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Oct 13, 2009 | No Comments | Sean Mills
The next shoe…to drop.-Sean
Hawaii’s Maui Prince Resort offers white sand beaches, acres of lush tropical forest, two golf courses and even a hotel featuring cascading waterfalls. What it doesn’t provide is a return on investment.
The property, which Morgan Stanley Real Estate and local developers bought only two years ago for $575 million, is in foreclosure [...]
The next shoe…to drop.-Sean
Hawaii’s Maui Prince Resort offers white sand beaches, acres of lush tropical forest, two golf courses and even a hotel featuring cascading waterfalls. What it doesn’t provide is a return on investment.
The property, which Morgan Stanley Real Estate and local developers bought only two years ago for $575 million, is in foreclosure after defaulting on a $192.5 million loan. Its investors, which also includes Swiss banking giant UBS, may be wiped out on the deal.
The loans behind Maui Prince were financed by commercial mortgage-backed securities, or CMBS. The resort’s failure reflects the troubled market for these bonds, which are backed by a pool of mortgages on commercial properties. The market for CMBS is one leg of the stool supporting the commercial real estate sector, providing a vital source of funding for mortgages on hotels, offices, shopping malls and other business properties. And as we’ve been saying a lot of late, that stool is collapsing.
The CMBS market has yet to revive after seizing up last year. In 2007, sales of commercial mortgage-backed debt rose to roughly $240 billion and accounted for nearly half of all commercial lending. Today, sales of CMBS have sunk to just over $12 billion.
Loans underpinning CMBS are deteriorating fast. As of August, delinquency rates were seven times their level of a year ago, and 12 times the rate shortly before the real estate bubble burst in 2007. Unpaid balances on CMBS investments, which are typically held by banks, insurance companies, pension funds and other large investors, exceed $28 billion, up a startling 592 percent from 2008 (click on chart to expand).
In a sign of how quickly things are unraveling, credit rating agency RealPoint expects that figure to rise to $50 billion by year-end. Deutsche Bank in a July report estimated that total losses on all CMBS could reach 12 percent, and as high as 15 percent for commercial mortgage securities backed by more recent loans.
The trouble with CMBS indicates not only the sinking price of commercial property, but also ongoing concerns with securitization, in which loans are sliced up and sold to investors. After freezing up in 2008, certain segments of the securitization market have shown signs of life. Yet CMBS sponsors remain gun-shy about taking on the risk of pooling loans for securitization.
Here’s why all of this matters (and thanks for sticking with me). With CMBS investors on the sidelines, it becomes all but impossible to refinance maturing mortgages. That squashes the price of commercial property and hurts sales of distressed assets. More borrowers are thrown into default. Banks, already reeling from losses on residential mortgages, get creamed (they also lose out as major servicers of CMBS), further choking off credit for commercial development.
Whole loans festering on their books remain the principal problem for banks. But the deterioration in CMBS loans isn’t helping.
Source cheap prescription drugs Article
Oct 13, 2009 | No Comments | Sean Mills
Look alive all you people as we have new tenant/foreclosure laws thanks to our governor, Arnold.-Sean
New Legislation Signed
This information is for California tenants only. Governor Schwarzenegger signed two pieces (yes, two!) pieces of legislation benefiting California tenants. The first, SB 290 (sponsored by Mark Leno) makes the 60-days’ notice requirement for tenant evictions permanent. This [...]
Look alive all you people as we have new tenant/foreclosure laws thanks to our governor, Arnold.-Sean
This information is for California tenants only. Governor Schwarzenegger signed two pieces (yes, two!) pieces of legislation benefiting California tenants. The first, SB 290 (sponsored by Mark Leno) makes the 60-days’ notice requirement for tenant evictions permanent. This means that any tenant in the state who has lived in her rental for one year or more cannot be evicted with less than 60-days’ get prescription drugs without prescription notice in “no cause” evictions. And it means that tenant groups don’t have to mobilize every couple of years to renew the legislation. However, this does not affect tenants protected by local “just cause” ordinances; those tenants cannot be evicted without cause.
