Real Estate Journal Online

U.K. gets additional evidence that goes to show its housing market is weakening. A London-based property researcher reveals the biggest drop for home values in the past 16 months as the market endures a modest re-pricing that may last for the next 12 months.

Hometrack Ltd., which bases its report on a survey of 5,100 real-estate agents and surveyors, says that home prices averaged 158,200 pounds ($246,000). This is 0.3% lower than the previous month and is the biggest drop since April of last year. In a Bloomberg News survey, a total of 19 economists also forecasted that banks may have granted only 46,500 mortgages in July – the least in the past 14 months; actual numbers will be released by the Bank of England.

With the recent numbers being released, it is obvious that the economy is in a fragile state. Bank of England Deputy Governor Charles Bean, in the 28^th of August, suggested that officials start expanding emergency stimulus and aid the economy’s recovery.

Director of research for Hometrack, Richard Donnell, says, “The housing market is in the process of a modest re- pricing that is likely to run for the next six to 12 months.”

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Analysts are predicting that the country may expect a huge wave of defaults soon. Recent report, though, reveals that this may not happen. Latter borrowers who had their mortgages modified are no longer having as much problems with payments as compared to their earlier counterparts.

The State Foreclosure Prevention Working Group, composed of 12 state attorneys generals and state banking regulators, has enumerated some troubling signs. In July, sales of previously-owned homes had its most intense drop in the last 15 years. And modifications, which were implemented to lower monthly payments and the number of foreclosed homes, are said to still be outnumbered by foreclosures.

The foreclosure crisis is now three years running but 63% of those homeowners who are at least two months behind their payments are not all too keen in participating in foreclosure prevention programs – whether by the government or private institutions. Homeowners not participating in foreclosure prevention programs is a matter of picking up the phone or responding to lenders calls. Bankers say that, in exchange of short-term pains for banks, lenders should start aggressively seeking homeowners who are already way behind their mortgage payments.

“Servicers must continue to perform meaningful outreach to those homeowners who are seriously delinquent and to perform modifications with significant principal reduction,” says Conference of State Bank Supervisors president/CEO Neil Milner.

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The Obama administration knew home sales are going to plummet when the federal tax credit for home buyers expired. But even the administration says the decline is a bit alarming. It is not enough, though, to start talking about reviving the tax credit.

Housing and Urban Development Secretary Shaun Donovan, speaking last Sunday on CNN’s “State of the Union”, says the drop in July’s home sales is worse than what was expected. Though the administration already predicted a dip in sales, Donovan admits, “We are concerned.” But he adds that this does not mean people should start gabbing about reviving the said federal tax credit.

The federal tax credit assured $8,000 to those who are willing to purchase a home. It helped in slowly reviving the housing market and in boosting home sales. Now, the tax credit no longer exists.

With its expiration, the federal tax credit brought with it home sales. In July, the housing market saw sales falling to levels that have not been seen in the last ten years. And because of this, people are starting to fear that housing prices might start weakening again. There’s also some buzz as to what this might mean for the economy in general.

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Commercial real estate has been largely derailed by the slow downs that hit the property market when the recession had a landfall in 2008 and recovery so far has been quite remote especially for most local property owners.

In Taylor County, Richard Petree of the district office appraisal office said that the situation is flat at best and there exist an oversupply of commercial properties but with occupancy level of only 80 percent, particularly in the Abilene area.

Petree said that shopping centers were teeming not with shoppers but with shops shuttered while office buildings were not far behind on vacancy woes but with slightly better figures.

In order to use idle buildings, some enterprising businessmen resorted to conversion of former retail centers and one noticeable example is the once Toys R Us store now being temporarily utilized as a training center for wind turbine employees.

Petree said that recovery for commercial properties is still a long way for his county and the same goes in the national arena, which would have to wait until 2014 for some fresh air to breathe as most analysts believed that significant development may occur at around that time.

That hope may be underpinned on the notion that real estate investment trusts or REIT could take advantage of the opportune time to snatch bargains for the having in the commercial market, according to Erik Johnson of Paul Johnson and Associates.

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Last year, Singapore had weathered the worst recession since their independence 45 years ago. It is then understandable why its government is currently implementing tighter measures in the property market. The government recently released a statement announcing stricter measures that are meant to curb speculation, as home prices in the second quarter climbed by 38%.

Effective immediately, down payments of 10% in cash – previously only at 5% – are now required for mortgages on more than one property. Also, only 70% of a property’s value can be borrowed if a buyer already has an existing mortgage – this is 10% lower than the previous guidelines. Stamp duty is now also imposed for residential properties and land that was bought and then sold for less than three years as opposed to the previous one year.

