South California July home prices fall

(SAN FRANCISCO) Southern California house and condominium prices fell 23 per cent last month from a year earlier as foreclosures dominated sales, MDA DataQuick said.

The median price dropped to US$268,000 from US$348,000 a year earlier, the San Diego-based research company said on Tuesday in a statement. The number of homes sold increased almost 19 per cent from a year earlier to 24,104 for Los Angeles, Riverside, San Diego, Ventura, San Bernardino and Orange counties.

‘There’s still quite a bit of distress out there,’ John Walsh, Dataquick’s president, said in a statement. ‘Even if we are at or near bottom, history suggests we could bounce along that bottom for quite a while.’

Foreclosures accounted for 43 per cent of sales, down from 45 per cent in June and from a peak of 57 per cent in February, MDA DataQuick said.

Foreclosures as a proportion of all sales hit the lowest since June 2008. Homes priced at US$500,000 and above were 20 per cent of transactions, compared with 15 per cent in March.

The July median price rose one per cent from June, the third consecutive monthly increase, according to MDA DataQuick. That was due in part to a larger share of home purchases financed with loans of more than US$417,000. About 15 per cent of transactions involved such loans, the highest in 11 months.

Values are likely to fall more in expensive coastal areas as employers cut jobs in the recession and homeowners reduce asking prices, said MDA Dataquick analyst Andrew LePage.

‘Sellers are getting more realistic,’ Mr LePage said in an interview. ‘It looks like prices are coming down.’

Investors and absentee buyers, driven by discounts on foreclosed properties, bought 19 per cent of homes in the six-county region last month, up from 16 per cent a year earlier and more than the monthly average of 15 per cent since 2000, MDA DataQuick said.

The company defines absentee buyers as those whose property-tax bills are sent to a different address.

Purchases financed with loans backed by the Federal Housing Administration, often used by first-time buyers, accounted for 37 per cent of July home sales, up from 20 per cent a year earlier, MDA DataQuick said.

Prices fell in all six counties, led by a 39 per cent drop in San Bernardino to a median of US$140,000. The median fell 29 per cent to US$185,000 in Riverside; 20 per cent to US$321,000 in Los Angeles; 12 per cent to US$320,000 in San Diego; 11 per cent to US$375,000 in Ventura; and 9 per cent to US$420,000 in Orange.

The July median was 47 per cent below the market peak of US$505,000 in the spring and summer of 2007, MDA DataQuick said.

Sales increased in five counties, led by San Bernardino’s 41 per cent gain. Sales rose 23 per cent in Los Angeles, 14 per cent in Riverside, 12 per cent in Orange and 11 per cent in San Diego. Sales fell 4 per cent in Ventura.

MDA Dataquick is a unit of Richmond, British Columbia-based MacDonald, Dettwiler & Associates Ltd, and compiles data from county property records to sell to public agencies, lenders and title companies. — Bloomberg

Source: Business Times, 20 Aug 2009

New home construction down 1% in July

(WASHINGTON) Construction of new US homes dipped slightly last month, missing expectations, in a sign that the building industry’s recovery from the housing bust is likely to be bumpy and gradual.

The Commerce Department said yesterday that construction started on homes and apartments fell one per cent last month to a seasonally adjusted annual rate of 581,000 units, from an upwardly revised rate of 587,000 in June. Economists polled by Thomson Reuters expected a pace of 600,000 units.

Builders slammed the brakes on construction after the housing bubble burst, and in April, housing starts plunged to the lowest point in a half-century. Then construction began a recovery, rising to the highest level in seven months in June before slipping again last month.

But the industry is still a long way from a return to normal. Last month’s housing starts were still nearly 38 per cent below last year’s levels.

The decline in construction was led by a drop of more than 13 per cent in multi-family properties. Construction of single-family homes rose one per cent last month.

Applications for building permits, an indicator of future activity, fell 1.8 per cent to an annual rate of 560,000 units.

Economists expected an annual rate of 580,000 units.

The industry is seeing increased demand from consumers who want to take advantage of a new federal tax credit for first-time homebuyers. It covers 10 per cent of a home price up to US$8,000. It is set to expire at the end of November.

While numerous signs have emerged that the US housing market has stabilised after the worst housing recession since the Great Depression, there are several threats to any recovery.

The unemployment rate, now 9.4 per cent, is expected to surpass 10 per cent, leaving even more homeowners unable to pay their mortgages.

Mortgage rates are still at attractive levels, but they could rise, making buying a home less affordable.

