Feb
24
WASHINGTON – Sales of new homes plunged to a record low in January, underscoring the formidable challenges facing the housing industry as it tries to recover from the worst slump in decades.
The Commerce Department reported Wednesday that new home sales dropped 11.2 percent last month to a seasonally adjusted annual sales pace of 309,000 units, the lowest level on records going back nearly a half century. The big drop was a surprise to economists who were expecting a 5 percent increase over December’s pace.
While winter storms were partly to blame, home sales have fallen for three straight months despite sweeping government support. Economists were already worried that an improvement in sales in the second half of last year could falter as various government support programs are withdrawn.
“There is no doubt that January and February are going to be messy months for housing, given the severe weather conditions, but that doesn’t take away from the fact that the housing sector has taken another big step back, even with the government aid,” Jennifer Lee, a senior economist at BMO Capital Markets, said in a research note.
A rebound in housing in the second half of last year helped to boost overall economic growth back into positive territory. Each new home built, for example, creates about three jobs for a year and generates about $90,000 in taxes paid to local and federal authorities, according to the National Association of Home Builders.
However, economists are worried that if housing falters in coming months, that will be one more headwind the recovery will have to overcome. The decline to an annual purchase rate of 309,000 in January was 6 percent below the previous record low set in January last year.
“I don’t think we are going to have a double-dip recession in housing, but it is going to take us longer to recover from a very deep hole,” said Patrick Newport, an economist at IHS Global Insight.
January’s weakness was evident in all regions except the Midwest, where sales posted a 2.1 percent increase. Sales were down 35 percent in the Northeast, 12 percent in the West and almost 10 percent in the South.
The drop in sales pushed the median sales price down to $203,500. That was down 5.6 percent from December’s median sales price of $215,600, and off 2.4 percent from year-ago prices.
New home sales for all of 2009 had fallen by almost 23 percent to 374,000, the worst year on record. The National Association of Home Builders is forecasting that sales will rise to more than 500,000 sales this year, an improvement from 2009 but still far below the boom years of 2003 through 2006 when builders clocked more than 1 million new home sales per year.
January’s data increased concerns that the housing rebound could falter in coming months as the government withdraws the support it has used to try to bolster the housing market. The real estate crisis was the epicenter of the country’s overall recession, the worst downturn since the 1930s.
The Federal Reserve has been holding down mortgage rates by buying $1.25 trillion in mortgage-backed securities, but that program is set to end March 31. And temporary tax credits to bolster home buying are scheduled to expire at the end of April.
Federal Reserve Chairman Ben Bernanke told Congress Wednesday that by holding the securities on its books the central bank would continue to help keep mortgage rates low. Economists believe that as long as the Fed owns the securities it will reduce the overall supply and thus help support the price.
Bernanke, delivering the Fed’s twice-a-year economic report to Congress, said that the Fed’s record low interest rates were still needed to attack high unemployment levels and help the overall economy recover.
Feb
17
WASHINGTON — Housing construction posted a better-than-expected increase in January which pushed activity to the highest level in six months. The solid gain raised hopes that the construction industry is beginning to mount a sustained rebound from its worst slump in decades.
The Commerce Department said Wednesday that construction of new homes and apartments rose 2.8 percent last month to a seasonally adjusted annual rate of 591,000 units. That was better than the 580,000 annual pace that economists were forecasting.
Applications for building permits, considered a good barometer of future activity, fell 4.9 percent to a rate of 621,000, but that was after two months of large increases.
In another sign of strength, Wednesday’s report revised up activity in December to show builders were starting construction at an annual pace of 575,000 units during that month, much stronger than the 557,000 originally reported. Even with the upward revision, activity fell a slight 0.7 percent in December, a dip that was blamed on severe weather in many parts of the country that depressed construction activity.
Economists are hoping that housing is beginning to recover and a rebound in this area will help support the economy as it struggles to mount a sustained recovery from the deepest recession since the 1930s.
In a separate report suggesting strength, the Federal Reserve said industrial production rose 0.9 percent in January, the seventh consecutive monthly increase.