Singapore, though, is not the first to implement these stricter measures. Hong Kong and China both executed rules that were meant to ‘cool property markets’. Hong Kong has tightened rules on mortgage lending and increased land supply. China, on the other hand, increased down payments and mortgage rates for those buying more than one home.

Managing director Donald Han of the real estate adviser Cushman & Wakefield Inc. says the government is just ensuring that prices do not go out of hand by tightening its belt on repeat buyers and speculators.

Though the benchmark Straits Times Index rose 0.6% at the 5PM closing of the Singapore trading, Southeast Asia’s biggest developer – CapitaLand Ltd. – fell 0.5% to S$3.98. Singapore’s second-largest developer, City Developments Ltd., declined by 4.2% to S$11.46 – this is the biggest drop since February and the lowest closing in six weeks.

Singapore executed other measures earlier this year. In February, the government levied a seller’s stamp duty for properties being sold from one year of purchase and decreased the loan-to-value limit from 90% to 80% for those loans provided by financial institutions regulated by Monetary Authority of Singapore. Prime Minister Lee Hsien Loong admits both measures have failed.

Vis-a-vis 2009, this year’s private residential prices climbed by 38% in second quarter, reports Urban Redevelopment Authority. Leading 36 property markets worldwide, Singapore’s price levels exceeded those of the historical peak seen in the second quarter of 1996.

Singapore’s property market is currently unpredictable and the government hopes to stabilize it and make it sustainable.

As federal authorities sift through on possible clues to determine the root cause of Freddie Mac’s and Fannie Mae’s collapse in September 2008, The Federal Housing Finance Agency revealed Thursday last week that the two companies mainly succumbed to soured loans and their assumed role of mortgages guarantors.

The federal regulator seeks the probable explanation to avert replicating the huge real estate avalanche that sent shock-waves to the nation’s housing industry and also aid federal efforts in restructuring the companies.

Treasury Secretary Timothy Geithner scored the companies’ flawed practice of borrowing from the financial markets and then using up the funds to acquire huge amounts of mortgages bonds.

Geithner had remarked two months ago that Freddie and Fannie were given inexplicable leeway in their operations, which the two companies utilized “to expand and manage their investment portfolios without regard to the risk they posed to the system.” Read the rest of this entry »

The recession pulled down whatever gains that the real estate sector has achieved during the previous years, with the housing market emerging as the biggest loser so far but recent developments were pointing to commercial properties as the likely new target.

In Frederick County alone, Costar reported of double digits vacancy rates in commercial spaces as Marty Lapera of Frederick County Bank had observed, “the commercial real estate market is very weak with the continued likelihood of declining values.”

Boasting of 25.2 million square feet of commercial space, Frederick County hosted the highest quality of commercial real estate lending, according to Lapera as he added that “three years ago, real estate lending was very profitable but as the economy deteriorated, so has commercial real estate portfolio quality.”

The area’s retail space seemed to enjoy good occupancy rate but the numbers were superficial if Earl Mackintosh was to be believed as he claimed that property owners were forced to cut down on rents and add amenities to keep tenants from leaving, a ploy that according to him further pressures the sector downward.

This discourages investors who were looking for a higher value of the property in the event that the market recovers as Mackintosh stressed that there were investors who would be willing to pour investments with small returns but better prospect in the long run.

He said that Frederick could still count on some solid commercial areas such as the downtown sector where structures are combined with residential space upstairs while the ground levels were being reserved for business purposes.

However, the recovery being hoped for by investors may be delayed for some time as funds to stimulate business activities were not restricted by banks which either not willing to lend or impose stringent equities from borrowers, with most banks asking for 20 percent for commercial real estate loans.

Mackintosh added that government rules on zoning, construction and the attending fees were source of discouragements for potential growth in the county, which also restrict job growth and the subsequent economic growth waited by many to fuel the much-waited recovery of the commercial real estate sector.

With these developments, plus the reality that banks were slowly withdrawing from the property market, the waited turnaround may not occur until 2012 as more commercial spaces were rendered idle by many companies decision to downsize and move out of Frederick.

Still, many remained optimistic as appraiser Steve O’Farrell of William G Bowen maintained that the market is now gaining some traction as he argued that the county has largely avoided the worst of the recession due to its proximity to the seat of the federal government, the District of Columbia.

O’Farrell asserted that Frederick performed a lot better in terms of employment rate as against Washington County though he conceded that no new jobs were being created lately but stability should return in 2011 or 2012.