Nevertheless, builders have been growing more confident. The National Association of Home Builders said on Monday that its housing market index rose to the highest point in more than a year in August. The trade association’s index rose one point to 18, a level not seen since June 2008.

Meanwhile, wholesale prices dropped sharply last month, and over the past 12 months fell by the largest amount in more than six decades of record-keeping.

The Labor Department said yesterday that wholesale prices dropped 0.9 per cent last month. That’s triple the decline economists had expected and was driven by big decreases in both energy and food costs. Over the past 12 months, the prices of goods before they reach store shelves fell 6.8 per cent. – AP

Source: Business Times, 19 Aug 2009

Watergate Hotel attracts 6 potential buyers

(WASHINGTON) The lender holding the US$40 million note on the closed Watergate Hotel says that at least six potential buyers are interested in acquiring the landmark property.

PB Capital took back the property after no one entered a bid during an auction last month. Bidding opened at US$25 million, The Washington Post reported. Kurt Sachs, senior managing director at PB Capital, says that the interested parties are hotel chains. He says that their executives are touring the Watergate to determine how much it would cost to renovate.

Mr Sachs says that the first person to present a cheque will get the hotel. The Watergate is part of a complex of six buildings made famous by the 1972 burglary that led to former president Richard Nixon’s resignation. — AP

Source: Business Times, 18 Aug 2009

Commercial property on Fed radar

Fall in values makes it tough for owners to refinance almost US$165b of mortgages

(WASHINGTON) The collapse in commercial real estate is preventing Federal Reserve chairman Ben Bernanke from declaring that the economy and financial markets are healed.

Property values have fallen 35 per cent since October 2007, according to Moody’s Investors Service. That’s making it tough for owners to refinance almost US$165 billion of mortgages for skyscrapers, shopping malls and hotels this year, pressuring companies such as Maguire Properties Inc, the largest office landlord in downtown Los Angeles, to put buildings up for sale.

The industry is likely to be high on the agenda when Mr Bernanke and his colleagues sit down in Washington today for the Federal Open Market Committee meeting on monetary policy.

Lawmakers including Barney Frank and Carolyn Maloney are pushing the central bank to extend an aid programme designed to restore the flow of credit.

If non-residential real estate remains in the doldrums, the Fed may be forced to leave emergency-lending programmes in place and keep its benchmark interest rate close to zero for longer than some investors expect, given positive signs elsewhere in the economy.

Commercial property is ‘certainly going to be a significant drag’ on growth, said Dean Maki, a former Fed researcher who is now chief US economist in New York at Barclays Capital Inc, the investment-banking division of Barclays plc.

‘The bigger risk from it would be if it causes unexpected losses to financial firms that lead to another financial crisis.’

The Fed is ‘paying very close attention’, Mr Bernanke told the Senate Banking Committee last month in the semi-annual monetary-policy testimony. ‘As the recession’s gotten worse in the last six months or so, we’re seeing increased vacancy, declining rents, falling prices, and so, more pressure on commercial real estate.’

The pressure may be easing in other areas of the economy. Gross domestic product shrank at a better-than-forecast one per cent annual pace in the second quarter after a 6.4 per cent drop the prior three months, and residential housing starts rose unexpectedly by 3.6 per cent in June as construction of single-family dwellings jumped by the most since 2004, according to Commerce Department data.

Employers cut fewer workers than anticipated last month as the jobless rate fell to 9.4 per cent from 9.5 per cent in June – the first decline since April 2008, based on Labor Department figures.

Amid such glimmers of improvement, commercial real estate is a ‘particular danger zone’, Janet Yellen, president of the Federal Reserve Bank of San Francisco, said in a speech in Idaho last month.

The market may be ‘under stress for some considerable period of time’, William Dudley, chief of the New York Fed bank, said the following day in New York.

Non-residential construction may decline as much as 9 per cent this year and another 5 per cent in 2010, predicts Kenneth Simonson, chief economist at Associated General Contractors of America, an Arlington, Virginia. In the second quarter, it accounted for 3.6 per cent, or US$509 billion, of US GDP on an annual basis, down from 4.3 per cent in the final three months of 2008.

A dozen lawmakers questioned Mr Bernanke on the topic during his Congressional testimony last month. Some asked about extending the Term Asset- Backed Securities Loan Facility, the emergency programme that the Fed began in March to restart the market for securities backed by car, credit-card and education loans.

The central bank expanded the facility in June to cover as much as US$100 billion in loans to support commercial mortgage-backed securities.

