Friday, November 20, 2009

Tax credit fails to help in tight housing market

Denver Business Journal - by Paula Moore

Denver-area residential brokers are happy the federal government extended its homebuyer tax credit program in early November, saying it shows the Obama administration is continuing efforts to stimulate the economy and restore consumer confidence.

But some brokers think the credits won’t do much good locally, because of a lack of the relatively low-priced homes up for sale that attract consumers who can take advantage of the credits.

Local residential real experts also see the new homebuyer credits, which expire April 30, 2010, as the beginning of the federal government weaning home shoppers off such credits. “I don’t expect an extension of these credits,” said independent residential broker Gary Bauer of Littleton.

President Barack Obama signed into law on Nov. 6 a federal bill extending this year’s $8,000 first-time homebuyer tax credit until next April, with a deadline for home closings of June 30. The first-time buyer credit was scheduled to expire Nov. 30.

The legislation also added a $6,500 credit for repeat homebuyers.

The government defines first-time buyers as those who haven’t owned a home in three years. Repeat buyers include existing owners who have been in their homes at least five years in a row, but want to get into bigger homes — or, as in the case of empty-nesters, smaller ones.

“Our market for homes priced at under $200,000 is already overheated; it doesn’t need a lot of tax breaks to encourage sales. … If current indications in the housing market continue, the lowerish market will have recovered in the next six months,” said Charles Roberts, broker-owner at the Your Castle Real Estate LLC residential real estate brokerage firm of Littleton. “We won’t need tax credits.”

As of Oct. 1, standard single-family houses priced at $85,000 and under had less than one month’s inventory, while homes priced at $85,000 to $135,000 had a 1.8-month supply, according to data from Your Castle and local home-sale data provider Metrolist Inc. Houses with price tags of $135,000 to $210,000 had a 2.9-month inventory.

The housing price range that needs stimulating is the $460,000-plus one, which has a 20-month inventory, brokers said.

The inventory of lower-priced homes up for sale is so low largely because of the success of the 2009 first-time homebuyer tax credit, which succeeded the Bush administration’s $7,500 repayable credit of 2008, according to residential brokers. This year’s credit has helped especially to get bargain-priced foreclosure homes off the market.

“For the first seven to eight months of this year in the Denver market, 40 percent of home transactions were by first-time buyers. … I have a first-time buyer, and we’re just sitting in waiting mode,” Bauer said. “When a model of the home he wants comes on the market, we’re trying to be the first to get in and get a shot at it.”

Derek Francis-Diamond, a Sports Authority salesman who moved to metro Denver a few months ago from Arlington, Va., wants to buy his first house for $120,000 to $150,000 and bring in roommates to help defray the cost. The avid skier said he hopes to find “a good number of homes” in that price range, preferably in the western metro area close to the mountains, but he hadn’t started looking for houses yet as of mid-November.

“I would like to use the first-time homebuyer tax credit; it’s one of the things I’m hoping for,” Francis-Diamond said.

The metro-area inventory of for-sale homes could go up at the beginning of 2010, if consumer confidence improves and banks put more houses they’ve taken back in foreclosure on the market, according to some brokers.

Homeowners wanting to sell their homes, but who have held off fearing they won’t get a good price, may put those homes on the market next year. Brokers hope such owners will want to take advantage of the $6,500 repeat buyer tax credit to purchase a bigger home or, as with many empty-nesters, go into a smaller house or condo.

“Some homeowners are sitting there not knowing what to do,” said Kay Watson, broker-owner of K. Watson Properties-Metro Brokers in Centennial. “If they have good job stability, the repeat buyer credit may be the thing that will help them make a decision. They’ve lost some equity, but this credit may be enough to encourage them to move into the larger house they need … or to move down. … It will all hinge on job stability.”

Although repeat buyers probably will add home inventory to the market, they also could take it away when they purchase new homes. “While the number of sales should increase because of repeat buyers, they’ll be a washout for inventory,” Roberts said.

Shannon Peer, counseling manager at Brothers Redevelopment Inc. in Denver, likes that the new homebuyer tax credits are trying to cut down on fraud by requiring documentation of a closed sale, and that they could generate more home sales. But Peer worries that the credits might also push buyers into the market who shouldn’t be there yet.