He stressed that many high quality properties could still be found on the county’s market and it is not the time to sell of, which could be true as the local government recently revealed that inquiries for commercial spaces have increased in the past six months.

A county representative said that things were gradually picking up in the business community though construction of new commercial spaces in Frederick were somewhat hampered by lenders’ requirement of 50 percent of pre-sales or pre-leases prior to sitting down on a mortgage application.

Located just nearby the North Central Expressway in North Texas were the framed structures of incomplete buildings and vacant lots that reminded long time residents of an earlier plan for a commercial complex that never took off, leaving behind instead a grim reminder of a crippling financial crisis that suck the life out of many commercial real estate projects in the area.

Such commercial real estate failures have reverberated into many things and foremost of them were the thousand of workers who lost their jobs and the area’s reduction into a virtual ghost town that pushed down property values and denied more taxes for the local government, which resulted to fewer social services.

According to Delta Associates and Real Capital Analytics, Dallas-Fort Worth’s $4.3 billion worth of commercial mortgages came into fifth place among the nation’s major metropolitan areas stricken by commercial real estate distress, with the national level now running as high as $170 billion.

Experts said that there have been some faint signs of let up but they conceded that number would rise further as an estimated $1.4 trillion in commercial mortgages were set to mature by 2014 and most property owners were resigned to the fact that refinancing even half of such huge amount is next to impossible.

To top it all, commercial real estate law specialist Anne Saegert warned that more dangers could be brought by the inevitable loan defaults since they could easily spark more property vacancies and bank mortgage losses that could chalk up a maximum of $300 billion, as predicted by a congressional panel.

Analysts said that the whole situation did not materialize overnight as the good times seen in the early 2000s emboldened many to invest in commercial property that reached its peak in 2006, when most of the purchases stood on lenders’ money due to easy access to credit during that time.

Then the crunch happened in the following year, which immediately created a domino-effect of instigating a home mortgage crisis that led to recession, business failures and runaway unemployment rate.

All of a sudden and like many homeowners, commercial real estate owners found themselves in neck-deep mortgages and when funds proved too hard to come by, a great number of these owners, defaulted on their loans, faced foreclosures and eventually forfeited their properties to banks.

Michael Ablon of PegasusAblon Properties in Dallas had admitted that the market was over-financed and recovery from the prolonged contraction may be a remote one for now as financial institutions were holding back their guns and put off construction loans in hopes of stabilizing first the gap on market prices and the value of assets on their books.

However, the wait may not be that long for many banks as they have to face up the $900 billion commercial mortgages that they would need to settle as 55 percent of those debts were attributed to banks, according to data furnished by Foresight Analytics and Trepp.

Nevertheless, Standard & Poor said that such gloomy outlook about commercial properties debts were exaggerated, citing that the Federal Deposit Insurance Corp declared that the nation’s outstanding home mortgages stood at $10.7 trillion by the first quarter of the year as compared to commercial mortgages of only $3.3 trillion.

Despite the paling comparison with the housing market in terms of debt holdings, the abandoned projects in North Texas were glaring reminders that the commercial real estate sectors were so hard hit by the giant economic hiccup that many developers in the area simply elected to move on following their tremendous losses.

As Steve Everbach, former owner of the failed Times Square complex, explained of his company’s misfortunes, “It’s just not something I want to talk about. We were a small firm. The firm has closed and we’ve moved on.”

New delinquent home loans surged again during the last two quarters as the Mortgage Bankers Association warned on Thursday that the rising figures could effectively dampen recent gains on foreclosures which it said were slowly inching on the decline path despite maintaining their high incidence.

As soon as the data was made public, the Dow Jones index were pushed down by 74 points and eventually folded up this week’s trading below the 10,000 level after seven weeks of breaking beyond that edgy barrier.

Property analysts immediately sounded their alarms on possible upward reversal of foreclosures as the country’s job rate again approached the sliding path while new home sales failed to register impressive figures despite the availability of more affordable mortgages rates.

Also, Freddie Mac has reported on the same day that the average rate available on a 30-year fixed-rate loan retreated by 4.39 percent as economists explained that the rise in mortgages’ delinquencies were largely caused by skyrocketing unemployment rates that continue to plague the economy.

Jay Brinkmann of Mortgage Bankers said that the missed payments were understandable as he stressed that “it takes a paycheck to make a mortgage payment,” as he warned that further foreclosures should be expected in the absence of any improvement in the country’s employment rate.

And no rosy picture is coming up any sooner as according to Christopher Low of Chicago-based FTN Financial, no upward movements were seen on US job rates since April, spawning further introductions of a new wave of foreclosures to grip the market.