Fed policy makers will prolong the programme if they judge that financial markets are still ‘some distance from normal operation’, Mr Bernanke said in his testimony. ‘We will certainly be monitoring the situation.’

The Fed likely will change the end date – just not right away, said former central-bank governor Lyle Gramley. ‘They’re probably going to want to wait a while to see how markets develop,’ said Mr Gramley, 82, now senior economic adviser with Soleil Securities Corp, a New York investment-research firm.

A six-month continuance is more likely than the one year that industry officials want, said former Fed governor Laurence Meyer, vice-chairman with consultant Macroeconomic Advisers LLC of St Louis. — Bloomberg

Source: Business Times, 11 Aug 2009

Stirring back to life

Analysts hopeful of recovery in US property market

AFTER a plunge lasting three years, houses have finally become cheap enough to lure buyers. That, in turn, is stabilising prices, generating hope that the real estate market is beginning to recover.

Eight cities, including Chicago, Cleveland, Denver and San Francisco, showed price increases in May, up from four in April and one in March, according to data released Tuesday. Two others, Charlotte and New York, were flat. For the first time since early 2007, a composite index of 20 major cities was virtually flat, instead of down.

“We have found the bottom,” said Mr Mark Fleming, chief economist for data firm First American CoreLogic.

The release of the surprisingly strong Case-Shiller Price Index, the most widely watched source of price information about the housing market, followed earlier reports that sales of existing homes rose last month for the third consecutive time, while sales of new homes rose in June by the largest percentage in eight years.

All of these improvements are tentative, and come after a relentless decline that knocked more than half the value off houses in the worst-hit cities.

Some sceptics say they believe the market is merely pausing before it resumes falling and that much of the life in the market is coming from speculators. Even the most enthusiastic analysts acknowledge that rising unemployment, another leap in foreclosures or a significant jump in interest rates could snuff out progress.

Still, hope is growing in some quarters. “Recession is over, economy is recovering – let’s look forward and stop the backward-looking focus,” Wells Fargo chief economist John E Silvia wrote on Tuesday in a research note.

Bargain hunting

A few weeks ago, Mr Kirit Shah, 64, a retired forensic chemist for the New York Police Department, closed on a house in Royal Palm Beach, Florida. “I’m on a lakefront. I never dreamed I would be on a lakefront.”

But the thing he likes best is this: He paid US$260,000 ($375,000) for the five-bedroom house, half of what that model was fetching during the boom. “An excellent deal,” he said. “Plus I got a good rate on my mortgage, under 5 per cent.”

But if Mr Shah was one reason new home sales were up 11 per cent in June from May, it is unclear just how many others like him are out there.

Mr Brad Hunter, chief economist for research firm Metrostudy, said the new home numbers appeared to illustrate less a return of buyers like Mr Shah and more a resurgence of investors and speculators.

Metrostudy’s own data showed that the number of buyers during the second quarter who actually moved into their new house declined 2.6 per cent.

“Investors are turning right around and putting the houses on the market for sale or for rent,” Mr Hunter said.

“What appears to have been an absorption of excess inventory can be just a changing of ownership of that inventory.”

One reason the market is perking up in some places, real estate agents say, is the encouragement offered by such measures as the first-time buyer’s tax credit of US$8,000. Another reason is the prevalence of foreclosures, which make up about a third of all existing home sales. In some troubled regions, agents say they cannot remember the last transaction that did not involve a bank disposing of a property.

These communities are not yet showing any improvement in prices. Las Vegas was the worst-performing city in the May Case-Shiller index, falling 2.6 per cent. Prices have fallen there by a third in the last year. THE NEW YORK TIMES

Source: Today, 30 July 2009

Fed’s loan facility may help resume property bond sales

Fed may lend CMBS buyers up to 85% of the purchase price for TALF securities

(SEATTLE) Commercial property companies may sell about US$3 billion of mortgage-backed bonds starting in September as part of the government’s programme to revive lending for shopping malls, skyscrapers and hotels.

More than a dozen real estate investment trusts (Reits) are likely to participate in the Federal Reserve’s Term Asset-Backed Securities Loan Facility (TALF), said Steven Wechsler, chief executive officer of the National Association of Real Estate Investment Trusts. Vornado Realty Trust may raise US$600 million, a person familiar with the matter said on Tuesday.

The transactions would be the first new issues in the US$700 billion US market for commercial mortgage-backed securities (CMBS) since it shut down in 2008 as credit markets froze. Commercial property values tumbled and defaults accelerated. Reits turned to the stock market to raise capital to pay debt.

