April 30, 2012
CMBS Delinquencies Rise Sharply in March
According to Trepp, loan delinquency rates for securitized loans turned sharply up in March, climbing 31 basis points to 9.68%, after reaching a 12-month low in February.
Multi-family continues to be the weakest asset class in terms of loan delinquency: the asset class’s delinquency rate spiking 74bps to 15.39%. Retail, office and industrial delinquency also climbed in March, with retail being strongest overall performer at 8.24%, up 24bps from February. Lodging was the one asset class that showed month-over-month improvement, dropping 42bps to 10.63%.
One metric some analysts have been watching closely is the rate of defaults among 5-year loans. Many of these loans were written at the top of the 2007 peak and are current but are at risk of maturity default.
Trepp reported recently that only 48% of five-year loans that matured in Q1 of 2012 were paid off at par or otherwise resolved by the servicers. That means that 52% of those recently maturing loans are currently in maturity default and, among those, roughly 50% by Trepp’s reckoning are characterized as “performing balloon” loans. I
It is these performing balloon loans that are fueling the demand for rescue equity capital and/or loan modifications structured with the goal of giving borrowers a bit more runway to resolve their leverage challenges.
2012 Home Sales will be strong in 2012
The National Association of Realtors is predicting existing-home sales will jump 7 to 10 percent in 2012 to the highest level in five years, based on an “uneven but higher sales pattern” so far this year.
Pending home sales fell a seasonally adjusted 0.5 percent from January to February, which was up 9.2 percent from the same time a year ago according to NAR.
Last week, NAR reported a similar trend for existing-home sales, which were down 0.9 percent from January to February, but up 8.8 percent from a year ago.
The pending sales data provides a glimpse into more recent trends, because it tracks homes that were under contract in February — deals that will in most cases be finalized within one or two months.
NAR said 31 percent of Realtors experienced contract failures in February, in some cases because buyers’ mortgage applications were rejected or because appraisals came in below the negotiated price.
In the Northeast, NAR’s index slipped a seasonally adjusted 0.6 percent from January but was up 18.4 percent from a year ago.
The Midwest saw a month-over-month gain of 6.5 percent and a 19 percent gain from a year ago.
Pending home sales fell 3 percent in the South from January to February, but were up 7.8 percent from a year ago.
In the West, the index declined 2.6 percent from January to February and was 1.8 percent below the index rating in February 2011.
In its latest economic forecast, NAR predicts existing-home sales will total 4.65 million in 2012, up 9.1 percent from last year. That forecast assumes that the U.S. economy will grow at a 2.3 percent annual rate and add 2.7 million jobs this year.
Posted by Scott R. Lodde
April 26, 2012
The 20 Best Small Towns in America
Smithsonian Magazine recently announced their list of the top20 best small towns in America.
To help create the list, the magazine asked the geographic information systems company Esri to search its data bases for high concentrations of museums, historic sites, botanic gardens, resident orchestras, art galleries and other cultural assets common to big cities.
The focus was on towns with populations less than 25,000, so travelers could experience what might be called enlightened good times in an unhurried, charming setting.
The two Florida cities were listed in the magazine’s rankings.
Naples was ranked No. 9 on the strength of its beauty, philharmonic orchestra and an abundance of art galleries. Key West, which the magazine calls a “haven for creativity,” came in at No. 16.
The full list
- Great Barrington, Mass.
- Taos, N.M.
- Red Bank, N.J.
- Mill Valley, Calif.
- Gig Harbor, Wash.
- Durango, Colo.
- Butler, Penn.
- Marfa, Texas
- Naples, Fla.
- Staunton, Va.
- Brattleboro, Vt.
- Princeton, N.J.
- Brunswick, Maine
- Siloam Springs, Ark.
- Menomonie, Wisc.
- Key West, Fla.
- Laguna Beach, Calif.
- Ashland, Ore.
- Tamarack, W.Va.
- Oxford, Miss.
The Early Phase of Real Estate Recovery
National Real Estate Investor considers the country to be in the early phase of a cyclical recovery.
Recently they published an article in which they stated their belief that real estate investment performance continues to display favorable conditions, a result of historically low borrowing rates and a modest inflationary outlook. Very limited new supply and rising demand is buoying real estate fundamentals for most property types.
