — in large part because the big banks are very powerful ….
… lack of credit expansion is a dangerous trend that could result in years of Japan-style stagnation. In order to address it, one approach the ECB is contemplating is forcing the banking system to use the new LTRO proceeds to provide capital into the consumer or corporate sector.
Reuters: – The ECB extended more than one trillion euros ($1.36 trillion) of cheap three-year loans to banks through two long-term refinancing operations in late 2011 and early 2012.
But this time, an option under consideration is that the banks would have access to funding via the LTRO only if they agree to pass on the money in loans to industrial, retail and services businesses, Sueddeutsche Zeitung reported on Wednesday.
It’s difficult to know if this program will work. Banks are under pressure to shrink risk weighted assets to comply with the new Basel accord. And retail and corporate (particularly unrated smaller firms) loans tend to attract significant amounts of regulatory capital (risk weight) charges. It’s much easier for a Eurozone periphery bank to buy its government’s bonds – with almost no regulatory capital impact – than to lend to small firms and households. Therefore many banks may forgo the new LTRO that has such strings attached. Nevertheless it seems that the ECB may be willing to try.
We think that having the string attached is exactly right. The Fed should do the same regarding when it starts applying interest to excess reserves. It would take a change in the law but be worth it.
Don’t let the banks charge customers for deposits or to otherwise pass on to consumers the interest charged by the Fed but make the banks make enough off truly productive loans to main street businesses to cover their costs.
There are many other options, but this would require the least change.
Is there the political will and courage? Can it be mustered?
Recent sluggish economic growth has been matched with almost nonexistent inflation. In fact, it was reported last week that U.S. consumer inflation decelerated to 1.0% and U.S. producer price inflation decelerated to 0.3%. By these measures, inflation in the United States is now at a four-year low.
The upside to weak growth and low inflation is that the Federal Reserve has significant latitude in determining how they adjust monetary policy. While it is still possible that the Fed will announce its long-awaited and long-expected move to begin tapering its asset-purchase programs as soon as next month….
We don’t see the Fed doing that. Inflation is falling; and unemployment still looks very bad, especially when the number of people who’ve given up looking is factored in, which the Fed does, and when the types of new jobs are also factored in (lower-paying), which the Fed is also seeing and which Janet Yellen has said is an important concern.
- Calculated Risk: Will the Fed “Taper” in December? Inflation is the Key
The unemployment rate criteria should probably be expanded – not only would the Fed like to see the unemployment rate decline in November, they’d like to see the participation rate increase (the participation rate declined sharply in October to 62.8% from 63.2% in September, and I suspect the Fed will like to see some of that reversed in the November report).
Inflation is probably the key right now. Core PCE was up 1.2% year-over-year in September, and the Fed would like to see this increasing towards their 2.0% target. … Low inflation might stop the Fed from tapering in December.
We think the unemployment numbers are more important to their decision right now than is inflation.
Why they rent: William R. Emmons and Bryan J. Noeth:
If families facing more difficulty rebuilding their wealth today are more likely to own lower-value houses or to be renters, Figures 3 through 6 together suggest that the value of their homes may have increased less than the (value-weighted) national average (or none at all, if they rent). Therefore, the housing recovery to date likely has been of limited benefit to them. Just as stock-market gains have largely accrued to wealthier families, a significant share of housing-wealth gains to date also likely have benefited owners of higher-value homes who are likely to have above-average wealth.
- Negative Equity Rate Falls at Fastest Pace Ever in Q3 | Zillow Blog
According to the most recent Zillow Home Value Forecast, home values are expected to rise 3.8 percent in the next year. Assuming appreciation at that rate going forward, it would take a homeowner underwater by 20 percent roughly five years to reach positive equity.