“Somebody might use a homebuyer tax credit to get in over their heads [with their mortgage],” Peer said. “They’re OK the first year they own the home, when they have the credit, but the second year comes around, and the tax credit isn’t there. We need to use these incentives wisely.”

Brothers Redevelopment is a nonprofit that provides housing services to low-income consumers, including homebuyer education.

Modest expansion seen in Colorado’s region

Wednesday, December 2, 2009, 2:25pm MST | Modified: Wednesday, December 2, 2009, 10:01pm

Fed’s Beige Book: Modest expansion seen in Colorado’s region

Denver Business Journal

The economy in Colorado and six neighboring states “continued to expand modestly in October and early November,” the U.S. Federal Reserve reported Wednesday in its latest “Beige Book” survey of the region’s business executives.

Reports from the eight of the 12 Federal Reserve Districts around the nation also showed modest improvement in economic conditions.

In Colorado and neighboring states that are part of the Fed’s 10th District, consumer retail sales increased “and were expected rise further,” the Fed said, but the travel and tourism sector remained weak.

Manufacturing activity also “grew moderately” during the period covered by the Beige Book, “with production, new orders, and exports rising since the last survey period.”

---

MORE: Fed official says slow recovery has begun

---

Residential real estate in the region “recovered further, while the commercial real estate market continued to deteriorate,” the Fed said.

It said energy activity “rose slightly, as higher prices boosted exploration for crude oil in particular.”

On the other hand, the region’s bankers “reported that loan demand weakened and loan quality declined, while “prices of finished goods and services declined modestly.”

The Fed’s 10th District is based in Kansas City. The district’s Beige Book is based on interviews with a sample of businesses representing key industries in each district.

The reports are anecdotal and do not contain statistics, but they are widely followed and help the Fed to set national economic policy.

The Fed’s 10th District includes Colorado, Kansas, Nebraska, Oklahoma and Wyoming as well as western Missouri and northern New Mexico.

Formally known as the “Summary of Commentary on Current Economic Conditions by Federal Reserve District,” the Beige Book is published eight times a year.

Click here for the full text of the latest 10th District Beige Book.

And click here for the national summary.

denvernews@bizjournals.com

All contents of this site © American City Business Journals Inc. All rights reserved.

Denver-area rental-home vacancies up

Denver-area rental-home vacancies up in Q3, but still low

December 2, 2009 3:18 PM ET

Paula Moore

Vacancies for Denver-area rental homes were up this year’s third quarter year over year, but were still relatively low, and average rent rose because of a greater quantity of pricier housing product.

Based on third-quarter 2009 data from the Colorado Division of Housing, some metro-area real estate experts think the rental housing market is headed in a positive direction for landlords.

“It’ll be a while before things normalize, but things are starting to look up for renters and owners,” said Gordon Von Stroh, business professor at the University of Denver and author of the rental housing report.

“Vacancies are down and days on the market fluctuates depending on type of property, but we’re still headed in the right direction,” said Bob Alldredge, owner of Jericho Properties Realty LLC of Lakewood and past president of the National Association of Residential Property Managers’ Denver chapter. “By next spring, landlords ought to have a more positive position — not strong, but better than it has been.”

Vacancies in rental housing increased to 4.6 percent in this year’s third quarter from 3.4 percent during the same period of 2008, according to the housing division report. But the figure was down from 5.2 percent in this year’s second period, which real estate experts consider positive.

Rental housing used for the report included single-family homes, townhomes, condos, duplexes, triplexes and fourplexes.

Vacancy rates reached record lows of 2 percent to 4 percent in 2007 and 2008.

Average rent rose to $1,059.77 per month last quarter from $998.37 for the same period in 2008, and from $1,016.35 in this year’s second quarter.

Rents have been basically flat since 2004, according to the housing division.

Arapahoe County and the Boulder/Broomfield area have some of the metro area’s highest third-quarter rent growth, largely because of the new, higher-priced rental housing that has come on the market. “Homes that don’t sell are being rented out, and they’re more expensive properties than what has been in the inventory,” Alldredge said.

