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Oct 16, 2009 | No Comments | Sean Mills
Finally some CRE news unfortunately it is not the good news we could all use.-Sean
Commercial real estate vacancies hit nearly 25% in Phoenix Valley area. Scottsdale and Southeast Valley vacancies are even higher. Please consider Office vacancy rates in Valley hit record.
Nearly 1 out of every 4 square feet of Valley office space was vacant [...]
Finally some CRE news unfortunately it is not the good news we could all use.-Sean
Commercial real estate vacancies hit nearly 25% in Phoenix Valley area. Scottsdale and Southeast Valley vacancies are even higher. Please consider Office vacancy rates in Valley hit record.
Nearly 1 out of every 4 square feet of Valley office space was vacant in the third quarter ending Sept. 30, commercial-real-estate experts said.
That’s about 28 million square feet of empty space, according to Phoenix commercial-realty brokerage Colliers International, one of several Valley firms tracking the progress of sales and the leasing of office, industrial and retail buildings.
Within the next few months, about 2 million more square feet of office space will open, and less than 20 percent of it has been reported as spoken for by a future tenant.
One of the soon-to-open buildings, the 400,000-square-foot One Central Park East office tower in downtown Phoenix [at left], has yet to announce a lease agreement despite plans to open by the end of the year.
“Actually, leasing agents are optimistic,” said Broker Mindy Korth of Phoenix-based CB Richard Ellis.
Korth said One Central Park is a desirable location that ultimately will find its audience. But she agreed with other experts that the high prices paid by companies such as One Central Park developer Mesirow Financial Real Estate Inc. could make it difficult to pay the bills, based on today’s lower lease rates.
More than 2,200 commercial properties in Maricopa County have received 90-day foreclosure notices since Jan. 1, representing more than $7 billion in real-estate loans on which the borrowers have failed to make payments.
Valley Vacancies
- Overall vacancies – 24.2 percent
- Scottsdale vacancies – 29.1 percent
- Downtown Phoenix vacancies – 15.7 percent
- Southeast Valley vacancies – 30.5 percent
Musical Chairs, With “Desirable Chairs” Added Each Round
Arizona leasing agents are optimistic because the “real-estate crash positions Phoenix as an attractive relocation area for companies in more expensive states, such as California“.
Let’s assume for a moment that businesses transfer to Arizona from California. What would that do to California jobs and California commercial real estate prices? How many tax breaks will Phoenix give to get corporations to relocate? Will California, Illinois, New York, and other places quietly let businesses leave?
Without new business expansion, this setup is nothing more than a game of musical chairs except no chairs are ever removed. Instead so-called “desirable chairs” like One Central Park are added every round, not just in Phoenix, but Miami, Chicago, Portland, San Diego, and countless other places.
Do the math. Musical chairs in reverse is not a viable economic model.
“If you build it, they will come” cannot possibly work unless the number of players increases faster than the number of chairs. The reverse is happening. More chairs are added each month than participants in the game.
Bundle of Joy
I have good news to report tonight. Someone has finally seen me for the joyful optimist that I am.
In Real Estate Strikes Back Planet Yelnick notes: “Mish was a bundle of joy today, also reporting that rents have fallen for the first time in 17 years, and that new FHA rules make condos utterly worthless.”
“Bundle of Joy” was the title of Thursday’s Podcast on HoweStreet.
Forget all that gloom’n'doom stuff, Mish has some GOOD news…rents are falling!
Please click on the link and listen in.
Phil Mackesy and I discussed housing in Vancouver, falling rents in the US, and what it’s like to be under the lights for Three Yahoo Tech Tickers: Deflation, Gold, Stock Market.
Residential rents are indeed falling, as are corporate lease rates. And with this game of musical chairs, commercial real estate lease rates are sure to continue falling for quite some time.
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Oct 12, 2009 | No Comments | Sean Mills
This, unfortunately, I do is a good step for a property owner. In the past I have seen the state and local municipalities step up and re-assess a building when a partner was bought out thereby raising our property tax basis, after all it is a transfer albeit to the remaining partners. We were not [...]
This, unfortunately, I do is a good step for a property owner. In the past I have seen the state and local municipalities step up and re-assess a building when a partner was bought out thereby raising our property tax basis, after all it is a transfer albeit to the remaining partners. We were not happy as the remaining partners did not receive the benefit the state did. Live by the sword die by the sword. California take notice this is the wave of tactics we will see.-Sean
SACRAMENTO – County assessors are increasingly worried that the historic drop in property values in the Inland area and around the state will turn out to be more than just a temporary blow to government coffers.
