U.S. Home Construction Falls Sharply in September

17 10 2008

Construction of new homes plunged by a bigger-than-expected amount in September as U.S. builders slashed production to the slowest pace since early 1991.

The Commerce Department reported Friday that construction of new homes and apartments dropped by 6.3 percent last month, a much bigger decline than the 1.6 percent decrease that had been expected. It pushed total production to a seasonally adjusted annual rate of 817,000 units. That’s the slowest pace since January 1991, a period when the country was in a recession and going through a similar painful housing correction.

The declines last month reflected weakness in many parts of the country. It was led by a 20.9 percent drop in the Northeast, where construction of single-family units dropped to the lowest level on record.

Source: The Associated Press





$1 Billion Foreclosure Relief for Countrywide Borrowers in Florida

17 10 2008

Relief is on the way for some Floridians in foreclosure or at risk for it.

Bank of America is to provide $1 billion for Floridians who are recipients of Countrywide home loans considered troubled or risky.

Bank of America, which acquired Countrywide last year, is expecting about 58,000 Floridians to be eligible for its home retention program that begins Dec. 1.

The program is to give Countrywide borrowers restructured loans, foreclosure relief or relocation assistance after 11 states settled a lawsuit with the company that claimed lenders misled borrowers.

Florida residents who went into foreclosure with a Countrywide-issued loan because of early payment defaults or after adjustments to interest rates will be eligible for a share of the $20 million that Bank of America is allocating in foreclosure relief for Floridians.

Under that program, Floridians are expected to receive money from Bank of America as compensation for loans that were not written correctly.

Rick Simon, spokesman for Bank of America, said the foreclosure relief and relocation assistance component of Bank of America’s home retention program are expected to go to about 8,000 Floridians.

Simon said the bank is working to identify eligible Countrywide borrowers who will be contacted via mail or phone by Dec. 1.

“Between now and then, the time is needed to get the system set up,” Simon said. “Some of those letters could start before December.”

Relocation assistance is to include about $4 million for Floridians, who could receive money if they voluntarily agree to leave their home after a foreclosure sale.

Simon said the most expensive portion of the home retention program in Florida will be the rewriting and restructuring of an estimated 50,000 loans.

Bank of America is expected to use a majority of the $1 billion to help Floridians get fixed-rate loans.

“Florida is the second largest state in this program in both the potential amount of customers and payment relief,” Simon said.

Bank of America is to allocate $3.5 billion to California, which is estimated to have 125,000 Countrywide borrowers in need of assistance.

Nationwide, it is a $9 billion program projected to relieve 400,000 Countrywide customers.

Ken Wieand, a finance professor at the University of South Florida, said the home retention portion of the program has the potential for success.

“In the overall meltdown that we’re having in terms of reducing the number of mortgage defaults, certainly that would be helpful, Wieand said.

“This program would in a sense keep some people who would have had to default on their loans from defaulting in the future. And certainly that would benefit the economy right now.”

Source: Florida Association of Realtors





NAR: Pending Home Sales Surged 7.4% in August

9 10 2008

According to the National Association of Realtors® (NAR), pending home sales activity surged as buyers took advantage of low home prices and affordable interest rates.

The Pending Home Sales Index (PHSI), a forward-looking indicator based on contracts signed in August, jumped 7.4 percent to 93.4 from an upwardly revised reading of 87.0 in July, and is 8.8 percent higher than August 2007 when it stood at 85.8. The index is at the highest level since June 2007 when it stood at 101.4.

Lawrence Yun, NAR chief economist, said home buyers were responding to improved affordability.

“What we’re seeing is the momentum of people taking advantage of low home prices, with pending home sales up strongly in California, Nevada, Arizona, Florida, Rhode Island and the Washington, D.C., region,” Yun says. “It’s unclear how much contract activity may be impacted by the credit disruptions on Wall Street, but we’re hopeful most of the increase will translate into closed existing-home sales.”