‘If the first deals are successful, we think we can get US$10 to US$25 billion done in the next six months,’ said Kenneth Rosen, who runs a US$310 million hedge fund in real estate securities and heads the University of California’s Fisher Center for Real Estate and Urban Economics in Berkeley. ‘The current pipeline is about US$3 billion.’

The central bank started TALF in March to help thaw credit by lending to investors who want to buy securities backed by car and credit card loans. The US$1 trillion programme was expanded to include bonds backed by commercial mortgages. Investors who buy the securities submit them to TALF as collateral and the government lends the investor a percentage of the purchase price, subsidising the investment.

Only top-rated securities will be accepted and loans on CMBS purchases must be repaid within five years.

Investors including Morgan Stanley and Colony Capital LLC are raising money to take advantage of TALF. Morgan Stanley completed a US$600 million fund this month, mainly to buy car, credit card and student loans rather than commercial property bonds.

The Fed is expected to lend CMBS buyers up to 85 per cent of the purchase price for TALF securities, said Nareit’s Mr Wechsler.

That may limit the programme’s effectiveness. Many landlords already owe more than their property is worth. TALF may help restart the CMBS market ‘in a very modest way’, said David Twardock, president of Prudential Mortgage Capital Co in Newark, New Jersey. As much as US$500 billion of commercial real estate loans mature this year and about US$400 billion each year for the next several years, said Jeffrey DeBoer, president and CEO of the Washington-based Real Estate Roundtable on July 9 in congressional testimony.

The spread on top- ranked commercial mortgage-backed debt relative to US Treasuries has narrowed 2.47 percentage points to 5.18 percentage points through last week since the Fed said on May 19 it would finance the purchase of CMBS debt sold before Jan 1, according to Barclays plc data. The narrowing reflects investor perception that CMBS risk is diminishing.

‘TALF has been an effective tool for bringing spreads in to reasonable levels,’ said Randy Reiff, president of Spartan Real Estate Capital LLC, a New York-based firm that invests in commercial real estate debt. ‘That’s obviously a critical component in market recovery but by itself is not going to lead to the regeneration of securitised lending on a large scale.’ – Bloomberg

Source: Business Times, 30 July 2009

Slide in US housing prices slowing down

May’s housing index the 4th consecutive month that price declines slowed

(NEW YORK) After a plunge lasting three years, houses have finally become cheap enough to lure buyers. That, in turn, is stabilising prices, generating hope that the real estate market is beginning to recover.

Eight cities, including Chicago, Cleveland, Denver and San Francisco showed price increases in May, up from four in April and one in March, according to data released Tuesday. Two other cities, Charlotte, North Carolina, and New York, were flat.

For the first time since early 2007, a composite index of 20 major cities was virtually flat, instead of down.

‘We’ve found the bottom,’ said Mark Fleming, chief economist for First American CoreLogic, a data firm.

The release of the surprisingly strong Case-Shiller Price Index, compiled by Standard & Poor’s, followed earlier reports that sales of existing homes rose last month for the third consecutive time, while beleaguered homebuilders saw sales of new homes jump in June by the largest amount in eight years.

Source: Business Times, 30 July 2009

New home sales in US climb 11%

WASHINGTON: Purchases of new homes in the US climbed 11per cent last month, the biggest gain in eight years, adding to evidence the slump that began in 2005 is stabilising.

But prices are still falling.

Sales increased to a 384,000 pace, higher than any forecast of economists surveyed by Bloomberg News and the most since November, figures from the Commerce Department showed yesterday.

The number of houses on the market dropped to the lowest level in more than a decade.

Falling prices and near record-low mortgage rates have started to lure buyers even as the unemployment rate rises. The worst recession in five decades may end in coming months as the downturns in housing and manufacturing ease.

‘Things are bottoming,’ Mr Jonathan Basile, an economist at Credit Suisse in New York, said before the report. The gain ‘continues that notion of stabilisation, but it’s going to be difficult for builders to be selling at a much more rapid rate until the foreclosure issue subsides.’

The median price of a new home fell 12per cent to US$206,200 (S$297,000) from US$234,300 in June last year. Last month’s value compares with US$219,000 in May.

Sales of new homes were down 21per cent from June last year. They reached a record-low 329,000 in January.

The jump in sales last month was led by a 43per cent surge in the Midwest. Purchases increased 29per cent in the North-east and 23per cent in the West. They dropped 5.3per cent in the South, to the lowest level since January 1991.

Builders had 281,000 houses on the market last month, down 4.1per cent from May and the fewest since February 1998. Unsold inventory fell a record 36per cent from June last year. It would take 8.8 months to sell all homes at the current sales pace, the lowest level since October 2007.