“Rising home prices and a greater willingness among lenders to engage in short sales have both contributed substantially to the significant decline in negative equity this quarter. We should feel good that we’re moving in the right direction and at a fast clip,” said Zillow Chief Economist Dr. Stan Humphries. “But negative equity will remain a factor for years to come, and must be considered part of the new normal in the housing market. Short sales will remain a persistent feature of the market as many homeowners remain too far underwater for reasonable price appreciation alone to help.”
However, many lenders are turning away from short sales to a significant extent.
- Don’t Worry, Be Happy – Builder Magazine
The stock market is at a record high. And, in most markets, housing prices are recovering rapidly. Taken together, these two positive developments have wiped out the $13 trillion loss in net worth American households suffered during the recession. In fact, as the chart shows, household net worth is at an all-time high, at more than $70 trillion.
What we just saw though is that we must take into consideration that most of the increase in aggregate net worth has accrued to those who already had a higher net worth. In addition, we must verify whether the numbers are adjusted for inflation.
- What You Don’t Know About Mortgages – NYTimes.com
Both the bureau and the Federal Reserve had earlier proposed to include all closing costs in the annual percentage rate. The bureau says it changed its mind because including all costs might reduce the availability of certain kinds of loans. That may be true, but the loans it would restrict, in general, would be higher-priced loans, which would be subject to more regulation than lower priced ones. So lenders who resist regulation may resist offering them — which is as it should be. Better disclosure in itself does not restrict access to credit and, in fact, has been linked to reductions in the cost of credit because transparency fosters competition among lenders.
The new disclosures are weaker than the earlier proposal in other ways. The agency had proposed that lenders be required to give borrowers a three-day review period whenever the loan terms were changed. The aim was to ensure that lenders would not spring new loan terms on borrowers at the last minute. The final rule limits but does not eliminate the lenders’ ability to introduce last-minute changes at the closing table. That’s too lenient. Lenders must be held to their promises.
- Carney’s Housing Alarm Bell Nudges BOE Toward Stimulus Exit – Bloomberg
“It was only seven months ago when there were concerns about a triple-dip recession and people were talking about more stimulus,” said Nick Bate, an economist at Bank of America Merrill Lynch in London and a former U.K. Treasury official.
“Now, seven months later, the discussion is all about housing booms, so extrapolate that forward another year, then you will have had a pretty long run of decent growth,” he said. “The environment will be very different and the focus will be on when it’s time to start raising rates.”
The BOE last increased borrowing costs in July 2007, before global markets seized up. Five months later, officials cut the key rate by a quarter point to 5.5 percent.
It reduced benchmark borrowing costs to a record-low 0.5 percent and added government bond purchases and credit-boosting programs to nurture the recovery. As recently as June, three members of the MPC voted to expand bond buying.
Was it Keynesian and did it work? It’s hard to say it wasn’t and hasn’t. Is there a bubble, and how’s the underlying economy really doing?
- Rising interest rates weigh on real estate funds – Business – The Boston Globe
One look at the lackluster gains of real estate mutual funds this year might give the impression that commercial property owners are struggling through a relapse of their post-financial crisis woes.
But demand for office, retail, and other commercial real estate has been steadily improving along with the economy, boosting occupancy and rental rates for many owners. And many economists project more of the same next year.
Even so, a surge in interest rates this summer and concern they could increase further next year has spooked investors, dampening the funds’ returns.
- Remodeling? Now you can snoop inside your neighbors’ kitchen
Home sales and home remodeling usually rise and fall in tandem, but remodeling may now be recovering faster. Remodeling first began to surge in 2009, well before home prices and sales began their recovery. Investors purchased millions of distressed homes, many of which had been gutted or even vandalized by disgruntled former owners.
In order to rent the homes, they had to remodel them, whether it was paint and polish or more extensive work.
Local design-build and product websites are gaining even more traction from the growth of sites that aggregate ideas and trends in remodeling, like Houzz, Pinterest and DIY Network. A newcomer to the mix now gets local, allowing consumers to find not only contractors and specialty tradesmen in their neighborhoods but to literally look inside their neighbors’ renovations.
