Headlines – Week of January 31, 2010

February 5, 2010

Federal Reserve to End Mortgage Purchase Program (from the Washington Post)

The cessation at the end of March of the government program to buy mortgage-backed securities will show whether the White House and Federal Reserve have effectively stimulated the lending market to the point that it is now on solid footing.

Keeping the mortgage rates at historic lows, which required a commitment of more than $1 trillion, was viewed within the administration as a central plank of the economic strategy last year, senior officials said.

Here are the facts:

  • The Treasury Department began to spend $220 billion in September 2008 to buy mortgage-backed securities before ending the program in December, 2009.
  • The Federal Reserve pledged to buy $1.25 trillion worth of mortgage-backed securities, the largest single intervention the central bank has undertaken amid the financial crisis and recession. The Fed has said it will end this program on March 31.
  • Fannie Mae and Freddie Mac, the two firms that own or guarantee half of the nation’s $12 trillion mortgage market, were taken over by the government in September 2008. The move helped these firms borrow at low rates because lenders know they cannot fail. They passed on these savings to consumers in the form of low rates. On Christmas Eve, the Treasury said it would cover all of their losses, but said that holdings of mortgage-backed securities must be scaled back over time.

If the sector slumps again, home owners could face a new period of distress.

Lawrence Yun, the chief economist of the National Association of Realtors has cautioned the Fed about the sudden stoppage of this program on the housing market.

Keeping mortgage rates at record lows was a major component of the economic strategy during President Obama’s first year in office. While it did capture the kind of headlines that efforts to bail out banks did, the policy helped revitalize home buying in parts of the country and assisted millions of home owners who were able to refinance.

The effect of canceling this program could be devistating to the residential home market.

Full Article

U.S. hotel performance for 2009 by quarter (from Hospitality.net/Smith Travel Research)

Smith Travel Research reported that the U.S. hotel industry reported decreases in all three key performance metrics for fourth-quarter 2009 in year-over-year measurements.

Occupancy dropped 4.4 percent to 50.6 percent, average daily rate fell 7.6 percent to $95.79, and revenue per available room decreased 11.7 percent to $48.50. 

U.S. Hotel Performance for 2009 by Quarter

 

Occupancy

% Change

ADR

% Change

RevPAR

% Change

1st Qtr

51.4%

-10.9%

 $  100.13

7.7%

 $  51.44

17.7%

2nd Qtr

57.8%

-10.9%

 $    97.37

9.7%

 $  56.25

19.5%

3rd Qtr

60.5%

-7.9%

 $    96.84

9.8%

 $  58.61

16.9%

4th Qtr

50.6%

-4.4%

 $    95.79

7.6%

 $  48.50

11.7%

YTD

55.1%

-8.7%

 $    97.61

8.8%

 $  53.71

16.7%

Although room demand (room nights sold) had its best quarterly performance of 2009 it was still down 1.4 percent in the 4th quarter. The report noted however that 11 of the Top 25 Markets experienced occupancy gains in the fourth quarter. 

The Luxury segment was the only segment to report an increase in any of the three key metrics. The segment’s occupancy rose 1.4 percent to 60.6 percent. The Upper Upscale segment ended the quarter virtually flat with a 0.1-percent decrease to 61.1 percent.

For all of 2009, RevPAR for U.S. hotels fell 16.7%, compared to 2008; ADR and occupancy numbers were equally downbeat. ADR for the year was off 8.8%, compared to prior year, while occupancy fell 8.7%.

Houston had the greatest occupancy decline–17%–of any of the country’s top MSAs, while New York had the greatest drop in RevPAR, 26.3%.

Full Article

Commercial prices must fall, economist says (from the Miami Herald)

In a recent address to the South Florida chapter of the NAIOP, Mark Dotzour, the chief economist and director of research for the Real Estate Center at Texas A&M University was recently quoted as stating that in order for the commercial real estate market in South Florida and around the country to recover, buyers and sellers need to come to terms on the new price reality.

Dotzour predicted is that equilibrium is getting closer, and when it does there will be an influx of new money that has been sitting on the sidelines waiting.

He believes that there’s a lot of demand but they just won’t because they’re convinced it’s not priced properly.

Holding this up are the banks that don’t want to write down the value of the assets on their books and continue to play the game of “extend and pretend.”  Extend and pretend is a term used to describe when a bank extends the loan coming due rather than accept the new reduced value of the real estate.

According to Dotzour, overall the current prices for commercial real estate have dropped between 35 percent and 50 percent compared to 2007 values.

Improvement in the real estate market will begin in 2010 with a stronger recovery by 2011, at which point there will be an increase in absorption of vacant space, rents will start to rise and property values will increase, Dotzour predicts.

But he also warns that buyers waiting for fire sale prices on distressed properties, like those seen during the savings and loan crisis of the 1980s are going to be disappointed.

Full Article

Hotel Loan Originations Jumped 105% in Q4 2009 (from Mortgage Bankers Association)

Finally some good news on the financing front. 

According to the Mortgage Bankers Association’s fourth quarter 2009 survey of commercial mortgage loan originations, a 105% jump in hotel loans on a year-over-year basis helped send overall commercial loan originations 12% higher over the same time period.

The hotel sector’s increase was the largest of any commercial real estate sector, with the retail segment trailing right behind with a 101% increase.

In Q4 2008, the MBA recorded 36 hotel loan originations, the lowest the hotel sector had seen since the early part of the decade. In Q4 2009, there were 74 hotel loan originations.

The average loan size for hotel loans in Q4 2009 was $48.7 million. A year earlier it was $22.5 million.

Full Article

 10 Cities Where It’s Smarter to Buy (from Forbes.com)

A recent Forbes reports that the spread between what a person would pay in rent and what they’d pay for a mortgage is much lower than the 15-year average in many cities.

To determine what cities are the best buys, Forbes computed the premium and also identified locales where economists predict home prices will go up the most over the next five years.

Here are the top 10 cities the magazine chose as the best places to buy right now.

  1. Boston-Cambridge-Quincy, Mass.
  2. Charlotte-Gastonia-Concord, N.C.-S.C.
  3. Chicago-Naperville-Joliet, Ill.-Ind.-Wis.
  4. Cincinnati-Middletown, Ohio-Ky.-Ind.
  5. Denver-Aurora-Broomfield, Colo
  6. Minneapolis-St. Paul-Bloomington, Minn.-Wis.
  7. Philadelphia-Camden-Wilmington, Pa.-N.J.-Del.-Md.
  8. Portland-Vancouver-Beaverton, Ore.-Wash.
  9. San Francisco-Oakland-Fremont, Calif.
  10. Washington-Arlington-Alexandria, D.C.-Va.-Md.-W.V.

Full Article

Posted by Scott R. Lodde

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