Also, Brinkmann put the blame on the now-withdrawn tax credit for home buyers that provided some breathing room along with loan modifications and improved loan delinquencies, which all evaporated for now.

Mortgage Bankers said that newly delinquent mortgages dipped for three consecutive quarters following peaks of up to 3.7 percent seen earlier in the year.

The downward trend was sustained this year and settled at 3.51 percent by the end of June as economist again trained their watchful eyes on loans in dangers of going through foreclosures, noting that their numbers had bloated due to moratoriums on foreclosures and trial loan modifications.

Brinkmann revealed that as of June, these loans have piled up by as much as 4.5 million in numbers as he admitted that such loans had hardly provided the necessary long-lasting relief required by loan seekers.

Many economists expressed fear that these loan would also result to housing supply surplus that would inevitably pull down home prices, which already gained considerable steams in many areas.

On the other hand, foreclosure proceedings fell by 1.23 percent in the first quarter of the year, which industry experts said was prompted by banks’ deliberate attempts to thwart the introduction of oversupply in the market that could badly hurt home prices.

Moreover, the retreating foreclosure proceedings could also be brought about by the wait-and-see attitude being observed for the time being by some mortgage servicers, according to Douglas Robinson of NeighborWorks America.

Robinson said that the industry is keenly monitoring the actual impact of the Obama administration’s emergency economic aid to states as he maintained that the foreclosure declines would not lead to any key changes in the economy, stressing that “pay option mortgages and the high unemployment would lead to the next wave of foreclosure late this year.”

The modern form of Real Estate Investment Trust in the United States traces its root in the 1960 as legislative initiatives gave birth to public ownership of commercial real estate, which since then has taken the path largely dictated by the pulse of the capital markets.

Growths were seen for the most part while intermittent episodes of declines marred some bothering moments for the segment but the sector’s last recorded upward surge was during the 1990s when private capital was marked with exclusivity while the equity markets opened their gates for real estate players to access capital in pursuit of expansion.

Analysts said that the similar environment is currently in effect in the real estate capital markets REIT may be flexing its muscles soon for another growth campaign.

The new momentum apparently started in March 2009 when Simon Property Group saw a successful capital raising and traded 12 million of its shares at $31.50 per security amidst the height of the global financial crisis.

Simon’s successful offering prompted other REIT IPOs and by the end of 2009, some $3 billion, covering nine IPOs, were traded and by the middle part of the current year, six IPOs had amasses $1.6 billion and most noteworthy of that bunch was Hudson Pacific Properties’ remarkable $218 million IPO.

Experts said that many of the offerings were packaged as blind pools, with sponsors intending to pour the proceeds in distressed properties while other IPOs were bundled as roll ups, with backings of investors planning to take the assets into an operating partnership and send the REIT to public offerings.

Economists said that REIT IPOs may be experiencing some dizzying pace in collecting success but they cautioned that some IPOs have encountered failures owing to the uncertain market conditions or investors were disappointed by the offerings inability to fetch the ideal share prices.

These downside factors, however, did not dampen the resolve of many sponsors to pursue the promising enterprise as more REIT IPOs were being lined up with more diverse investors from the hospitality, health care and industrial companies dipping their fingers on the re-emerging investment platform.

Stock market watchers said that the attraction of commercial private properties companies into public trading was mainly due to its offering of an alternative source of funds, leading to stabilized debt reduction and balance sheet liquidity.

Also, Green Street Advisors said that many real estate companies were lured by the higher values of REIT properties, which were underpinned by liquid investments, transparency, competitive dividends professional management and most of all with the upbeat anticipations that the property market would be hauled up by a recovering economy.

However, the speed seen in REIT’s impressive equity pick ups were not immediately translated into property investments despite the plunging values of assets by as much as 40 percent as the 2009 data showed that public REITs purchasing of properties had a steep decline from 6,351 to a measly 360 four years after.

Experts cited a number of reasons for the drop but the most glaring is the fact that many owners/investors were on a standstill and fervently hoping for spikes in asset values before they put back their properties in the market.

But with up to $1.24 trillion worth of US commercial real estate loans up for refinancing over the next four years, experts said that banks and owners may find it more fruitful to sell their assets at this time rather than face the specter foreclosure proceedings, which should spawn great buying spree for REITs.

The prevailing environment may not be that welcoming for REIT IPOs for now but many experts firmly believed that the segment’s success story and apparent efficiency would entice willing investors and funds that help successful REIT players to pursue long-term opportunities and corporate growth.