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The second bill, SB 120, sponsored by Alan Lowenthal, protects tenants in foreclosed or soon-to-be-foreclosed properties against utility shutoffs when the landlord or lender fails to pay utility bills. In particular, tenants in single-family homes now have the same protection as tenants in multi-family units. Utility companies (gas, electric, water, heat) are now required to give tenants notice that the utility is to be cut off for nonpayment, and to provide a procedure for the tenant or tenants to establish a payment account without having to pay the former landlord’s arrearages. Tenants in single-family homes in outlying communities were often forced to pay the former landlord’s water bill to keep the water on. (Sacramento Suburban Water was notorious for this.) No longer.
It also allows tenants who pay the bills, when these costs have been included in the rent, to either deduct the cost from their rent payments or sue the landlord for the cost of establishing service or paying the bills. And it prohibits utility companies from requiring large deposits if the tenant can show that she pays her rent on time. (Utility companies were frequently requiring both payment of the arrearages and a large deposit to keep utility service.) Utility services are required to establish and publicize procedures for tenants to deal with these situations; notice of those procedures should be delivered along with any shutoff notice. We would hope that they also publicize them in their newsletters and on their websites as well.
Oct 13, 2009 | No Comments | Sean Mills
The Sacramento Association of Realtors provides excellent data on real estate market trends for Sacramento County. It is unfortunate that we don’t have comprehensive data like this for the state of California housing. Yet this data is helpful because it reflects similar outcomes of other California counties like Riverside or San Bernardino. When we examine [...]
The Sacramento Association of Realtors provides excellent data on real estate market trends for Sacramento County. It is unfortunate that we don’t have comprehensive data like this for the state of California housing. Yet this data is helpful because it reflects similar outcomes of other California counties like Riverside or San Bernardino. When we examine the data, what we find is a market dominated by distress sales and lower priced conventional sales:
This is excellent information. The number of closed escrows fell in the last data order prescription drugs online report but not by much. The big trend is with REO and Short Sale information. Short sales in more mid to upper tier markets in California have been largely absent. But in this data set they make up a good portion of sales. However, the big market mover is the REO subset making up nearly 45 percent of sales. Months of inventory is low at 3.2 months and the median price of sales is $183,000. Last year at this point when prices were already depressed the median price was $194,950.
The mean is at $207,199 so the bulk of home sales are falling within this range and if we look at the mode, this is confirmed with the $200k to $249k range. So what is happening is we have a market that does have brisk sales but only because of lower prices and a glut of REO inventory. If we look at the overall sales count for the year, sales have increased:
Now compare this to last year:
It is a simple equation. Home sales have jumped up 12.2 percent while the median price has fallen 22.2 percent. Cheaper homes move inventory. If we dig into the financing data what we find is indicative of many distressed California markets:
The majority of sales are FHA insured loans and cash buyers. That is, we have a large number of first time home buyers most likely lured by the $8,000 tax credit and many cash investors probably looking to buy cash flow properties.
It is great to have information like this because it really tells us a lot about a housing market. It is unfortunate we don’t have data like this for the state of California.
Source Article.
Oct 13, 2009 | No Comments | Sean Mills
New data suggest that foreclosures are rising in more expensive housing markets.
About 30% of foreclosures in June involved homes in the top third of local housing values, up from 16% when the foreclosure crisis began three years ago, according to new data from real-estate Web site Zillow.com. The bottom one-third of housing markets, by home [...]
New data suggest that foreclosures are rising in more expensive housing markets.
About 30% of foreclosures in June involved homes in the top third of local housing values, up from 16% when the foreclosure crisis began three years ago, according to new data from real-estate Web site Zillow.com. The bottom one-third of housing markets, by home value, now account for 35% of foreclosures, down from 55% in 2006.
