Headlines – Week of June 20, 2010

June 26, 2010

Is a Housing Shortage Coming? (from CNN/Money.com)

Some experts are saying that the next big real estate problem could be a shortage of homes.

Only 672,000 new homes were started in April. That’s less than half the number needed to meet the country’s average population growth.

In the past, an average of more than 1.3 million households have been built each year, creating demand for 1.5 million new homes. In 2009, only 398,000 new households were formed, according to the Census Bureau.

Many believe that the decline in household formation is artificial since younger adults are moving in with their parents. There is also some doubling up among working-class people.

While the optimists believe there is a pent-up demand coming others believe this view fails to take into account the changing economy or the large inventory of vacant properties.

Full Article

CMBS Comeback? (from Reuters)

According to an article in Reuters, there may be some sparks of life in securitized commercial real estate lending, which was pretty much given up for dead after the Great Recession. The company reported that the Related Cos. will soon close on its first loan slated for inclusion in a mortgage security in more than two years.

According to the article, Deutsche Bank will lend the Related Cos. about $45 million on The Harrison, a new condo and retail project in Manhattan. The property is fully occupied and presumably the due diligence has fully examined the property and its tenants.

The deal comes in the wake of an earlier announcement of a $716.3 million CMBS priced by JP Morgan Chase Commercial Mortgage Securities Corp. That securitization was composed of 36 loans on retail properties. It was only the fifth CMBS since the market for those structures evaporated more than two years ago.

In addition, U.S. banks are now beginning to expand their commercial mortgage-backed securities business and triggering a wave of industry hiring, Reuters reported. In addition to Deutsche Bank, several others have hired lenders to focus on making new commercial real estate loans to package into bonds, including Wells Fargo, JPMorgan and Jefferies. Analysts and bankers have long worried that the CMBS market, like that of home mortgages, would crater and upset the U.S. economy. Bankers and advisors who specialize in CMBS said the sector may never fully recover to the peak of $237 billion in originations in 2007. Slightly more than $1 billion in CMBS deals have been completed so far this year.

Full Article

Harvard Housing Report (from the Harvard University Joint Center for Housing Studies)

The Harvard University Joint Center for Housing Studies issued its report on the State of Nation’s Housing 2010.

Highlights of the report indicate the following issues;

  • The problems for the market include persistent high unemployment
  • Too many vacant housing units
  • The fact that people in their ’20s, who have been slammed especially hard by the recession, are wary of buying a house, even if they can
  • The way the mortgage-qualification pendulum has swung to very tight standards, and
  • The loss of the federal tax credit for home purchases.

The reports concludes that it will likely take years before the fallout from the Great Recession begins to abate.  In addition to the expiration of the homebuyer tax credit program, which may have temporarily jacked up home sales, the market faces threats from the severe overhang of vacant units, still high unemployment, and record numbers of owners with homes worth less than the amount owed on their mortgages.

The (barely) good news in all that is that houses are more affordable than they’ve been in years. Nationwide, the median sales price dropped from 4.7 times the median household income in 2005 to 3.4 times in 2009.  When combined with low interest rates, this puts mortgage payments on the median priced home closer to median gross rents than at anytime since 1980.

Among the 92 metropolitan areas consistently covered by the National Realtors Association since 1989, price-to-income ratios in 21 are now below their long-run averages.

Posted by Scott R. Lodde


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