Millions of properties statewide have been temporarily reassessed to reflect their lower market value. Under state law, property owners will pay reduced taxes until the market recovers and the property returns to its base value.
But assessors and other tax officials say there are signs that some property owners are going a step further: using back-and-forth ownership transfers to trigger a property reassessment and lock in a much lower level of property taxes.
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Oct 8, 2009 | No Comments | Sean Mills
Oct. 8 (Bloomberg) — The Federal Housing Administration, which insures mortgages with low down payments, may require a U.S. bailout because of $54 billion more in losses than it can withstand, a former Fannie Mae executive said.
“It appears destined for a taxpayer bailout in the next 24 to 36 months,” consultant Edward Pinto said in [...]
Oct. 8 (Bloomberg) — The Federal Housing Administration, which insures mortgages with low down payments, may require a U.S. bailout because of $54 billion more in losses than it can withstand, a former Fannie Mae executive said.
“It appears destined for a taxpayer bailout in the next 24 to 36 months,” consultant Edward Pinto said in testimony prepared for a House committee hearing in Washington today. Pinto was the chief credit officer from 1987 to 1989 for Fannie Mae, the mortgage-finance company that is now government-run.
The FHA program’s volumes have quadrupled since 2006 as private lenders and insurers pulled back amid the U.S. housing slump, Pinto said. The jump has left the agency backing risky loans and exposed to fraud in a “market where prices have yet to stabilize,” he said.
Representative Scott Garrett, a New Jersey Republican, introduced legislation this month to boost the FHA’s minimum down payment to 5 percent from 3.5 percent to drugs online help shore up the agency’s insurance fund, a move that could add to the housing market’s burdens as it struggles to recover.
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Oct 7, 2009 | No Comments | Sean Mills
Its hard not to feel like the store is being robbed right in front of our eyes as the hand outs keep coming. In the words of a friend “when, and ever, are we going to receive some hand outs?” I don’t have any tarp funds nor have I ever so I am not going to [...]
Its hard not to feel like the store is being robbed right in front of our eyes as the hand outs keep coming. In the words of a friend “when, and ever, are we going to receive some hand outs?” I don’t have any tarp funds nor have I ever so I am not going to hold my breath. -Sean
by CalculatedRisk on 10/07/2009 04:02:00 PM
From the NAHB:
Extending the credit through Nov. 30, 2010 and making it available to all purchasers of a principal residence would result in an additional 383,000 home sales …
The NAHB has also been arguing to expand the tax credit from $8,000 to $15,000. But using $8,000 per home buyer – and estimating 5 million home sales over the next year – the total cost of the tax credit would be $40 billion.
According to the NAHB this would result in 383,000 additional home sales. Dividing $40 billion by 383 thousand gives $104,400 per additional home sold!
That is higher than my original estimate that an extension of the tax credit would cost about $100 thousand per additional home sold.
Note: If the NAHB meant $15,000 per home buyer, the cost would be $75 billion – or $157 thousand per additional home sold.
And this doesn’t included the costs of the unintended consequences.
The tax credit is simply motivating some renters to become homeowners (not reducing the overall number of excess housing units). This is pushing up the vacancy rent, pushing down rents and leading to more commercial real estate (CRE) defaults and foreclosures – and will lead to more losses for lenders. The additional defaults associated with lower rents will probably be higher than the cost of the tax credit. From the WSJ: Fed Frets About Commercial Real Estate
[Fed economist] Mr. Conway’s presentation painted a bleak picture of the sliding real-estate values and enormous debt that will need to be refinanced in the next few years. Vacancy rates in the apartment, retail and warehouse sectors already have exceeded those seen during the real-estate collapse of the early 1990s, Mr. Conway noted. His report also predicted that commercial real-estate losses would reach roughly 45% next year. Valuing real estate has always been tricky for banks, and the problem is particularly acute now because sales activity is practically nonexistent.
…
More than half of the $3.4 trillion in outstanding commercial real-estate debt is held by banks.
Motivating some renters to become homeowners has increased demand at the low end and pushed up house prices (more demand). However when the tax credit eventually ends (it will someday), the price-to-rent ratio will equalize, applying downward pressure on home prices.
Many of the additional sales in 2009 were to buyers who used the tax credit as their downpayment. These were marginal buyers who haven’t proven the ability to manage their finances and save for a down payment. The default rates will probably be higher for these buyers than for other buyers.