The PHSI in the West surged 18.4 percent to 109.5 in August and remains 37.8 percent above a year ago. In the Northeast the index jumped 8.4 percent to 79.8 and is 2.0 percent higher than August 2007. The index in the Midwest rose 3.6 percent to 84.5 in August and is 6.6 percent above a year ago. In the South, the index increased 2.3 percent to 96.0 but is 2.1 percent below August 2007.

Yun notes the unusual timing of contract activity in August. “Home buyers in July were hampered by overly stringent lending criteria in the months before the government takeover of Fannie and Freddie,” he says. “August shows some unleashing of pent-up demand before the credit crisis accelerated in September.”

He cautioned that the sampling size for pending home sales is smaller than the track on existing-home sales, so there is more volatility in the forward-looking series. “We need to see just how much of this gain holds up,” Yun says.

NAR President Richard F. Gaylord, a broker with RE/MAX Real Estate Specialists in Long Beach, Calif., says despite all the turmoil in world financial markets, home mortgages are available. “Mortgages have been harder to find, and availability and terms vary depending on credit score and location, but Realtors can help buyers find reputable lenders while helping them navigate the transaction process,” he says. “The recently enacted economic stimulus package should help housing by gradually freeing the flow of credit.”

Yun now expects growth in the U.S. gross domestic product (GDP) to contract for two consecutive quarters, in the fourth quarter of this year and the first quarter of 2009, before expanding in latter part of 2009 as the housing market begins a steady improvement.

Looking at middle-ground assumptions, existing-home sales are forecast at 5.04 million this year and 5.41 million in 2009. Following national declines of 5 to 8 percent in 2008, home prices are projected to increase 2 to 3 percent next year.

New-home sales should total around 503,000 this year and 471,000 in 2009. Housing starts, including multifamily units, are likely to fall 28.2 percent to 973,000 units this year, and come in around 843,000 in 2009 as builders continue to clear the accumulation in inventory.

The 30-year fixed-rate mortgage will probably average 6.1 percent in the fourth quarter and rise gradually to 6.6 percent by the end of 2009. NAR’s housing affordability index is expected to average 18 percentage points higher this year than in 2007.

The unemployment rate is projected to average 6.4 percent in the fourth quarter and then average 6.6 percent in 2009. Inflation, as measured by the Consumer Price Index, is estimated at 4.0 percent for 2008 and 2.0 percent next year. Inflation-adjusted disposable personal income is forecast to grow 1.7 percent this year and 1.0 percent in 2009.

Source: FLORIDA ASSOCIATION OF REALTORS





NAR: Pending Home Sales Surged 7.4% in August

8 10 2008

According to the National Association of Realtors® (NAR), pending home sales activity surged as buyers took advantage of low home prices and affordable interest rates.

The Pending Home Sales Index (PHSI), a forward-looking indicator based on contracts signed in August, jumped 7.4 percent to 93.4 from an upwardly revised reading of 87.0 in July, and is 8.8 percent higher than August 2007 when it stood at 85.8. The index is at the highest level since June 2007 when it stood at 101.4.

Lawrence Yun, NAR chief economist, said home buyers were responding to improved affordability.

“What we’re seeing is the momentum of people taking advantage of low home prices, with pending home sales up strongly in California, Nevada, Arizona, Florida, Rhode Island and the Washington, D.C., region,” Yun says. “It’s unclear how much contract activity may be impacted by the credit disruptions on Wall Street, but we’re hopeful most of the increase will translate into closed existing-home sales.”

The PHSI in the West surged 18.4 percent to 109.5 in August and remains 37.8 percent above a year ago. In the Northeast the index jumped 8.4 percent to 79.8 and is 2.0 percent higher than August 2007. The index in the Midwest rose 3.6 percent to 84.5 in August and is 6.6 percent above a year ago. In the South, the index increased 2.3 percent to 96.0 but is 2.1 percent below August 2007.

Yun notes the unusual timing of contract activity in August. “Home buyers in July were hampered by overly stringent lending criteria in the months before the government takeover of Fannie and Freddie,” he says. “August shows some unleashing of pent-up demand before the credit crisis accelerated in September.”