The vast majority of investor interest to date has been focused on top-tier assets in prime markets (New York, Boston, Washington D.C.) and is thus reflected in bifurcated cap rates, with rate compression in those select markets and assets. It is their belief that the real estate asset class can provide very attractive return opportunities relative to other alternatives.
A summary of the various property types follows.
Multifamily – As widely forecast, multifamily has been leading the recovery, exhibiting year-over-year rent growth of 4 percent to 5 percent in 2012, according to CBRE Econometric Advisors. Rent growth for multifamily is strong in virtually all markets, with half already exceeding prior peak rents.
The strongest markets include New York City, San Francisco/San Jose, Seattle, Washington, D.C., Boston and Houston, with value-add and new development emerging as popular strategies in this sector. However, with this rapid increase in new development comes a moderate risk of excessive supply in the next two to three years.
Office – Contrary to many expectations, the office sector has been second place nationally in both absorption and rent growth. Office vacancy declined from 16.5 percent in the fourth quarter of 2010 to 16.0 percent in the fourth quarter 2011, and rents increased by 3.0 percent during 2011, according to CBRE.
High-tech, energy and professional and business services markets such as Austin, San Francisco/San Jose, Seattle, Houston and New York City outperformed, while markets with high levels of federal, state and local government employment remained weak.
Industrial – The industrial sector has shown strong improvement, with six consecutive quarters of positive net absorption (162 million sq. ft.) and vacancy declining from 14.3 percent in the fourth quarter 2010 to 13.6 percent in the fourth quarter of 2011, according to CBRE.
Port markets posted the greatest absorption, including the Inland Empire, Oakland, Houston and Miami, as well as select inland markets, including Dallas, Atlanta and Central Pennsylvania. Large warehouse properties (defined as those greater than 400,000 sq. ft.) saw the greatest space demand to date, with opportunities present in build-to-suit and speculative development in select markets. Overall, industrial rent growth continues to lag, but growth is generally forecast in 2012 as long as demand continues to grow and landlord concessions decline.
Retail – Retail absorption nationally turned slightly positive in 2011, marking the first year of positive net absorption since 2007. Despite the positive absorption, vacancy remained unchanged at 11 percent as a result of an equal amount of new deliveries.
Following three years of rent declines, retail effective rents were unchanged in 2011. Retail is a divided sector, despite relatively robust consumer spending over the past six months: Necessity and high-end retailers are doing well, while middle retailers are being squeezed. We do not anticipate any meaningful rent growth until late 2012. We also anticipate construction to be minimal, holding vacancy in check.
Hotel – The hotel sector has had continued solid operating performance, with growth in revenue per available room of 7 percent in 2011, enhanced by robust corporate travel. While a weak economic recovery and high fuel prices remain risks to room demand in 2012, muted supply growth may provide a boost to occupancy.
U.S. Home Prices at a Glance
According to the real estate data firms CoreLogic and Trulia, U.S. home prices rose slightly in February and March in some major metro areas,. Price gains have occurred in many hard-hit areas, such as Miami and Phoenix, while losses have been reported in cities ranging from Las Vegas to Seattle to Wilmington, Del.
Six out of the top metro areas are in Florida.
Here’s a look at some of the cities with the sharpest home price gains and losses over the past year, according to Trulia:
Best metro areas year-over-year change
- Cape Coral-Fort Myers, Fla.: 14.8%
- Miami: 14.1%
- Phoenix: 13.2%
- Pittsburgh: 9.2%
- Little Rock, Ark.: 6.7%
- Orlando: 6.3%
- North Port-Bradenton-Sarasota, Fla.: 6.2%
- Palm Bay-Melbourne-Titusville, Fla.: 6.1%
- West Palm Beach, Fla.: 5.8%
- Warren-Troy-Farmington Hills, Mich.: 5.6%
Worst metro areas year-over-year change
- Tacoma, Wash.: -11.9%
- Seattle: -9.1%
- Sacramento, Calif.: -8.3%
- Las Vegas: -7.7%
- Wilmington, Del.: -7.7%
- Columbia, S.C.: -7.3%
- Cleveland: -6.9%
- Fresno, Calif.: -6.8%
- Milwaukee: -6.7%
- Allentown, Pa.: -6.7%
Posted by Scott R. Lodde
April 19, 2012
Now is a Good Time to Buy
CoreLogic recently released a new monthly economic publication called the CoreLogic MarketPulse report. The MarketPulse provides monthly insight into the current and future health of the U.S. economic climate with particular focus on housing and mortgage metrics.