The housing tax credit raises the cheap drugs risk of deflation. Falling rents will probably already push core CPI close to zero in 2010. An extension of the housing tax credit will probably push rents down further (as those 383,000 additional home buyers move from renting to owning), and that will probably mean core CPI will be negative in 2010. Not only will this impact any program adjusted by CPI (like Social Security), but this could lead to a deflationary mentality for consumers – with consumers holding off purchases waiting for lower prices.
Anyone analyzing the tax credit should call the economists at the BLS and ask about how falling rents will impact owners’ equivalent rent and CPI. Then call the economists at the Federal Reserve and ask how CPI deflation will impact consumer behavior and monetary policy. Welcome to the Fed’s nightmare.
Oct 6, 2009 | No Comments | Sean Mills
WASHINGTON — The Treasury Department said on Sunday that its scaled-down program to help banks unload their troubled mortgages and mortgage securities would begin operating at full strength by the end of this month, more than a year after Congress authorized $700 billion for that purpose.
Treasury officials said that five out of the nine money-management [...]
WASHINGTON — The Treasury Department said on Sunday that its scaled-down program to help banks unload their troubled mortgages and mortgage securities would begin operating at full strength by the end of this month, more than a year after Congress authorized $700 billion for that purpose.
Treasury officials said that five out of the nine money-management firms it selected to buy up unwanted mortgage-backed securities had raised the minimum amount of money from private investors — $500 million each — to qualify for matching investments and loans from the federal government.
Administration officials said they expected the remaining four firms to complete their financing by the end of this month.
Three of the biggest investment firms — BlackRock, a group led by the Wellington Management Company and a group led by AllianceBernstein — closed deals for private financing totaling about $1.9 billion. Two other firms, Invesco and the TCW Group, lined up their private investors last week.
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Oct 2, 2009 | No Comments | Sean Mills
This article will touch a nerve with a lot of people, not the ones dropping the old house for a newer cheaper one to take advantage of the bail out but the people who are not struggling financially but can’t seem to morally walk away just to take advantage of the “free ride”. I am seeing [...]
This article will touch a nerve with a lot of people, not the ones dropping the old house for a newer cheaper one to take advantage of the bail out but the people who are not struggling financially but can’t seem to morally walk away just to take advantage of the “free ride”. I am seeing this a lot in the areas I visit and research.
The classic definition of a “strategic default” is a borrower who can afford their mortgage, but stops paying it because they owe far more than their home is worth. This measurement from Experian is very different and includes many people who can no longer afford their mortgage. Long ago borrowers paid their mortgages first – to keep their homes – but that was when people actually had money invested in their homes. -Calculated Risk
Morals and ethics people, morals and ethics.-Sean
Oct. 1 (Bloomberg) — Scott Conroy pays the mortgage every month on his one-bedroom condominium in San Diego, even though it’s worth 33 percent less than what he owes and it may take more than a decade to break even.
Homeowners like Conroy who can afford their monthly payments are weighing whether to sell and pay the difference, stick it out until housing prices recover, or walk away. In the U.S., 26 percent of borrowers owe more than their home is worth, said Karen Weaver, global head of securitization research for New York-based Deutsche Bank Securities. In parts of California, Florida and Nevada, it’s as high as 75 percent.
So-called strategic defaults, in which homeowners stop paying their mortgages while remaining current on other debts, rose 128 percent to 588,000 last year, according to Experian PLC, a Dublin-based credit-checking company, and Oliver Wyman, a New York-based consulting firm. Two-thirds of those who walked away defaulted on their primary residences.
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Oct 1, 2009 | No Comments | Sean Mills
U.S. mortgage applications fell last week despite the lowest loan rates in four months, the Mortgage Bankers Association said on Wednesday, in another sign that housing will likely recover slowly from its three-year plunge.
Home loan applications fell a seasonally adjusted 2.8 percent in the Sept. 25 week, driven down by a 6.2 percent drop in [...]
U.S. mortgage applications fell last week despite the lowest loan rates in four months, the Mortgage Bankers Association said on Wednesday, in another sign that housing will likely recover slowly from its three-year plunge.
Home loan applications fell a seasonally adjusted 2.8 percent in the Sept. 25 week, driven down by a 6.2 percent drop in demand for purchase loans and a 0.8 percent decline in refinancing requests.
Borrowing costs inched closer to record lows, with average 30-year rates dipping 0.03 percentage point to 4.94 percent.
