Posts Tagged ‘Wall Street’
The Debt Crisis and Mortgage Rates
If you're not talking about the head of the IMF today, then the only thing left really is the debt ceiling, which we officially reached today. While estimates are that it will take until August for the US to actually default on its debt obligations, the concern in the short term is how Wall Street sees the situation and how that will be reflected in the bond market and in mortgage interest rates.
Commercial Real Estate Clouded by Delinquencies
Barely a few minutes after reading an article in the Wall Street Journal about banks finally opening the "spigot for commercial real-estate," the folks over at Trepp issued their monthly report on the delinquency rate for commercial mortgage backed securities (CMBS); let's just say it isn't good.
Principal Writedowns Happen, Just Not Through Government
A Wall Street Journal article Wednesday began, "Fannie Mae and Freddie Mac are in talks with Obama administration officials to join fledgling government programs aimed at reducing loan balances of mortgages where borrowers owe more than their homes are worth." They may be in talks, but the talks clearly aren't going well.
Three scenarios from the foreclosure freeze
Gregor Watson, a principal with McKinley Partners, a development company that buys foreclosed homes, explained to listeners on a Citi home-builder conference call that there are three potential outcomes for the foreclosure fiasco: • Best case: Paperwork problems end up being technical issues that can be resolved quickly. The foreclosure process continues and the glut of foreclosed homes clears from the market. • Medium case: Significant fallout litigation takes years to sort out, slowing the already troubled housing market even more. • Worst case: The market grinds to a halt and title insurers refuse to insure mortgages involving foreclosed homes. “It would be devastating for the resale market if this robo-signer issue spiraled out of control,” Watson says. Source: The Wall Street Journal, Dawn Wotapka
Bank of America urges funding for investors
Analysts from Bank of America have a unique proposal: Instead of further funding TARP to help distressed homeowners hold onto their properties, give the money to property management companies that would then buy property and turn it into rentals. In a recent research paper, Bank of America analysts suggested that the government spend as much as $400 billion to encourage property management companies to buy properties and rent them out. That, according to research, would bring the homeownership level to “a more natural level of 62 percent to 64 percent” from its current 67 percent. Under Bank of America’s recommendation, investors would be prevented from reselling the properties quickly. Source: The Wall Street Journal, Emily Peck
Higher conforming loan limits due to expire
Unless Congress intervenes, the maximum loan amount the Federal Housing Administration will back, as well as loans backed by Fannie Mae and Freddie Mac, will return to $417,000 in most areas and $625,500 in high-cost areas. The higher loan limits are due to expire Dec. 31, 2010. Over the last two years, the government raised the limits in some high-cost areas to $729,750. If Congress doesn’t extend higher limits, home prices would “drop precipitously” because it would be “impossible to finance homes in most parts of Los Angeles and certain other major cities,” said Rep. Brad Sherman, a California Democrat and member of the House Financial Services Committee. But many economists support the end to higher limits. “We need to think how we are going to exit from a Fannie-and-Freddie world, and this is a very small step toward that exit,” said Richard K. Green, director of the University of Southern California’s Lusk Center for Real Estate. “Dialing it back to $625,500 is a perfectly reasonable thing to do.” Source: The Wall Street Journal
Where is the shadow inventory?
For the last year, the real estate industry has been talking about shadow inventory and the coming flood of distressed properties. Where are they? Here’s what’s happening, according to a recent paper by Alan Mallach, a senior fellow the Brookings Institution: • Some delinquencies have been resolved through loan modifications or people working out the problems on their own. • Banks are getting better at managing short sales. • Investors are aggressively buying up properties, sometimes in bulk, directly from the banks or at courthouse auctions so they don’t hit the market. The likeliest outcome, Mallach predicts, is a steady flow of foreclosures over a long timeframe that will prevent another crash in home prices – but it will probably lead to low or no appreciation in home prices for a while. Source: The Wall Street Journal, Nick Timiaros
Wave of foreclosure sales could hurt prices
More foreclosures could move onto the market as borrowers fall out of the government’s loan-modification program. That, coupled with weak demand, could lead to lower home prices across the board, suggests an article in the Wall Street Journal. Over the past two years, the pattern has become clear: the more homes that are being sold by lenders, the faster prices will fall. Ivy Zelman, CEO of research firm Zelman & Associates, says that distressed sales could account for 50 percent of properties sold by the end of the year – unless conventional sales recover. Neither she nor Glenn Kelman, CEO of Redfin Corp., believe that there will be massive declines in prices because homes are already undervalued in many areas, but Kelman suggests that the decline could be 5 percent to 10 percent. Should the government intervene again? Susan Wachter, professor of real estate at the University of Pennsylvania’s Wharton School, says that could be necessary if the bank sales trigger a downward spiral, “where price declines are feeding further price declines.” Source: The Wall Street Journal, Nick Timiraos
The good news about rising mortgage rates
The Mortgage Bankers Association’s upcoming data on mortgage-application activity might show whether the prospect of higher mortgage rates is spurring consumers to buy homes; mortgage rates tend to move in lock-step with bond yields, which suddenly rose by a significant amount on Friday. Federal Reserve policy makers want to keep mortgage rates low to boost the economy and the housing market, and some observers believe they will introduce more policy-easing measures at their next meeting on Sept. 21. Still, the Fed is unlikely to make hasty decisions, considering the central bank may be willing to live with risk that gets people to buy homes due to concerns that rates will rise even further. Source: Wall Street Journal (09/07/10) Evans, Kelly © Copyright 2010 INFORMATION, INC. Bethesda, MD
Vacation Home Prices Cut to Stimulate Sales
Developers of high-end vacation homes are focusing on less expensive resort properties. "We're trying to get the point across that you can have a great place on a wonderful island for, quite frankly, a reasonable price," says Steve Schram, who is developing a Turks and Caicos resort community using the slogan "affordable housing for the affluent." To achieve lower pricing, developers are cutting square footage, reducing the size of lots, and offering semi-custom rather than fully custom homes. The response has been good, even among existing owners, says Steamboat Springs, Colo., developer Jeff Temple. "I think our owners understand the market is tough right now.” Source: The Wall Street Journal, Juliet Chung (08/11/2010)
