Headlines – Week of September 18, 2011

September 30, 2011

Shadow Inventory Continues to Decline

According to CoreLogic, current residential shadow inventory as of July 2011 declined slightly to 1.6 million units – representing a supply of 5 months – from a six-month supply of 1.9 million units one year earlier. It’s also down from April 2011 when shadow inventory stood at 1.7 million units.

According to the report, the reason for this decline is a result of banks disposing of distressed assets faster than they’re adding new ones into the system.

CoreLogic estimates the shadow inventory (also known as pending supply) based on the number of distressed properties not currently listed on multiple listing services (MLSs) that are seriously delinquent (90 days or more).  These are the properties most likely to become bank-owned listings (REOs).

Properties not yet delinquent aren’t included in the estimate of shadow inventory.

Data highlights:

• The shadow inventory of residential properties as of July 2011 fell to 1.6 million units, or a five-month supply, down from 1.9 million units, or a six-month supply, as compared to July 2010.

• Of the 1.6 million properties currently in the shadow inventory, 770,000 units are seriously delinquent (2.2-months’ supply), 430,000 are in some stage of foreclosure (1.2-months’ supply) and 390,000 are already in REO (1.1-months’ supply).

• As of July 2011, the shadow inventory is 22 percent lower than the peak in January 2010 at 2 million units, an 8.4-months’ supply.

• The total shadow and visible inventory was 5.4 million units in July 2011, down from 6.1 million units a year ago. The shadow inventory accounts for 29 percent of the combined shadow and visible inventories.

• The aggregate current mortgage debt outstanding of the shadow inventory was $336 billion in July 2011, down 18 percent from $411 billion a year ago.

“The steady improvement in the shadow inventory is a positive development for the housing market,” says Mark Fleming, chief economist for CoreLogic. “However, continued price declines, high levels of negative equity and a sluggish labor market will keep the shadow supply elevated for an extended period of time.”

CoreLogic believes the steady improvement in the shadow inventory is a positive development for the housing market. However, they warn that continued price declines, high levels of negative equity and a sluggish labor market will keep the shadow supply elevated for an extended period of time.

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Home Prices 4% Below a Year Ago

According to data recently released by Standard & Poor’s, even with a seasonal uptick in the month of July, home prices are below levels a year earlier. Both the 20-city and 10-city composite readings of the S&P/Case-Shiller index rose 0.9 percent between June and July, but were down 4.1 percent and 3.7 percent, respectively, when compared to July 2010.

Detroit and Washington, D.C. were the only metropolitan areas in the study to buck the annual trend.

Commercial Properties Have a Long Road to Recovery

According to Fitch Ratings, U.S. commercial properties have seen some minor improvements, but the sector still has quite a ways to go before it can completely shake off the effects of the economic recession,

Net operating income across all types is down 1 percent from the end of 2009 to the end of 2010, but the drop has generally stopped. NOI was down 5 percent from 2008 to 2009.

And Fitch’s pessimism affects all commercial property types.  And despite a report last week by PKF Hospitality Research that affirmed hotels’ recovery would be soon forthcoming, Fitch sees hotels to be in a weak position like the rest of the industry.

Hotels have seen the largest performance declines over the last two years, with NOI dropping 25 percent between 2008 and 2010.  Overall hotel performance may have begun to show signs of improvement with one year of positive growth, but many hotel properties, especially limited-service hotels located in secondary and tertiary markets, continue to report a lower NOI in 2010 than in 2008.

That being said, Fitch sees stabilization on the horizon, with the majority of commercial property depending on factors including the unemployment numbers and consumer spending.

Multi-family properties performed better than the hospitality sector, declining only one 1 percent over the two-year period studied. Property managers had been maintaining lower rents and offering significant concessions in order to keep occupancy numbers buoyed, but those concessions are slowly fading.

Office and retail properties, which benefit from longer-term leases, experienced a modest decline in NOI of 4 percent and 3 percent, respectively, from year end 2008 to 2010.

The data analyzed came from Fitch’s analysis of 21,334 commercial properties with fully reported financials from 2008 to 2010 which secure the firm’s $270.4 billion CMBS portfolio, with 34 percent of holdings in office, followed by 33 percent retail, 14 percent multi-family, 7 percent hotel, 6 percent industrial/warehouse and 6 percent other property types.

Foreigners spend $12.7B on Florida residential real estate in 2010

Canadians make up 39 percent of the international pool of buyers that spent $12.7 billion on residential real estate in Florida in 2010, according to a new report.

Brazil’s growing influence in the market is tied to 8 percent of purchases, according to data from the National Association of Realtors. The U.K. and Venezuela tied at 7 percent each, with Germany, France, Argentina, Colombia, Australia, Mexico and Spain driving the balance of buyers.

In 2010, these international buyers generated $3.8 billion in sales in Miami/Miami Beach/Fort Lauderdale market alone, according to NAR.

More than 86 percent of the Florida transactions involving international buyers are being completed in cash.

The NAR report also highlights the fact that investors continue to drive a lot of sales activity. Only 12 percent of the foreign buyers plan to spend more than six months a year in their Florida properties, compared to 16 percent who plan to occupy their places for less than one month a year. A majority – some 56 percent – of the foreign buyers plan to use their properties between two months and six months a year.

For 23 percent of the foreign buyers, Florida real estate is perceived as a “profitable investment,” given the deeply discounted prices, rising rents in coastal markets such as in South Florida, and the weakness of the U.S. dollar, according to the NAR report.

Overall, foreign buyers account for 26 percent of Florida’s $48.8 billion in residential resales. Nationwide, foreign buyers account for only 3 percent of residential real estate transactions.

For foreign buyers focused on Florida, the top destination is South Florida.

The Miami/Fort Lauderdale/Miami Beach market represents 30 percent of the estimated $12.7 billion foreign buyers spent on Florida real estate.

The Orlando/Kissimmee market in Central Florida had the second-largest share of foreign buyers in the state, with a 14 percent share, or nearly $1.8 billion in sales.

The Tampa/St. Petersburg/Clearwater market on Florida’s west coast earned the No. 3 ranking, with an 11 percent share, or nearly $1.4 billion of sales.

Rounding out the top 5 markets for foreign transactions are the deeply distressed Southwest Florida markets of Cape Coral/Fort Myers, with an 8 percent share, or $1.02 billion, and Naples/Marco Island, with a 6 percent share that equates to $762 million, according to the NAR report.

The Miami/Fort Lauderdale/Miami Beach residential real estate market is being buoyed by foreign investors from Latin America, which account for 53 percent of the international buyers in South Florida.

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Posted by Scott R. Lodde

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