Another positive indicator for the rental housing market is that the average number of days a property is on the market before being leased has dropped to 41 days from 49.5 days. “That’s the lowest it’s been since we started the survey,” said Von Stroh. The housing division launched the survey in 2003.

Of the six property categories, three types — single-family homes, townhomes and triplexes — had more average days on market compared to 2008’s third period. Condos, duplexes and fourplexes had fewer DOM — with DOM for condos dropping from 125.1 to 33.9 year over year.

From this year’s first to third quarters, average DOM decreased in all property types but two — single-family homes and fourplexes.

The Colorado Division of Housing compiled the rental housing data with the Denver Chapter of the National Association of Residential Property Managers. Other findings from the third-quarter rental housing survey include:

• The highest vacancies were in Adams (6.2 percent), Douglas (5.7 percent) and Boulder/Broomfield (5.7 percent) counties.

• The lowest vacancies were in Jefferson County with 3.4 percent, followed by Arapahoe (4.3 percent) and Denver (5.5 percent) counties.

• Highest average rents were in Boulder/Broomfield ($1,661.03), Douglas ($1,377.65) and Arapahoe ($1,124.45) counties.

• Denver County had the lowest rent average at $945.47, followed by Jefferson ($981.04) and Adams ($1,041.29) counties.

• Median rent was $975 metrowide. Median rent is the middle figure between highest and lowest rents, and is considered by some real estate experts to be a truer rent measure than average because it’s not skewed by highest and lowest rates.

• Median rents by county include: Adams, $1,050; Arapahoe, $950; Boulder/Broomfield, $1,476; Denver and Jefferson, $895; and Douglas, $1,350.

Copyright 2009 bizjournals.com

Default Rate for Bank-Held Commercial Mortgages Increases

Default Rate for Bank-Held Commercial Mortgages Increases: Real Estate Econometrics

12/01/2009 By: Brittany Dunn

Enter your email to receive Daily Email Updates:

In the most recent report by New York-based Real Estate Econometrics (reeconometrics), the property research firm updated its projections, predicting the default rate for bank-held commercial mortgages will rise to 4.0 percent by the end of 2009 and will peak in 2011. Due to higher concentrations in commercial real estate, the largest losses are expected to occur at regional and community banks with $100 million to $1 billion in assets.

Up from 2.88 percent during the second quarter, the national default rate for commercial real estate mortgages held by depository institutions increased to a 16-year high of 3.40 percent during the third quarter of 2009, according to reeconometrics’ analysis of data reported by regulated lenders and published by the FederalDeposit Insurance Corporation (FDIC). This 52 basis point rise in the default rate was the largest one-quarter increase since quarterly data became available in 2003. The total balance of defaulted commercial mortgages increased 14.0 percent, from $44.1 billion in the second quarter to $50.3 billion during this year’s third quarter.

During this same period, the multifamily mortgage default rate grew 44 basis points, increasing to 3.58 percent from 3.14 percent. During the past year, the default rate on multifamily mortgages has more than doubled, rising by 211 basis points from 1.47 percent in the third quarter of 2008. In the multifamily sector, the balance of delinquent and defaulted mortgages increased by 9.8 percent from $9.3 billion in the second quarter to $10.2 billion during the third quarter of 2009.

A variety of factors have contributed to the rise in commercial and multifamily delinquency and default rates, reeconometrics said. Rising vacancy rates, falling asking and effective rents, and rising operating expenses have created deterioration in property cash flow resulting in an increase in the number of borrowers that are unable to meet current principal and interest obligations. Additionally, the erosion of reserves available to cover shortfalls in debt service coverage and constraints on the availability of credit to support the refinancing of maturing mortgages have contributed to this rise in rates.

As a result of the large number of mortgages underwritten to aggressively-forecast prospective cash flow rather than to in-place cash flow during 2006 and 2007, mortgages originated during this period are experiencing the most significant shortfalls in current cash flow relative to current debt service obligations. These loans are unlikely to meet the aggressive cash flow projections embedded in their underwriting assumptions at the point of origination, driving the increase in the default rate into 2011 and 2012, the report said.