Highlights from the April MarketPulse report:
- “Now is a good time to buy,” with housing affordability at its highest level ever (as of February 2012), and shows many of the key housing metrics are holding steady through the typically slow winter season.
- Reports the single-family rental market is strong and vibrant with high and stable rents, low months’ supply and a healthy pace of signed rental leasings. The report reveals what markets offer the best return for single-family rental investors.
- Shows capitalization rates for single-family rental properties in 26 geographically diverse markets. Capitalization rates are the most common metric for determining the profitability of an investment property.
- Provides a chart of the rent-to-mortgage ratio for Miami, Fla. The chart indicates the point in time when it became cheaper to buy than to rent, providing insight to investors buying and holding rental properties, as well as to new first-time home buyers.
Foreclosures Expected to Surge
Even as real estate sales are picking up across most of the country, a recent report indicates that many more U.S. homeowners face the prospect of losing their homes this year as banks pick up the pace of foreclosures.
Mortgage servicing provider Lender Processing Services reported in early March that U.S. foreclosure starts jumped 28 percent in January.
Many industry guru’s are projecting that 2012 will be a bigger year for foreclosures than 2010 and that 2011 an anomaly due to the “robo-signing” scandal which prompted banks to hold back on new foreclosures pending a settlement.
The group watchdog group 4closurefraud.org, uncovered the “robo-signing” scandal and believes there was a large rise in new foreclosures between March 1 and 24 by three big banks in Palm Beach County in Florida, one of the states hit hardest by the housing crash.
Although foreclosure starts were 50 percent or more lower than for the same period in 2010, those begun by Deutsche Bank were up 47 percent from 2011. Those of Wells Fargo’s rose 68 percent, and Bank of America’s, including BAC Home Loans Servicing, jumped nearly seven-fold – 251 starts vs. 37 in the same period in 2011.
According to Moody’s Analytics, sales of repossessed properties probably will rise 25 percent this year from 1 million in 2011.
Prices for the foreclosed homes could drop as much as 10 percent because they deteriorated as they were held in reserve during the investigations by state officials resolved in February, according RealtyTrac. That month, 43 percent of foreclosures were delinquent for two or more years, from a 21 percent share in 2010, according to Lender Processing Services.
Real estate company Zillow expects the resurgence in foreclosures this year, combined with excess inventory of unsold, bank-owned homes will contribute to a 3.7 percent national decline in prices before the market hits bottom in 2013 and stays there until 2016.
As Home Rents Head Higher, Owning Regains Its Appeal
A recent article in the Wall Street Journal, indicates that climbing rents for apartments are combining with a continued decline in home prices to push home buyers into finally taking the plunge.
As the rental market heats up, rising rents and slumping home prices with interest rates at near record lows are boosting demand for homes at entry-level prices.
According to a survey by Reis Inc., average apartment rents rose by 2.7% last year while the national vacancy rate dropped below 5% for the first time since 2001.
The largest rent increases came in San Francisco and San Jose, Calif., which saw increases of 5.9% and 4.9%, respectively. Even Las Vegas saw average rent rise 1.8% from a year earlier.
The firm Zelman & Associates believes 2012 will be the first year since 2005 when the share of apartment renters that moves out to buy a house increases from the previous year as the equation of renting versus owning is becoming much more favorable for owning.
According to Deutsche Bank, the cost to rent an apartment has been about 10% lower than the after-tax cost of owning a home. That rental discount began to fall in 2010 and disappeared entirely last year. By the end of 2011, their research found that the cost to rent an apartment was about 15% higher than the cost to own a home.