These can give the landlord or manager both ideas and sources too:
- Jean Pisani-Ferry argues that eurozone officals should be considering how to fight deflation. – Project Syndicate
The first problem with deflation is that it tends to raise the real (inflation-adjusted) interest rate above its equilibrium level. As there is a zero lower bound to the nominal interest rate, the central bank may well find itself unable to drive the interest rate/inflation differential to a low enough level, which may result in a slump and even a downward spiral. True, some central banks (Sweden in 2009 and Denmark in 2012) have charged banks for taking deposits, thereby posting negative interest rates. But there are limits to such tactics, because if depositors are being charged, at some point it becomes preferable for them to buy safes and store banknotes.
We believe there isn’t enough cash for that. Most money is not in the form of banknotes, far from it. Most of it is simply stored in computer memory.
They could convert to other assets, but at some point, banking has to be regulated so that it’s utility function remains actual rather than merely academic and even rendered moot.
Good observations and points: Philip Arestis and Malcolm Sawyer:
If budget deficits came from government profligacy it would be observed that the private sector was being “crowded out” and the economy overheating. There was precious little evidence of that. Clearly, this treaty reflects the notion that the euro crisis was due to fiscal indiscipline; consequently, more discipline is the only solution. Such a principle is clearly misleading. There is no justification for a balanced budget requirement, which poses restrictions in the use of fiscal policy in the face of economic crises.
Attempts to achieve a balanced structural budget without actions which will raise investment, lower savings, and promote net exports are doomed. The pursuit of balanced budgets will involve cutting public expenditure and raising taxes; it will not achieve the target and will involve misery along the way.
How long will it take until the Eurozone authorities and countries recognize that the conditions of the “fiscal compact” are unattainable in the sense that—whilst some countries are able to have a budget balanced at “potential output”—most cannot? Continuing to insist that fiscal austerity be pursued to balance budgets will bring misery.
There was positive and not-so-positive news in national economic reports Wednesday. On the positive side, economic indicators have now increased for four consecutive months, even if modestly, the Conference Board said Wednesday.
The board’s Leading Economic Index (LEI) for the US increased 0.2% in October to 97.5, following a 0.9% increase in September and a 0.7% gain the month prior, although it was offset by a continuing decline in consumer confidence, dropping from 72.4 in October to 70.4 in November, the firm said separately.
Kathy Bostjancic, director of macroeconomic analysis at the board, says the uptick in the LEI “supports our forecast that the US economy is poised to grow somewhat faster at 2.3% in 2014 compared to 1.6% in 2013. Within the details, the sub-indexes contributing positively to growth are the financial, housing and manufacturing variables.” Putting the brakes on growth, however, is what Bostjancic terms “the ongoing caution of businesses that continue to keep tight reins on capital expenditures.”
- Ricardo Hausmann asks why Argentina and Venezuela repeat their economic policy mistakes. – Project Syndicate
… things become really nasty when the government opts for foreign-exchange controls. The usual story, nicely summarized by the late Rudiger Dornbusch and Sebastian Edwards, is that lax fiscal and monetary policies cause a flood of freshly printed currency to chase more dollars than the central bank can provide at the going exchange rate. Rather than let the currency depreciate, or tighten its policies, the government opts for foreign-exchange controls, limiting access to dollars to those who “really” need it and thus preventing “speculators” from hurting “the people.”
Foreign-exchange controls, typically accompanied by price controls, give the government the sense that it can have its cake (lax policies) and eat low inflation. But controls lead to a parallel exchange rate, which can be either legal, as in Argentina, or illegal and even unpublishable, as in Venezuela.
But having two prices for an identical dollar creates enormous arbitrage opportunities. A dollar purchased at the official rate can be sold for almost twice as much in the “blue” market in Argentina and a whopping ten times more in Venezuela. Repeat that game a few times and you will be able to afford a corporate jet.
Do you think Nicolas Maduro, President of Venezuela, would be willing to listen to Ricardo Hausmann on that?