The 30-year rates were the lowest since the week ended May 22, at 4.81 percent, after hitting an all-time low of 4.61 percent in March, according to the industry group.
A year ago, before intensive government interventions, 30-year rates averaged 6.33 percent.
Signs of life have emerged in both home sales Buy Propecia and prices, helped by government stimulus programs including an $8,000 first-time home buyer tax credit.
The outlook for housing is split, however. Some in the industry predict another sales slide if the tax credit is not renewed and others say there will be a gradual recovery slowed by the usual winter sales malaise.
“We’re going to see another leg down, and if we lose the tax credit it will be a significant leg down,” said John Burns, president of John Burns Real Estate Consulting in Irvine, California.
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Sep 30, 2009 | No Comments | Sean Mills
This site is starting to look like residential real estate smart talk but what the heck are you going to do when all the news is in the residential end? Typically commercial real estate falls off the cliff 2-3 years after residential real estate-Sean
Mumbai: Old habits are hard to break. When the Nasdaq tech-bubble [...]
This site is starting to look like residential real estate smart talk but what the heck are you going to do when all the news is in the residential end? Typically commercial real estate falls off the cliff 2-3 years after residential real estate-Sean
Mumbai: Old habits are hard to break. When the Nasdaq tech-bubble burst, the US government and the Federal Reserve chairman “Bubbles” Greenspan created an even bigger asset-bubble to replace it (the US housing bubble).
It was characterised by a 1% “benchmark” interest rate, ridiculously lax lending standards, rampant fraud — and non-existent oversight.
By refusing to allow its economy to purge itself of bad debt and excessive credit, the US government created a much more damaging bubble — aggravated by Wall Street’s multi-trillion dollar, global Ponzi-scheme.
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Sep 30, 2009 | No Comments | Sean Mills
This may be a resource article for a neophyte who has some interest, but not so good for someone who is serious about getting a foreclosure property. Funny I would think the WSJ would have a better research staff. Nevertheless, here is the article. Call or email me if you are serious [...]
This may be a resource article for a neophyte who has some interest, but not so good for someone who is serious about getting a foreclosure property. Funny I would think the WSJ would have a better research staff. Nevertheless, here is the article. Call or email me if you are serious and want more information.-Sean
Buying a foreclosure home often is appealing to house hunters trying to stretch their dollars. But finding a good one can be a challenge.
“The vast majority of the banks don’t want us to advertise [foreclosure homes] as ‘bank-owned’ because it comes with a negative connotation,” says Ryan Melvin, co-owner of More Realty Group in Las Vegas.
Sep 29, 2009 | No Comments | Sean Mills
S&P/Case-Shiller released their monthly Home Price Indices for July this morning.
This monthly data includes prices for 20 individual cities, and two composite indices (10 cities and 20 cities). This is the Seasonally Adjusted data – others report the NSA data.
Click on graph for larger image in new window.
The first graph shows the nominal seasonally [...]
S&P/Case-Shiller released their monthly Home Price Indices for July this morning.
This monthly data includes prices for 20 individual cities, and two composite indices (10 cities and 20 cities). This is the Seasonally Adjusted data – others report the NSA data.
Click on graph for larger image in new window.
The first graph shows the nominal seasonally adjusted Composite 10 and Composite 20 indices (the Composite 20 was started in January 2000).
The Composite 10 index is off 31.6% from the peak, and up about 1.3% in July.
The Composite 20 index is off 30.6% from the peak, and up 1.2% in July.
The second graph shows the Year over year change in both indices.
The Composite 10 is off 12.8% from July 2008.
The Composite 20 is off 11.5% from last year.
This is still a very strong YoY decline.
The third graph shows the price declines from the peak for each city included in S&P/Case-Shiller indices.
cheap Levitra alt=”Case-Shiller Price Declines” /> Prices increased (SA) in 17 of the 20 Case-Shiller cities in July.
In Las Vegas, house prices have declined 55.2% from the peak. At the other end of the spectrum, prices in Dallas are only off about 4.9% from the peak – and up in 2009. Prices have declined by double digits almost everywhere.
The debate continues – is the price increase because of the seasonal mix (distressed sales vs. non-distressed sales), the impact of the first-time home buyer frenzy on prices, and the slowdown in the foreclosure process (with a huge shadow inventory), or have prices actually bottomed? I think we will see further house price declines in many areas.
I’ll compare house prices to the stress test scenarios soon.
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