The report shows that foreclosures, after declining earlier this year, began to accelerate in the late spring and that more expensive homes have more recently accounted for a growing share of all foreclosures. “The slope of that curve in recent months is much sharper than it was recently,” said Stan Humphries, chief economist for Zillow. Rising foreclosures among more-expensive homes could create added pressure for a housing market that has shown signs of stabilizing in recent months as sales of lower-priced homes pick up.
The Zillow research compared homes against the median values for their local market and broke each market into three tiers by value.
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Oct 13, 2009 | No Comments | Sean Mills
I know the name of this website is RealEstateSmartTalk but what the hell this is a great read. Not sure when everyone is going to get “mad as hell and we are not going to take it anymore”, but it sure feels like it is time.-Sean
John Mauldin has proposed some interesting solutions for fixing the [...]
I know the name of this website is RealEstateSmartTalk but what the hell this is a great read. Not sure when everyone is going to get “mad as hell and we are not going to take it anymore”, but it sure feels like it is time.-Sean
John Mauldin has proposed some interesting solutions for fixing the economy in his weekly E-Letter Killing The Goose. Let’s take a look, first at the problem, then at various solutions.
Long-time readers know that I think the Fed has been able to get away with its rather large monetization program because of the massive deflationary forces let loose in the world by the credit crisis, which is forcing a monster deleveraging regime all over the world.
And this brings us to our conundrum. You cannot continue to run deficits significantly larger than nominal GDP for too long without risking the demise of the economic system. But we are in a deflationary environment, so the Fed can monetize the debt far more than any of us suppose without risking immediate and spiraling inflation.
How long can we go before there is an upheaval? I don’t know. The markets can remain irrational or complacent for a lot longer than most of us think. It could be years. Or not.
Some of my most knowledgeable friends argue for the inflation side, and others take the deflation side. I tend to think the Fed will fight deflation until we get inflation, but the consequences will not be pleasant. There is no benign path.
How can we avoid such an upheaval? The only way is to make some very difficult choices. There have to be some adults making the choices, as the teenagers now in control clearly cannot make them.
It is not a matter of pain or no pain, it is just deciding when and how bad it will be. The longer we wait, the worse the consequences.
First, we must acknowledge the deficit is out of control, and spending must be cut. If we raise taxes by as much as the Obama administration now wants to, we will most assuredly put the country back into a deep recession in 2011. Think what raising taxes in 1937 did to a nascent recovery. A $3-trillion-dollar budget is 20% of the US economy. That is just simply too much.
The most credible studies show that government expenditures exert no multiplier effect on the economy. Actually, they show them to be very slightly negative. This is not just in the US. However, the tax effect has a multiplier of 3! If we raise taxes by $300 billion in 2011, that will slam the economy in the face. Further, we will collect less taxes than projected, as economic activity will fall.
You cannot cure a too much debt problem with more debt. We cannot borrow our way into prosperity. Every crisis of the past decades has been a result of too much debt and leverage and we seem to want to repeat the past mistakes, hoping that this time it will be different. It won’t.
Mauldin summarizes the problem very well. What cannot last forever by definition won’t. Unfortunately the only options are to pay the piper sometime soon, or have a major global monetary collapse later. There is no realistic middle ground.
Let’s now take a look at his suggestions one by one. I will comment on each one individually and add some things that he missed.
Mauldin: We should start with a 5% across-the-board cut in spending in all programs. Federal employees, except for military personnel, should see a 5% cut in pay as part of that program. The average federal worker makes $75,419 a year, while the average in the private sector is $39,751. The rest of us are taking pay cuts in the form of higher taxes. No cost of living increases, etc. We are on an austerity program and need to do what it takes. If a program is deemed too important to be cut, then another program has to be cut more.
Then the next year another 2.5% cut across the board. And then an absolute freeze on the overall budget size until the deficit is 2% or less of GDP.
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