A tax reform proposal that includes a provision supported by domestic property and casualty insurers to change the tax treatment given offshore insurers doing business in the U.S., will be discussed by the Senate Finance Committee, which, along with the is working on simplifying and reforming federal tax policy.
Benefiting from the proposal — which was adopted by the Senate panel — would be domestic insurers led by W. R. Berkley Corp., Travelers and Chubb.
Offshore insurers, including ACE and Swiss Re, are against any such change.
- Walk-Ups Are in Demand, and Come With Bragging Rights – NYTimes.com
Robert Peruzzi was so determined to rent the fifth-floor walk-up he had seen on Irving Place that he was willing to outbid another potential tenant and pay $250 more than the original asking rent.
How often do you come and go? What about carrying groceries? You might have older relatives who would otherwise like to come and visit. Don’t bung up one of your legs, or that climb won’t feel like exercise but torture. Anyway, we like walk-ups too, within reason.
- Urbanation – Toronto Condominium News
This is the first part of a Blogpost that responds to research findings reported through a recent Globe and Mail article that states condo rents are declining.
A recent report by an equity research firm came to the conclusion that condo rents are on the decline, which, in turn, could trigger a sell-off of investor units that would cause condo prices to “drop dramatically.” They found that on a per square foot basis, rents declined by 1.6% from last year. The basis of their analysis came from researching ‘for rent’ postings on Craigslist in 47 projects, and comparing them to the results from last year’s exercise. They added that mortgage pre-approvals are not needed to buy new condos and buyers may have trouble closing, which could lead to “significant losses” for developers and lenders.
Urbanation does not have access to the actual report, so we are basing our response on the information published in the Globe and Mail.
The first part to this Blogpost will address the more glaring issues related to the quality of this research. The second to follow will address claims of impending rent and price declines and closing risk.
Using Craigslist as the basis for determining changes in market rents poses at least a few major problems. …
- More bad news for the housing market – The Week in Charts – MarketWatch
In fresh evidence that the housing market’s rebound is slowing, pending sales of homes fell in October, a fifth straight monthly slump that sent the gauge to its lowest level in almost a year. The National Association of Realtors reported its index declined 0.6% to a seasonally adjusted 102.1 in October, down 1.6% from the year-earlier period.
A pending sale typically closes within two months, and NAR’s gauge can be used to estimate upcoming activity.
Rising mortgage rates and prices have hit affordability in recent months, curbing demand. In addition, a partially shuttered federal government in October delayed some loan processing.
Prices have been falling in some areas. Mortgage rates are a mixed bag and may level off and could even fall significantly again depending upon the Fed’s future actions/decisions.
- Of symmetry and adjustments in the eurozone | Macropolis
… the second consequence of asymmetric adjustment [the “Berlin View” or method]. The increase of youth unemployment and the dramatic drop in investment rates, not only have an impact on the amplitude of the crisis in the short run. They also deepen the imbalances that created the crisis in the first place, and seriously hamper the potential for long run growth.
… I do not want to emphasize the absolute position (it means little) but the change since 2006. All the peripheral countries lost positions and became less competitive, while all the core countries improved their rankings. This allows us to assess the policies that have been followed during the crisis, and to take an educated guess on the future. The assessment is that austerity is not, as the proponents of the Berlin View would like us to believe, working to solve the periphery’s problems.
… The divide between north and south is widening not only in terms of current growth, but also in terms of future capacity to compete and grow. This should not be surprising. As Dani Rodrik pointed out, the right time for structural reforms is during booms.
- Health care insurance portal for small businesses delayed until next November – THonline.com: Business
The Obama administration is delaying yet another aspect of the health care law, putting off until next November the launch of an online portal to the health insurance marketplace for small businesses.
… administration officials said employers who want to buy marketplace plans for their workers now will need to go through an agent, broker or insurance company this year….