According to reeconometrics, banks with similar concentrations in commercial real estate may exhibit marked differences in delinquency and default rates. Through an analysis of loan performance at the 5,015 institutions with the largest exposures to commercial real estate, no statistically significant relationship between concentration and default rate were shown. However, the report found that default rates are higher for institutions in larger asset size groups. While institutions with $10 billion or more in assets have significantly lower commercial real estate concentrations, they also exhibit higher default rates at the mean and across the distribution. The median default rate at the largest institutions is 2.7 percent, as compared to 1.4 percent across the broader pool.

Recent Articles

Treasury Releases Guidance for Making Home Affordable Short Sales

Treasury Commences Auction of Capital One Stock Warrants

Pending Home Sales Hit Highest Mark in More than 3 Years: NAR

Servicers Face Penalties, Ill Repute as Administration Rallies for More Modifications

What Dubai Means for U.S. Commercial Real Estate

What Dubai Means for U.S. Commercial Real Estate

"Delay and Pray" Can't Continue For Long...

By Ian Cooper
Tuesday, December 1st, 2009

You've heard about the Dubai meltdown. But what the mainstream press isn't telling you could have serious implications for the U.S. commercial real estate market.

It was only a few years ago that Dubai floated the Bubble City idea — built on dreams, hysterical public relations campaigns, and billions in debt. It was supposed to be a "suspended architectural marvel, stationed 200 meters above the ground, powered by two helium balloons and an anti-gravity reaction motor."

But the idea never left the ground. And rightfully so...

Dubai did, however, build artificial islands in the shape of the continents; an island in the shape of a palm; a ski resort with five trails, encapsulated in a glass dome with chilled air; two of the tallest buildings in the world; and skyscrapers as far as the eye can see... all in the middle of a desert.

And it fueled these absurd development projects by issuing piles of debt... about $60 billion.

Yep, past times of prosperity were good to Dubai. The city grew rapidly. Property prices were exploding so fast that it was impossible not to make quick cash. And once a building — occupied or not — was finished, it could be used as security to borrow even more money to build something bigger and better.

This cycle went on for years.

But the boom would soon bust, as people decided (after watching the world financial crisis unfold), that they were no longer interested in buying into the luxurious life in the middle of the desert... leaving the area scarred with a lack of demand, no money, unfinished projects, and a depressing atmosphere.

Advertisement

25% of the World's Rare Earth Metals...
Are About To Be Taken Over by 1 Company

On January 1, 2010 -- for the first time in history -- Greenland's $273 billion rare earth resource will turn over to a single company.

Fortunes are about to be made.

And this is one report you can't afford not to read.

Click here to get the inside track on this quickly developing story... before the news spreads.

---

So Dubai World, a state-owned sovereign investment fund, asked creditors for an extension on billions in debt payments.

And depsite what analysts would have you believe, all is not okay. Defaulting on billions is a big deal for a sovereign nation. The Government of Dubai just said it would not stand behind Dubai World... wiping out that long-held belief that sovereign nations don't default.

Fortunately, We're Not Looking at a Crisis Here... Yet

Dubai World's attempt to restructure debt will have a "manageable impact" on HSBC Holdings and Standard Chartered, according to Goldman Sachs. Analysts estimated that potential credit losses at HSBC would come in around $611 million and about $711 million at Chartered. As for loans and commercial real estate losses, the analysts believe that in worse-case scenario, they "expect a manageable impact at less than 1% of equity, less than 5% of net profits."

Still, what we're seeing in Dubai is part of the commercial real estate crisis we're seeing elsewhere.

There are too many commercial projects up in areas where they're not needed. Prices have plummeted as vacancy has risen. And a lot of the buildings were built on serious debt... with questions now arising when or even if that debt can be repaid.

It's only a startling reminder of how fragile U.S. commercial real estate is, especially with certain U.S. properties sitting in Dubai World's portfolio. These include MGM Mirage and the $8.5 billion CityCenter project; the Mandarin Oriental and W hotels in New York; a 50% stake in the Fontainebleau Miami beach resort; and Barneys New York Inc.