January’s numbers rose in all three major categories: manufacturing, mining and energy utilities. That is the first such show of strength since August 2009.
Manufacturing rose 1.0 percent, while mining and utilities each gained 0.7 percent, the report said.
In the housing report, the strength last month was led by a 10 percent jump in activity in the Northeast and an 8.9 percent increase in the West. Construction was up a smaller 1 percent in the South and 3.2 percent in the Midwest.
The strength in January pushed construction activity up by 21.1 percent from the pace in January 2009. Last month’s building rate the fastest pace since July.
Construction of single-family homes rose by 1.5 percent to a seasonally adjusted annual rate of 484,000 units while construction of multi-family units increased 9.2 percent to an annual rate of 107,000 units.
The National Association of Home Builders said Tuesday that its housing market index rose by two points to 17 in February after having fallen for two consecutive months.
That increase in sentiment was likely influenced by a number of favorable developments including a report earlier this month that the nation’s unemployment rate fell in January to 9.7 percent, still high, but lower than the 10 percent of the previous month.
In other favorable developments, mortgage rates are hovering around 5 percent, pushed down by a Federal Reserve program to buy mortgage-backed securities. And builders say they are also seeing a boost in the demand for homes coming from a government stimulus program. That program provides tax credits of up to $8,000 for first-time home buyers and up to $6,500 for current homeowners who decide to move.
Bob Jones, chairman of the home builders, said builders were “slightly more optimistic that the housing recovery is finally beginning to take root.”
Feb
16
The percentage of borrowers at least 60 days past due on their mortgage increased for the 12th straight quarter, hitting 6.89 percent by the end of 2009, according to new data released by TransUnion Tuesday. That’s an all-time high in the credit bureau’s study, dating back to 1992.
This statistic, which is traditionally seen as a precursor to foreclosure, increased 10.24 percent from the previous quarter’s 6.25 percent average. Compared to the year-ago delinquency rate of 4.58 percent, past due mortgages are up a staggering 50 percent, TransUnion said.
The Chicago-based company called the recent slowing in the pace delinquency increases “short-lived.” What was starting to become a trend came to an abrupt end in the fourth quarter, when the mortgage delinquency rate accelerated instead of decelerated as it had done since the beginning of 2009.
Based on TransUnion’s analysis, borrower delinquency rates last quarter continued to be highest in Nevada (16.19 percent) and Florida (14.93 percent). North Dakota (1.84 percent), South Dakota (2.46 percent), and Alaska (2.84 percent) continued to produce the nation’s lowest mortgage delinquency rates.
Areas showing the greatest percentage growth in delinquency from the previous quarter were the District of Columbia (+20.2 percent), Louisiana (+17.7 percent), and Delaware (+14.8 percent). Unlike last quarter, no state showed a decrease in mortgage delinquency rates from the previous period.
The news was not altogether bad, though, as bright spots appeared at the metropolitan level. Thirty-eight metro areas showed a decrease in their mortgage loan delinquency rates since third quarter, with Corvallis, Oregon heading the pack. This compares to only 27 metros that showed a quarterly decrease in delinquency last year between the third and fourth quarters.
“Variations in delinquency highlight the fact that the recession and the eventual recovery are both regional phenomena tied for the most part to localized house price conditions and unemployment levels,” said FJ Guarrera, VP of TransUnion’s financial services business unit.
“We’re not out of the woods yet,” Guarrera added. “The continuing rise in foreclosures, in conjunction with low consumer confidence in the housing market, continues to hinder housing value appreciation and impede recovery in the mortgage industry. Furthermore, there is wave of adjustable rate mortgages (ARMs) that have yet to reset.”
For these reasons, Guarrera explained that TransUnion’s forecasts for 2010 are slightly more pessimistic than they have been in the past. The credit bureau is expecting the 60-day mortgage delinquency rate to peak between 7.5 and 8 percent over the course of this year.
With regard to regional forecasts, Nevada is still anticipated to experience the highest mortgage delinquency rate by mid-2010, reaching as high as one in five mortgage borrowers.