Andrea Chang and Andrew Khouri:
In Venice, 25-year-old Snapchat co-founder Bobby Murphy has bought a new two-bedroom house for $2.1 million, or nearly double the median price of homes in the neighborhood.
A few blocks away, a three-bedroom town house with a rooftop sun deck was just rented for $7,000 a month — a year ago, an identical unit was renting for $5,900. “Totally Silicon Beach living,” the ad on Craigslist proclaimed.
- U.K. House Prices Rise for 10th Month as Low Rates Spur Demand – Bloomberg
U.K. house prices rose in all regions of the country for the first time in more than six years last month as low mortgage rates helped the property revival to broaden, Hometrack Ltd. said.
“While Help to Buy has boosted sentiment and increased activity, low mortgage rates have provided homeowners more buying power than at any time previously,” Hometrack said. The FLS change “is likely to result in mortgage rates drifting higher. This will scale back the potential buying power of households which is important to keep price rises in check.”
- Wait — QE Might be Deflationary? | PRAGMATIC CAPITALISM
Why would we remove interest bearing assets from the private sector and replace them with deposits when history clearly shows that this will not stimulate borrowing?”
The huge all-cash buyers crowded out many who would have otherwise borrowed to purchase housing. Interest rates have been kept low by Fed bond purchases, but the all-cash crowd got its money at another level, such as overseas from German banks, etc., or stock issues, and now bond issues that are not directly funded via moving excess reserves to regular reserves via Fed-regulated commercial banks lending for mortgages. There’s more to it than that, but this isn’t insignificant.
- HARP 3 : Four Potential Changes To HARP 2.0 (“A Better Bargain”)
Momentum behind so-called “HARP 3.0” is now gaining steam. If the program comes to pass as part of Mel Watt’s confirmation to the FHFA, here are four changes HARP 3 may include. …
If they do include those changes, it will dramatically alter buy-to-rent. Many more people will buy who would otherwise continue renting.
- Global factory growth picks up but Europe diverging | Reuters
Jonathan Cable and Aileen Wang:
Increasing demand for manufactured goods drove global factory activity higher last month but the spurt in the euro zone masked a widening disparity among some of the bloc’s key members.
As year-end approaches, the global economy is showing signs of a more solid recovery, with encouraging signs from some economies, particularly Britain, of an acceleration.
But growth in Europe’s 17-nation currency union remains weak and Markit, compiler of the monthly Purchasing Managers’ Indexes, said on Monday that there was evidence of a renewed downturn in France and Spain.
It also discusses China, Japan, and India.
- Is the Fed trying to ‘fool’ the bond market?
A sharp rise in U.S. Treasury yields should act as a reminder to the Federal Reserve not to ignore developments in the bond market as it deliberates when to pull back its hefty monetary stimulus, one market analyst told CNBC.
Bond yields have been rising since early May in anticipation of the Fed tapering. The concern about yields rising too quickly is that they could derail a recovery in the housing market, and in turn the economy, since yields on Treasurys affect the interest rates on fixed-rate mortgages, analysts say.
That’s what we’ve been harping on.
- For Long-Term Jobless, a Stubborn Trend – NYTimes.com
… a worker’s chance of being fired is now less than it was when the job market was booming, and much less than it was when the economy was in trouble four years ago.
And yet, the job situation now is not a good one. While fewer people are being fired, the rate of hiring has barely picked up. And as can be seen in the accompanying charts, the long-term unemployment rate — the proportion of the labor force that has been out of work for more than 15 weeks — remains higher than the short-term rate. In October, the long-term rate was 3.8 percent, while the short-term rate was just 3.5 percent.
From 1948, when the Bureau of Labor Statistics began to publish monthly unemployment rates based on a survey of households, until mid-2009, the long-term rate was never as high as the short-term rate. Since then, it has consistently been higher, although the gap has narrowed.
- BBC News – India’s economy grows faster than expected
Speculation that the US may scale back its key economic stimulus measure has seen investors pull money out of emerging markets, such as India.