All Dubai has to do is unload some of its properties... and commercial real estate prices will plunge. It's already seen its commercial real estate prices cut in half from 2008 highs.

Sure, it's still too early to tell what Dubai will do. But it's another look into how close we are to a complete commercial real estate meltdown.

Things Could Deteriorate Further

Without a doubt, this problem has emerged as the biggest threat to our economic rebound and banks — especially regional banks, which hold more than $1 trillion of mortgages backed by CRE, which is quickly losing value.

The sector will suffer from two things, one of which is bad underwriting. CMBS owners were lent money on the assumption that occupancy and rents would keep rising. But that never happened. The opposite did: "The result is that a growing number of properties aren't generating enough cash to make principal and interest payments."

And with values sinking, vacancies soaring, and a recession making it unlikely for us to see demand pick up, banks aren't exactly jumping up to refinance deals.

My colleague — Steve Christ — sees this as a recipe for disaster... and industry leaders have estimated that 200,000 businesses and 10 percent of the nation's shopping malls will close their doors over the next year. (You can read more about Steve Christ's views on commercial real estate here).

That means that we're maybe only in the second inning here as this crisis unfolds.

So, with roughly $530 billion in commercial mortgages coming due for refinancing in 2009-2011, and some estimates showing that as many as 68% of loans maturing during that time will fail to qualify for refinancing, Steve says one has to wonder how it will all get done.

The brutal answer: it won't.

"Federal Reserve and Treasury officials are scrambling to prevent the commercial real estate sector from delivering a roundhouse punch to the U.S. economy just as it struggles to get up off the mat," said a recent Wall Street Journal article. But "their efforts could be undermined by a surge in foreclosures of commercial property carrying mortgages that were packaged and sold by Wall Street as bonds."

And, according to Deutsche Bank AG, "as property value declines and scarce credit continue to drive commercial property developers and investors into default, total lifetime losses on banks' $1 trillion 'core' commercial-mortgage holdings, or those backed by income-producing properties, would reach between 11.6% and 15.3%, or $115 billion and $150 billion."

"So far, banks in general have been reluctant to take losses on their commercial books," says the Wall Street Journal. "This 'delay and pray' strategy is preventing most banks from issuing new loans as they prepare their balance sheets for potential future losses... "

Stay Ahead of the Curve,

Ian L. Cooper
Wealth Daily

Print Back to story

Administration plans new efforts on foreclosures

Administration plans to press mortgage providers to accelerate help to struggling borrowers

• By Martin Crutsinger, AP Economics Writer
• On 8:21 am EST, Monday November 30, 2009

WASHINGTON (AP) -- With the foreclosure crisis showing no signs of relenting, the Obama administration plans to expand a program aimed at helping people remain in their homes.

The goal of the announcement, expected Monday, is to increase the rate at which troubled home loans are converted into new loans with lower monthly payments, Treasury spokeswoman Meg Reilly said over the weekend.

Industry officials said the new effort would include increased pressure on mortgage companies to accelerate loan modifications by highlighting firms that are lagging in that area.

The Treasury is also expected to announce that it will wait until the loan modifications are permanent before paying cash incentives to mortgage companies that lower loan payments.

Under a $75 billion Treasury program, companies that agree to lower payments for troubled borrowers collect $1,000 initially from the government for each loan, followed by $1,000 annually for up to three years.

The government support, which is provided from the $700 billion financial bailout program, is aimed at providing cash incentives for mortgage providers to accept smaller mortgage payments rather than foreclosing on homes.

The Rest Of The Story

Low-priced neighborhoods show biggest percentage price gains

InsideRealEstateNews.com

Colorado's RE News Source

Low-priced neighborhoods show biggest percentage price gains

This 1,147-square-foot home in Athmar Park recently sold for $158,000, according to public records

Homes sold in the 80223 ZIP Code rose 37.6 percent in the third quarter, compared to the third quarter of 2008, making it the top-performing area in the metro area, according to data from a California-based company.

The data released by La Jolla-based DataQuick, tracked tracked real estate data in more than 100 ZIP Codes in Adams, Arapahoe, Boulder, Denver, Douglas and Jefferson Counties.