Underscoring the stabilisation, the Wells Fargo/National Association of Homebuilders sentiment index has risen in five of the past six months and existing home sales have increased for three months in a row.

BLOOMBERG

Source: Straits Times, 28 July 2009

Sharpest rise in US new-home sales in 8 years

June’s 11% gain points to housing slump stabilising

(WASHINGTON) Purchases of new homes in the US climbed 11 per cent last month, the biggest gain in eight years, underscoring evidence that the deepest housing slump since the Great Depression is starting to stabilise.

Sales increased to a 384,000 annual pace, higher than any forecast of economists surveyed by Bloomberg News and the most since November, figures from the Commerce Department showed yesterday in Washington. The number of houses on the market dropped to the lowest level in more than a decade.

Falling prices and a drop in mortgage rates have started to lure buyers even as the unemployment rate rises. Economists estimate that the worst US recession in five decades is on the verge of ending as downturns in housing and manufacturing ease.

‘We are making some progress in absorbing this huge inventory overhang’ and that ‘is a fundamental step we need to take to begin to see home prices improve’, said Robert Dye, a senior economist at PNC Financial Services Group in Pittsburgh. At the same time, rising joblessness means ‘a rebound will be modest at best’, he added.

Economists forecast that new home sales would rise to 352,000, according to the median of 62 projections in a Bloomberg News survey. Estimates ranged from 335,000 to 377,000. Commerce revised May’s reading up to a 346,000 rate from a previously reported 342,000.

‘The data will reinforce the developing thinking that the housing market has bottomed and that the economy has stabilised and will grow in the third quarter,’ said Jim Awad, managing director at Zephyr Management in New York.

The median price of a new home decreased 12 per cent to US$206,200 from US$234,300 in June last year. Last month’s value compares with US$219,000 in May.

Sales of new homes were down 21 per cent from June last year. They reached a record-low 329,000 in January, down 76 per cent from the July 2005 peak.

The jump in sales last month was led by a 43 per cent surge in the Midwest. Purchases increased 29 per cent in the North-east and 23 per cent in the West. They dropped 5.3 per cent in the South, to the lowest level since January 1991.

Builders had 281,000 houses on the market last month, down 4.1 per cent from May and the fewest since February 1998. The number of unsold properites fell a record 36 per cent from June last year. It would take 8.8 months to sell all homes at the current sales pace, the lowest level since October 2007.

Other reports underscore the stabilisation in housing. The Wells Fargo/National Association of Homebuilders sentiment index has risen in five of the past six months, and existing home sales have increased for three months in a row. — Bloomberg, Reuters

Source: Business Times, 28 July 2009

US home resales rise more than forecast in June

(NEW YORK) Home resales in the US rose in June for a third consecutive month, spurred by tax incentives, lower borrowing costs and foreclosure-driven declines in prices.

Purchases climbed 3.6 per cent to an annual rate of 4.89 million, stronger than forecast and the highest level since October, the National Association of Realtors (NAR) said yesterday in Washington. Median prices fell 15 per cent.

The gain in sales confirms Federal Reserve chairman Ben Bernanke’s remarks this week that the worst housing slump in eight decades appears to be moderating. A record drop in household wealth, due in part to the plunge in property values, and mounting unemployment are among the reasons that rebounds in housing and the economy are likely to be drawn out.

‘We have finally bottomed out,’ said Stuart Hoffman, chief economist at PNC Financial Services Group in Pittsburgh. Improved affordability ‘is stalemating the drag from higher unemployment’. Mr Hoffman forecast sales would rise to a 4.9 million pace.

Economists forecast existing sales would rise to a 4.84 million rate from a previously reported 4.77 million for May, according to the median of 68 projections in a Bloomberg News survey. Estimates ranged from 4.7 million to 5 million.

The Labor Department earlier reported that first-time applications for jobless benefits climbed by 30,000 to 554,000 in the week ended July 18. The number of workers filing claims had dropped by 93,000 over the previous two weeks, reflecting changes in the timing of mid-year auto shutdowns to retool for the new-model year.

Stocks gained and Treasury securities fell after the report. The Standard & Poor’s 500 index rose 1.4 per cent to 967.67 at 10.21am in New York.

June traditionally is one of the top sales months of the year as families prepare to move before the start of the next school term, according to the NAR. The group adjusts the figures for these seasonal variations in order to facilitate month-to-month comparisons. — Bloomberg

Source: Business Times, 24 July 2009