This has affected India’s currency, which dipped nearly 25% against the US dollar between January and September this year.
Though the rupee has recovered a little since then, it is still down about 13% against the dollar since the start of this year.
That has made imports more expensive and contributed to a high rate of consumer inflation, which was 10.1% October, up from 9.84% in September.
High food and fuel prices have contributed to inflation becoming “entrenched”, finance minister P Chidambaram said.
As a result, the central bank has had to raise the cost of borrowing in a bid to curb inflation.
The latest interest rate rise in October saw the key rate increase to 7.75%.
Some observers argue that high interest rates are hurting businesses and households, and having a negative impact on the economy.
- Fed unlikely to redraw markers for rate hike | Reuters
Ann Saphir and Jonathan Spicer:
Federal Reserve policymakers have cooled to the idea of explicitly raising the bar on future interest rate hikes, a sign the U.S. central bank is angling for a return to more subtle — and familiar — ways of explaining how it plans to steer the economy.
In other words, they know they set the bar too high but don’t want to lower it but rather use language to describe that the bar isn’t actually how low we need to go. It means that there is a real rate, the unspoken, lower one, and a fake rate, the one they don’t want to change because the “market” is too easily spooked and confused.
Is that too harsh an explanation?
We understand what they’re doing, but we would just rather have them be more direct and open and consequently clearer. They should stop coddling the “market.”
What’s your take on it?
- Cyclical China bears morph into structural bulls post-plenum /Euromoney magazine
Their scope is bold: boost the role of the market to play a “decisive” role in the allocation of resources and allowing it to set prices, open up the state sector to competition, speed up liberalization of interest rates and yuan convertibility under the capital account, and permit private banks.
There is also reform of land-ownership laws and residency rules holding back the urbanization necessary for China’s transition to a services and consumption-led economy.
For some, placing so many sacred cows on the block demonstrates a clear political will and commitment to push through deep structural reforms that will have a dramatic impact on the economy over the medium-term — with ramifications for all the other reforms that depend on economic strength.
However, for others, fears about the Chinese economy have not been allayed by the reform package unveiled in a 20,000-word blueprint after the four-day meeting. There’s disappointment at the absence of any concrete timetable for implementation, save for a vague target of 2020, and the fact it fails to address a credit bubble of epic proportions or the resulting bad-debt problem.
- Western Metros Bucking National Trend in Home Sales Prices | ZipRealty Blog
Several indicators in ZipRealty’s latest Housing Trends Report point to a less-frenzied real estate market, compared to this past spring. While the median sales price of $267,215 at the end of October was 14.2% higher on a year-over-year basis, the new report indicates that across markets, prices are moderating, the inventory of homes has started to increase and sold-to-list price ratios are trending downward. However, Sacramento, Las Vegas, the San Francisco Bay Area and Phoenix were the strongest local markets at the end of October, as median sales prices in these metros have increased over the past 30 days, bucking the seasonal trend seen in the overall averages.
- When Will Appraisal Values Match Real Estate Buyer Expectations?
The days of being able to call an appraiser and get an accurate opinion on properties are gone as well. What should be considered a safe practice and a safety net for individual investors is now frowned upon. Having contact with an appraiser, even though they are not appraising your property for a loan, is considered an attempt to somehow circumvent laws set up to keep arms length in transactions. So investors and appraisers both are now weary to even discuss values of properties. At one point in time, this was the best way for investors to evaluate a deal before buying and today it is not allowed.
What has resulted is a new set of appraisers who are not out looking at houses before they are renovated. They are not on the streets or talking to investors and buyers before they buy properties to know or have an understanding of work that is being completed to vacant properties in neighborhoods. Appraisers only contact now is with AMCs and with banks who are hiring them to appraise properties after a buyer has requested a loan. That leads to appraisers that are not connected to the real world and the buyers that are making markets move. They have no idea of what is really happening in a market because they have no connection to it. Experienced appraisers who have been doing it for years and have been through real estate cycles are choosing other professions. The new appraisers are doing the best they can but for less and less money and with less and less contact with the buyers who are buying and renovating properties.