Feb
15
Moody’s Expects HAMP Missteps to Prolong Home Price Declines
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Moody’s Investors Service is forecasting another 8 percent decline in home prices over the course of 2010 before a bottom in residential property values is reached, largely because of the “underwhelming” success of the administration’s Home Affordable Modification Program (HAMP).
When all is said and done, the ratings agency predicts a peak-to-trough drop of 34 percent in national home prices. That’s actually an improvement over Moody’s estimates last month, when the agency was expecting a total peak-to-trough decline of 37 percent. However, it’s the duration of depreciation that’s the headline grabber. Previously, Moody’s analysts were predicting the price floor to be reached in the third quarter of this year. Now they say it won’t be hit until the end of the fourth quarter.
The reason for the extended freefall, Moody’s says, is the timing of foreclosure sales hitting the market. Market barometers such as the S&P/Case Shiller index and the National Association of Realtors’ existing-home median price have, in fact, shown improvements in recent months, but Moody’s says the progress is short-lived.
“We believe that the recent improvement in house prices is a temporary reprieve,” Moody’s said in its latest ResiLandscape report. “A decline in distress sales-including foreclosure, deed in lieu, and short sales-as a share of total home sales is a driving contributor to the gain in house prices.”
HAMP, as well as other servicer-initiated mortgage modification programs, have kept hundreds of thousands of distressed homes out of foreclosure and off the market – for now, the ratings agency said.
However, “Many of the loans in the [HAMP] program will fail to convert to a permanent modification and will eventually end up on the market as heavily discounted distress sales,” Moody’s wrote. “It is looking likely that foreclosures will hit the market more slowly than we had anticipated, mitigating but prolonging the price decline.”
Despite the administration’s efforts to stem the tide of foreclosures, Moody’s said in a January report that its analysis shows that only 400,000 to one million homes will be saved through HAMP. The agency’s projections fall significantly short of the federal government’s promise to keep three to four million homeowners out of foreclosure.
Feb
10
NEW YORK, Feb 10 (Reuters) – Freddie Mac (FRE.N)(FRE.P) and Fannie Mae (FNM.N)(FNM.P), the largest buyers of U.S. home loans, said on Wednesday they were ramping up purchases of delinquent loans from mortgage securities pools to bolster their financial positions.
Both companies, seized by the government in September 2008, said this action would help cut funding costs and preserve capital, limiting the amount of added taxpayer funds they need.
The cost of buying most of the delinquent loans backing mortgage securities and holding them in their own portfolios will be less than the cost of advancing payments on the non-performing loans to investors, both companies said.
Freddie Mac has tapped the government for more than $51 billion in taxpayer funds as of the third quarter of last year, roughly $10 billion less than has its sibling, Fannie Mae.
Freddie Mac said it would buy “substantially all” mortgage loans that are at least 120 days delinquent from its fixed-rate and adjustable-rate securities.
There were 331,394 loans in this category as of the end of December, with an unpaid principal balance just shy of $69 billion, Mark Hanson, vice president of mortgage funding at Freddie Mac, told Reuters in an interview.
Those numbers will be adjusted for January. After adjustments, “whatever is remaining of the investor balances for that population will be passed through as prepayments,” Hanson said.
The buyouts “will help Freddie Mac preserve capital and reduce the amount of any additional draws from the U.S. Department of the Treasury,” the company said. Fannie Mae made a similar statement.
Under new accounting standards, all loans that Freddie Mac and Fannie Mae guarantee went back on their balance sheets as of the start of January.
Fannie Mae said it has the option to buy out loans that are late by four or more straight months, estimating that to be about $127 billion of single-family loans as of Dec. 31.
The company expects to start the purchases in March and complete a significant portion within a few months, subject to market conditions and servicer capacity.
On Christmas Eve, the Treasury opened the credit access spigot to the two companies for three years.
The government is seeking to overhaul the structure of the two largest U.S. home funding companies after the housing crisis decimated their capital levels. But in the meantime, it relies on them to help lift the housing market out of its worst crash since the Great Depression.