He cautioned that the sampling size for pending home sales is smaller than the track on existing-home sales, so there is more volatility in the forward-looking series. “We need to see just how much of this gain holds up,” Yun says.

NAR President Richard F. Gaylord, a broker with RE/MAX Real Estate Specialists in Long Beach, Calif., says despite all the turmoil in world financial markets, home mortgages are available. “Mortgages have been harder to find, and availability and terms vary depending on credit score and location, but Realtors can help buyers find reputable lenders while helping them navigate the transaction process,” he says. “The recently enacted economic stimulus package should help housing by gradually freeing the flow of credit.”

Yun now expects growth in the U.S. gross domestic product (GDP) to contract for two consecutive quarters, in the fourth quarter of this year and the first quarter of 2009, before expanding in latter part of 2009 as the housing market begins a steady improvement.

Looking at middle-ground assumptions, existing-home sales are forecast at 5.04 million this year and 5.41 million in 2009. Following national declines of 5 to 8 percent in 2008, home prices are projected to increase 2 to 3 percent next year.

New-home sales should total around 503,000 this year and 471,000 in 2009. Housing starts, including multifamily units, are likely to fall 28.2 percent to 973,000 units this year, and come in around 843,000 in 2009 as builders continue to clear the accumulation in inventory.

The 30-year fixed-rate mortgage will probably average 6.1 percent in the fourth quarter and rise gradually to 6.6 percent by the end of 2009. NAR’s housing affordability index is expected to average 18 percentage points higher this year than in 2007.

The unemployment rate is projected to average 6.4 percent in the fourth quarter and then average 6.6 percent in 2009. Inflation, as measured by the Consumer Price Index, is estimated at 4.0 percent for 2008 and 2.0 percent next year. Inflation-adjusted disposable personal income is forecast to grow 1.7 percent this year and 1.0 percent in 2009.

Source: FLORIDA ASSOCIATION OF REALTORS





US Congress Clears $700 Billion Bailout Package

4 10 2008


The US Congress approved a revised 700 billion dollar package to bail out the beleaguered US financial sector after the House of Representatives today cleared the historic measure four days after it rejected an earlier plan that stunned the global markets.

The House okayed 263-171 in a make or break vote the unprecedented government intervention designed to pull the US economy out of the brink and sent it to President George W. Bush for certain signature into law. The Senate on Wednesday passed 74-25 a revised version of the bailout package.

Calling the bipartisan Congress vote a “bold” step, Bush said the package will help the US economy weather the financial crisis.

The revised package aimed at buying up the bad debts of failing institutions included sweeteners on extending bank deposit insurance and expired tax breaks in a bid to get more Republicans behind the legislation.

Several law makers dropped their opposition to the bill when it came up for vote today capping two weeks of turmoil in the Congress and the Wall street.

The Bill was tweaked by the Senate which addded about 100 billion dollars in new tax breaks in an initiative to get the House support for the new version.

Only 85 Republicans voted for the bailout in the 228 to 205 defeat for the bailout on Monday and Democratic House leaders said before the vote they needed 100 members of the minority party to ensure passage.

The plan lets the government spend billions of dollars to buy bad mortgage-related securities and other devalued assets from troubled financial institutions. It is aimed at allowing frozen credit to begin flowing again and prevent a dangerous recession.

Analysis

Over the past several years, banks have increasingly leveraged themselves because money was cheap and the flow of dollars exceeded demand. When this happens, the tendency toward bad investment increases and a bubble is born. Banks accumulated massive amounts of assets that were tied to the housing market and were intended to be sold on the secondary market. The primary purchasers of mortgage-backed securities were Fannie Mae and Freddie Mac. Like any game of hot potato, eventually the music stops and those who took the risk of deploying too much liquid capital to these assets are left holding the bag. As a result, many banks have very little liquid capital and a lot of illiquid capital – and no way to price their quantity and quality. The Fed responded by lowering rates, enabling these banks to borrow money from the Fed with these toxic assets as collateral. The Fed also created many other facilities in which money is auctioned off. All-in-all, I believe that the total amount released by the Federal Reserve is nearly $2 trillion. Given the lack of liquid capital, banks have hoarded these funds released. Apparently you can lead a bank to capital, but you can’t make it lend.