It is leading to an environment where values are slow to catch up with contract pricing and those buying homes are feelings the effects.
China’s housing prices have not responded to China’s efforts to rein in increases.
Chinese home prices rose faster in November than in the previous month, an independent survey showed on Sunday, adding that authorities are likely to introduce further changes to control the lively real estate market.
The average price of a new home in 100 major cities rose 10.99 percent year-on-year ….
They need to act, or the bubble will pop (and it is a bubble).
- Physical Real Estate Outperforming REIT Funds
According to DQnews.com property values have risen 12% from November 28th, 2012. In contrast, the return for 3 notable reit ETF’s (exchange traded funds): SPDR Dow Jones REIT ETF, iShares US Real Estate, and iShares iShares US Real Estate have respectively been: 6.1%, 5.2%, and 7.7% since November 27th, 2012. Note, the returns shown include the dividend payouts to investors from rent payments collected. If one focuses on the sole price of the fund itself, the returns for each ETF are a measly, 2.84%, 1.14%, and 3.60%. With national median home sale prices up 12%, owning physical real estate has outperformed the reit funds. A home owner could have further done better over the past year by purchasing a property in an area that is outperforming the national average in real estate growth (such as Boston or San Francisco) and then rent out his or her unit.
… funds have been lagging due to their large holdings in commercial real estate which has been lagging the growth seen in urban condo investments and single family homes.
“If one focuses on the sole price of the fund itself, the returns for each ETF are a measly, 2.84%, 1.14%, and 3.60%.” We don’t agree with looking at it that way. When one invests in real estate, one should not look solely at appreciation but rather total cash-on-cash return throughout the life of the investment, including final tax consequences relative to other investments. Therefore, why focus in on only part of the gain on such ETF’s calling it “measly”?
It is always possible to invest in physical property well enough to outperform such ETF’s. The issue isn’t whether but rather how difficult it is to do so consistently and whether one has the time, inclination, and wherewithal. We are for people making such physical investments if they have the right stuff, which can include knowing how to hire and overview a team to help one invest without having to do one’s own on-site property management and maintenance, etc. Others are better off sticking to less intensive investments.
Now that Blackstone has issued bonds based on rents from buy-to-rent detached-single-family houses, it will be very interesting to watch where all of this goes, especially with a slow general-economic recovery.
- Treasury Slow to Provide Relief in Hard-Hit States|National Mortgage News
Lax oversight by the Treasury Department has helped to prevent billions of dollars in aid from reaching struggling homeowners, according to a report released Tuesday by the Special Inspector General for the Troubled Asset Relief Program.
The Hardest Hit Fund, established in February 2010 as part of the Troubled Asset Relief Program, was created to provide assistance to homeowners in areas most damaged by the housing crisis. The Treasury was charged with overseeing homeowner assistance programs administered by state housing finance agencies in 18 states and Washington, D.C.
Three and a half years into the program, the vast majority of $7.6 billion fund has yet to reach underwater and unemployed borrowers. Just 22%, or $1.7 billion, had been spent on relief efforts as of June 30, according to the report.
Any concerns about possible overbuilding are quickly dismissed as existing investors are putting up the needed equity to finance these new units. If the market wasn’t [sic] in the position [to] handle these new projects, these investors simply wouldn’t be investing.
… The fact that the market is seeing such a strong equity investor involvement is a sign of the markets strength.
What’s your view on that? Do you trust the judgment of such investors enough to just go with more of what they’re doing? If not, why not?
- Real Recovery in Housing Means Real Opportunity for Investors – Businessweek
New evidence of U.S. housing recovery from the Mortgage Bankers Association:
The record 40 basis point drop in 30-Day delinquencies to 2.8 percent marks the lowest rate since 2Q 2006.