The White House said on Feb. 1 that Fannie Mae and Freddie Mac would draw a total of $188 billion in government funds by October 2011. For details, see [ID:nN01191335]
The stepped-up buyouts of delinquent loans from their securities pools were widely expected, but market participants were concerned about the uncertain timing and pace.
“We announced it today trying to minimize market disruption and we elected to do it all at once so that future trading would have this uncertainty resolved,” Hanson said.
Freddie Mac said it will continue to review the economics of future purchases of loans that are 120 days or more delinquent.
Mortgage bond prepayment speeds “will be materially faster for the February report, but this will allow for a more even approach to buying out newly delinquent loans going forward,” FTN Financial analysts Walter Schmidt and Kevin Cavin wrote.
Predicting the pace of early mortgage bond repayment is critical for investors in gauging cash flow and planning for reinvestment.
Freddie Mac said it expects by April to disclose in its monthly volume summaries the number of loans at least 90 days delinquent in related fixed-rate 30-year, 15-year and ARM securities.
Fannie Mae said it would provide additional information on the impacted mortgage securities within two weeks.
Attention in the market has started to shift to how the companies will fund these purchases.
Earlier on Wednesday, Freddie Mac opted to skip its lone window for selling its so-called reference notes in February. That is one form of funding used by the company to finance mortgage bond purchases.
Yield premiums on bonds issued by the two companies were steady to narrower on Wednesday versus Treasuries.
Feb
2
Investment Firms Launch $400M Fund to Buy Distressed Commercial Real Estate
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Atlanta-based Regent Partners LLC and TriGate Capital have joined forces to form a $400 million fund to invest in commercial real estate. It’s just one more sign that the downturn in the sector has created a buyer’s market of incredible bargains.
According to the firms, the Regent-TriGate Property Fund I will focus on the recapitalization of real estate assets primarily in Atlanta, as well as other markets in the Southeast, that require both capital and management expertise.
As DSNews.com reported last week, a congressional oversight panel recently headed to Atlanta to hold a field hearing on the potential reach of commercial real estate troubles. Atlanta was chosen as the destination because that market has been hit particularly hard and many experts believe Atlanta’s experience could eventually stretch to other parts of the country.
A report by the local Atlanta Business Chronicle the investors will acquire primarily distressed office buildings, hotels, and high-rise residential towers over the next two years.
“We believe that Regent-TriGate will offer management and capital solutions to lenders and owners of large, complicated real estate assets that are in need of recapitalization,” said David Allman, chairman of Regent Partners. “It is our belief that market participants will be looking to firms that have capital, but also have the ability to add value to real estate through intensive management and redevelopment.”
According to a statement from the firms, the Regent-TriGate fund is currently looking for opportunities to combine its operating, marketing, and repositioning expertise with financial restructuring. Potential transactions might include joint ventures with financial institutions that own or are secured lenders on properties, acquisitions of loans, and equity investment in properties that require recapitalization.
The fund will look to combine its capital with third party institutional partners to further augment its capital base for specific opportunities. In particular, Regent-TriGate believes it can add value to large developments that need new sponsorship in order to maximize the value of the assets.
“We believe that Regent’s redevelopment capability, management expertise, and knowledge of Southeastern real estate together with TriGate’s investment and financial structuring expertise will provide unique solutions to the real estate challenges that exist today,” said Jay Henry, managing member of TriGate Capital.
Since its inception in 1998, Regent Partners has acquired and developed more than 15 million square feet of office, residential, retail, and hotel space valued in excess of $2 billion. Regent’s signature project is the 50 story Sovereign building, a vertical mixed use tower on Peachtree Road in the Buckhead district of Atlanta.
TriGate Capital, headquartered in Dallas, Texas, says it is focused on investing in real estate properties, real estate secured loans and securities, and real estate companies through transactions that emanate from the need of financial institutions and property owners to restructure. TriGate’s principals have invested in more than $10 billion of real estate assets, and the company says it has raised its inaugural fund to take advantage of the current lack of capital in the commercial real estate market.
Peter Fish of Sterling Real Estate Capital helped to arrange the new property fund. Sterling is an Atlanta-based real estate private equity advisory firm.