DataQuick tracks both new and resale single-family homes and condo sales by the median price, price-per-square-foot and sales volume.

The biggest year-over-year price gains were found in 80223, which includes part of Athmar Park and the historic Baker neighborhoods. (Editor’s note: I did not include homes with fewer than 50 sales in the third quarter, because if there were only a few sales, the data may have been skewed. For example, in 80019 in Aurora, the median price rose by 117.9 percent, but there were only 17 sales in the third quarter.)

One home in Athmar Park, for example, last month sold for $158,00, according to public records That is a 17.9 percent premium from the $134,00 paid for it in 2007, and a 24.7 percent premium from the 2004 sales price of $177,900, according to records.

Marilyn Van Steenberg, owner of Buyer’s Best Choice Real Estate, said the data appears to be right on the money.

“I think it is probably a pretty good indicator of what is happening in the market,” Van Steenberg said. “The $8,000-tax credit has brought out a whole lot of first-time home buyers. If something is priced below $200,000, it goes in a heart-beat. That is, if it is in decent shape. By that I mean it maybe just needs new carpets and some paint.”

The problem, she said, is “I’m finding that a lot of homes priced under $200,000 are not decent. A lot of them have really been trashed. The good houses in that price range are in short supply and are gone in a hurry.”

Adams was the only county to show overall appreciation year-over-year in the third quarter.

The overall median price in Adams County rose 5.3 percent in the third quarter from a year earlier to $160,000. That was the lowest median price of all the counties. And the median per-square-foot price of $102 also was the lowest of all of the counties. Of the 17 ZIP Codes tracked in Adams County, the median price of 12 of them was below $200,000.

However, Adams County also showed the biggest percentage drop of all of the counties. The 1,966 closings in the third quarter was down by 21.3 percent.

One reason the number of sales likely dropped in Adams County, despite the abundance of low-priced homes, is because of the large number of short sales, in which the lender accepts less than the mortgage amount in a sale.

“Short sales are very long and drawn out,” she said. “If someone wanted to buy a home and move in quickly, a short sale is not for you. Every lien held against the property typically takes at least two or three months to resolve , and almost all of the homes have at least two liens. I won’t bring any of my buyers short sales.”

She said one of her agents has been listing a short-sale property for the past 18 months, and during that time five different contracts for it have collapsed.

“There are really three separate markets in Denver: Bank-owned properties, short sales and regular seller-owned sales,” she said. “To really get a handle on what the traditional market is doing, you have to subtract bank-owned and short-sales from the market. But if you have a seller-owned property, whether it is being sold by the owner or listed by a Realtor, it’s tough because you have to compete against all of the bank-owned and short sales out there. And the short sales are the toughest to sell. At least when the bank owns it, you can get a decision.”

For a look at all of the ZIP Codes in the Denver area, go to this link.

Related links (some are just tables) :

Boulder most expensive homes in area.

Conifer sales volume up by 44%

Lowest priced ZIP Codes

ZIP Codes showing biggest sales drops

ZIP Codes with lowest price per square foot

ZIP Codes with most sales

ZIP Codes with least expensive homes

Most expensive ZIP Codes on a per-square-foot basis

City	ZIP	Median Price	YOY % Increase
Denver	80223	$150,000	37.6
Denver	80246	$227,000	35.3
Denver	80204	$149,900	39.3
Denver	80237	$215,000	26.5
Denver	80239	$117,250	22.4

.

County	3rd Quarter Median Price	YOY Percent Change	Price Per Square Foot	Sales	Percent Change in Sales
Adams	$160,000	5.3%	$102	1,966	-21.3%
Arapahoe	$190,000	-1.6%	$115	2,781	-17.0%
Boulder	$290,750	-1.4%	$173	1,388	-16.1%
Denver	$193,500	-0.8%	$170	3,947	-11.2%
Douglas	$291,000	-4/6%	$132	1,692	-15.0%
Jefferson	$220,000	-3.1%	$148	2,322	-8.0%

.

Source and for more information: DataQuick.com DataQuick offers a variety of service to the real estate industry.

Bookmark It