At the heart of the current financial crisis is the fact that banks are no longer lending to each other. This fact can be reflected in the one-month LIBOR, which is trading well above the federal funds target rate. The chart currently shows a value of 96.06, which means that world banks are able to borrow money at 4%. That is significantly higher than the Fed’s rate of 2%. The deterioration of confidence in bank credit worthiness began on September 16. The banks’ inability to lend to each other is symptomatic of a lack of confidence about lending to anyone. The reality is that the current proposal of $700 billion doesn’t address this situation directly.

The proposal is primarily designed to transfer bad assets of foreign and domestic banks to the U.S. Treasury, but that isn’t necessarily its only impact. An unintended consequence of the Sarbanes-Oxley regulation is that it requires mark-to-market accounting of assets. The problem with many of these mortgage-backed securities and other vehicles held by banks is that there isn’t a market with which they can trade. Therefore, the price discovery process has been a large issue for banks and has caused massive write-downs across the financial sector. With this bill, the federal government is really trying to set a price for these assets above current market prices, so banks can artificially inflate their balance sheets and cause their share prices to rise. A higher share price allows banks to raise capital more readily through borrowing or issuing stock.

One point to consider is a lesson learned from the Great Depression, of which Chairman Bernanke is a student. At that time, popular economic thought was that the main issue affecting the economy was deflation, and if only they could solve the problem of falling prices, everything would be better. Therefore, production quotas were instituted to create scarcity and drive prices higher. As a result, unemployment continued to rise as workers were underutilized, and prices weren’t allowed to fall toward an equilibrium point that reflected the state of wages and employment. We’re seeing a similar thing today. The popular notion is that falling prices of homes and related assets is the problem, not the fact that there wasn’t enough savings to support the debt level that was issued.

In the end, passage of this legislation will likely help the market in the short run and ease some of the pressure that is building, but it doesn’t allow the market to adjust to current preferences and continues to allow useful capital to flow into unproductive activities.

The hope of a quick economic turnaround seems to be a distant memory and will likely be even more protracted. The ability to improve bank balance sheets by arbitrarily setting a price floor of $700 billion and also set mortgage rates below any market-determined level may ultimately lessen immediate impact, but is highly inflationary in the long term and will not allow us to move toward a more productive economy.





US Congress Clears $700 Billion Bailout Package

3 10 2008


The US Congress approved a revised 700 billion dollar package to bail out the beleaguered US financial sector after the House of Representatives today cleared the historic measure four days after it rejected an earlier plan that stunned the global markets.

The House okayed 263-171 in a make or break vote the unprecedented government intervention designed to pull the US economy out of the brink and sent it to President George W. Bush for certain signature into law. The Senate on Wednesday passed 74-25 a revised version of the bailout package.

Calling the bipartisan Congress vote a “bold” step, Bush said the package will help the US economy weather the financial crisis.

The revised package aimed at buying up the bad debts of failing institutions included sweeteners on extending bank deposit insurance and expired tax breaks in a bid to get more Republicans behind the legislation.

Several law makers dropped their opposition to the bill when it came up for vote today capping two weeks of turmoil in the Congress and the Wall street.

The Bill was tweaked by the Senate which addded about 100 billion dollars in new tax breaks in an initiative to get the House support for the new version.

Only 85 Republicans voted for the bailout in the 228 to 205 defeat for the bailout on Monday and Democratic House leaders said before the vote they needed 100 members of the minority party to ensure passage.

The plan lets the government spend billions of dollars to buy bad mortgage-related securities and other devalued assets from troubled financial institutions. It is aimed at allowing frozen credit to begin flowing again and prevent a dangerous recession.

