Headlines – Week of November 27, 2011
December 8, 2011
Case-Shiller Puts Home Prices 3.9% below Last Year
Case-Shiller, recently reported that their closely watched Case-Shiller index registered a 3.9 percent decline during the third quarter of this year when compared to the same period in 2010. That represents an improvement over the 5.8 percent decline posted in the second quarter, but S&P described home prices as weakening as the third quarter came to an end. The national index rose by only 0.1 percent between the second and third quarters. Three cities posted new index lows as of the end of September – Atlanta, Las Vegas, and Phoenix.
Two other reports also show falling prices after seeing some gains in the Spring and Summer. Lender Processing Services says prices are down 3.7 percent annually in September, erasing the gains of the Spring, and they say all of the 13,500 zip codes it tracks are in the negative.
CoreLogic confirmed that prices fell 3.9 percent in October, but when you take out foreclosures and short sales (the latter when the home is sold for less than the value of the mortgage), home prices are down just 0.5 percent annually.
6 Cities Where Foreclosures are Increasing
Last week we reported on a recent study from the financial analysis firm 24/7 Wall St. which identified the housing markets expected to offer some of the biggest discounts for home buyers.
This week they report on housing markets that are still battling high numbers of foreclosures.
Using data from RealtyTrac, 27/7 Wall St found that the following cities saw the biggest increases in foreclosures – 30 percent or more – between the second and third quarters of 2011:
1. Albuquerque, NM
Quarterly increase in foreclosures: +151%
Number of foreclosures in third quarter of 2011: 1,358
Percentage that home values have dropped from peak: -14.9%
2. Boston-Cambridge-Quincy, MA
Quarterly increase in foreclosures: +67%
Number of foreclosures in third quarter of 2011: 2,003
Percentage that home values have dropped from peak: -15.8%
3. Sarasota-Bradenton-Venice, FL
Quarterly increase in foreclosures: +57%
Number of foreclosures in third quarter of 2011: 1,673
Percentage that home values have dropped from peak: -51.4%
4. Cincinnati-Middleton, Ohio-Ky.-IN
Quarterly increase in foreclosures: +55%
Number of foreclosures in third quarter of 2011: 1,956
Percentage that home values have dropped from peak: -15.9%
5. Jacksonville, FL
Quarterly increase in foreclosures: +49%
Number of foreclosures in third quarter of 2011: 2,559
Percentage that home values have dropped from peak: -39.3%
6. Palm Bay-Melbourne-Titusville, FL
Quarterly increase in foreclosures: +44%
Number of foreclosures in third quarter of 2011: 1,039
Percentage that home values have dropped from peak: -53.4%
Retiree Havens Offering Good Buys
According to a recent article in Money magazine, if you’ve got cash, pick up a future resort retreat now at a bargain price.
For example, prices for condos in Napa, Calif., and Naples, Fla., have dropped about 44 percent since the housing boom, according to Fiserv data. That mixed with historically low mortgage rates are prompting some to start picking their retirement haven.
Financial experts recommend that retirees who are considering buying a second home prior to retirement may want to consider renting it out until they’re ready to move in to offset the cost of ownership. However, if they don’t want to step into the landlord role themselves, they should expect to spend 10 percent to 15 percent of the monthly rental fee on a property manager. Also, if they’re looking at purchasing a condo, they should make sure the development allows rentals since some developments do not or have restrictions on rentals.
CMBS Delinquency Rate Retreats; Future Improvements under Pressure
According to Trepp LLC, after two consecutive months of weak delinquency reports-featuring increases that left the rate at its second highest point ever-the CMBS delinquency rate dropped sharply in November.
However, while the decrease in the CMBS delinquency rate will likely be received positively by investors, the underlying data indicates that further improvements will be hard to come by.
Overall in November, the delinquency rate for U.S. commercial real estate loans in CMBS fell 26 basis points to 9.51%. This was the second biggest drop in 2011, surpassed only by August’s 36 point drop. The rate has now fallen in four of the 11 months of 2011.
The percentage of loans seriously delinquent (60+ days delinquent, in foreclosure, REO, or non-performing balloons) is now 8.88%, down 33 basis points for the month.
Unfortunately, two specific trends will put severe upward pressure on the rate over the next few months, indicating that further improvements could be elusive.
The day of reckoning is here for the class of 2007 originated loans as the five-year balloon loans that were made at the height of the commercial real estate bubble have begun to mature.
The 2007 vintage was the weakest in terms of underwriting standards and it is widely expected that many of these loans will have trouble paying off at their balloon date. In total, about $15.5 billion of these loans will come due in 2012, with the majority reaching their balloon dates over the next six months.
Trepp said it expects that the majority of these loans will make their way to special servicing.
A gradually healing CMBS market was also expected to provide some source of funding for the CMBS loans hitting their balloon dates at one point last year. That safety valve can no longer be counted upon in the short term. Therefore, this too will provide upward pressure on the CMBS delinquency rate.
In their report Trepp notes some mitigants that could relieve some of this upward pressure, but none of them are particularly positive.
First, there could be another big wave of loan resolutions. This would reduce the pool of distressed loans (the numerator in our calculation) but it would come at the expense of additional bondholder losses.
Second, more loans could be granted extensions, but experience has shown that these are often done with hope note creation, rate relief, and/or balance forgiveness. None of those options are positive results for most investors.
By property type, industrial property loans continue to weaken while all other major property types improve.
Hotel delinquency rate dropped 184 basis points-now 12.28%;
Industrial delinquency rate jumped 61 basis points to 12.20%-threatening to pass hotels as the second worst performing property type;
Office delinquency rate dropped 19 basis points to 8.76%;
Multifamily delinquency rate dipped 55 basis points and remained the worst major property type with a rate of 16.18%; and
Retail delinquency rate tightened 9 basis points to 7.52%-still the best performing major property type.
Posted by Scott R. Lodde