Analysis

Over the past several years, banks have increasingly leveraged themselves because money was cheap and the flow of dollars exceeded demand. When this happens, the tendency toward bad investment increases and a bubble is born. Banks accumulated massive amounts of assets that were tied to the housing market and were intended to be sold on the secondary market. The primary purchasers of mortgage-backed securities were Fannie Mae and Freddie Mac. Like any game of hot potato, eventually the music stops and those who took the risk of deploying too much liquid capital to these assets are left holding the bag. As a result, many banks have very little liquid capital and a lot of illiquid capital – and no way to price their quantity and quality. The Fed responded by lowering rates, enabling these banks to borrow money from the Fed with these toxic assets as collateral. The Fed also created many other facilities in which money is auctioned off. All-in-all, I believe that the total amount released by the Federal Reserve is nearly $2 trillion. Given the lack of liquid capital, banks have hoarded these funds released. Apparently you can lead a bank to capital, but you can’t make it lend.

At the heart of the current financial crisis is the fact that banks are no longer lending to each other. This fact can be reflected in the one-month LIBOR, which is trading well above the federal funds target rate. The chart currently shows a value of 96.06, which means that world banks are able to borrow money at 4%. That is significantly higher than the Fed’s rate of 2%. The deterioration of confidence in bank credit worthiness began on September 16. The banks’ inability to lend to each other is symptomatic of a lack of confidence about lending to anyone. The reality is that the current proposal of $700 billion doesn’t address this situation directly.

The proposal is primarily designed to transfer bad assets of foreign and domestic banks to the U.S. Treasury, but that isn’t necessarily its only impact. An unintended consequence of the Sarbanes-Oxley regulation is that it requires mark-to-market accounting of assets. The problem with many of these mortgage-backed securities and other vehicles held by banks is that there isn’t a market with which they can trade. Therefore, the price discovery process has been a large issue for banks and has caused massive write-downs across the financial sector. With this bill, the federal government is really trying to set a price for these assets above current market prices, so banks can artificially inflate their balance sheets and cause their share prices to rise. A higher share price allows banks to raise capital more readily through borrowing or issuing stock.

One point to consider is a lesson learned from the Great Depression, of which Chairman Bernanke is a student. At that time, popular economic thought was that the main issue affecting the economy was deflation, and if only they could solve the problem of falling prices, everything would be better. Therefore, production quotas were instituted to create scarcity and drive prices higher. As a result, unemployment continued to rise as workers were underutilized, and prices weren’t allowed to fall toward an equilibrium point that reflected the state of wages and employment. We’re seeing a similar thing today. The popular notion is that falling prices of homes and related assets is the problem, not the fact that there wasn’t enough savings to support the debt level that was issued.

In the end, passage of this legislation will likely help the market in the short run and ease some of the pressure that is building, but it doesn’t allow the market to adjust to current preferences and continues to allow useful capital to flow into unproductive activities.

The hope of a quick economic turnaround seems to be a distant memory and will likely be even more protracted. The ability to improve bank balance sheets by arbitrarily setting a price floor of $700 billion and also set mortgage rates below any market-determined level may ultimately lessen immediate impact, but is highly inflationary in the long term and will not allow us to move toward a more productive economy.





Pass the Emergency Economic Stability Act (EESA)

1 10 2008

As a real estate professional and member of the National Association of REALTORS, I wrote a letter to Senator Bill Nelson, Senator Mel Martinez and Representative Ander Crenshaw to urge them to support a bipartisan plan that brings an end to the current credit crisis crippling the housing and financial markets. The final plan MUST protect homeowners and the American taxpayers. I supported the Emergency Economic Stabilization Act of 2008 and am pleased with the safe guards in that bill.

Keeping people in their home and protecting ‘Main Street’ not only benefits individual families, but helps bring stability to the housing market which greatly impacts the overall U.S. economy. Across the country, REALTORS see and feel the loss of confidence by both buyers and sellers, and now buyers are finding it harder to get mortgages.

The faster Congress acts to relieve this constraint, the sooner we’ll see a broad stabilization in home prices that in turn will help the economy recover. Historically, housing has led the nation out of economic downturns — there will not be an economic recovery without a housing recovery.








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