To be sure, not all markets have seen the same development. In Orange County, Calif., and New York City, where home prices are extremely high, renting is still cheaper. But even in New York, real-estate agents say sales of small studio and one-bedroom apartments are brisk because renters don’t want to pay such high amounts to rent.
The National Association of Realtors trade group shows that the number of homes purchased by investors rose 65% during 2011 to 1.2 million, representing 27% of all sales.
Posted by Scott R. Lodde
April 5, 2012
Florida a Top Market for International Buyers
According to National Association of Realtors® data, bargain prices in American real estate are luring foreign buyers and Florida continues to be the most popular destination.
More than half of international sales in 2011 (58%) came from four states alone: Florida (31%), California (12%), Texas (9%), and Arizona (6%), according to the data.
In a blog post last week, I noted that Inman News recently identified the markets where foreign buyers make up the biggest share of homebuyers.
Here are the top markets:
- Lakeland-Winter Haven, Fla.
- Cape Coral-Fort Myers, Fla.
- Orlando-Kissimmee-Sanford, Fla.
- North Point-Bradenton-Sarasota, Fla.
- Miami-Fort Lauderdale-Pompano Beach, Fla.
- Phoenix-Mesa-Glendale, Ariz.
- New York County, N.Y. (Manhattan)
Have Home Prices Finally Reached Bottom?
We are constantly being asked the question, “Has the real estate market hit bottom yet?”.
In the SW Florida market, our answer recently has been YES.
And now, according to a Bank of America Merrill Lynch forecast recently released, our answer has some validity.
In the fall, many analysts had predicted home prices would drop by 8 percent from the second quarter of 2011 through the first quarter of 2013. Now they’re revising that forecast, realizing the housing market is stabilizing faster than they originally thought.
They now predict that prices will remain flat for the next two years, as the excess foreclosure inventory is absorbed. They then expect to see a pickup in home prices by 2014.
And in the long-term, they see a big rise in housing prices. From 2012 through 2020, analysts forecast a cumulative growth of 42 percent in home prices (at 4 percent on an annualized basis).
The Merrill Lynch data is also supported by sales figures based the 0.7 percent documentary stamp tax on deeds collected by the State of Florida. “Doc stamps,” as they are commonly known, are collected on total prices of newly sold and conveyed property.
Real estate sales totaled $1.05 billion for the year’s (2012) initial two months in Sarasota, Manatee and Charlotte counties, a 20 percent jump compared with $874 million during the same period of 2011, county records show.
Many believe the increased sales represent the resumption of the flow of retirees that are attracted to Southwest Florida.
The jump in sales represents yet another indication that Southwest Florida’s real estate recovery has caught up to, or even surpassed, the state’s. Until now, many parts of the state have experienced a better economic resurgence than Southwest Florida, where traditionally high unemployment and home foreclosures have hampered growth.
Real estate sales were even larger in the state’s top metropolitan areas. Total real estate sales in Miami-Dade County topped $3 billion, a 27 percent increase, while sales in Hillsborough County eclipsed $1 billion, for a 30 percent increase.
In the last 12 months, real estate sales in Sarasota County were $3.6 billion, up nearly a third from the low point of 2009, but still far from the $10 billion peak of 2006.
Investment, Vacation Home Sales up in 2011
According to the National Association of Realtors® (NAR), sales of investment and vacation homes jumped in 2011, with the combined market share rising to the highest level since 2005.
NAR’s 2012 Investment and Vacation Home Buyers Survey, covering existing- and new-home transactions in 2011, shows investment-home sales surged 64.5 percent to 1.23 million last year from 749,000 in 2010. Vacation-home sales rose 7.0 percent to 502,000 in 2011 from 469,000 in 2010. Owner-occupied purchases fell 15.5 percent to 2.78 million.
Vacation-home sales accounted for 11 percent of all transactions last year, up from 10 percent in 2010, while the portion of investment sales jumped to 27 percent in 2011 from 17 percent in 2010.
NAR Chief Economist Lawrence Yun said the shift in investment buyer patterns in 2011 shows the market, for the large part, is able to absorb foreclosures hitting the market.
All-cash purchases have become fairly common in the investment- and vacation-home market during recent years: 49 percent of investment buyers paid cash in 2011, as did 42 percent of vacation-home buyers. Half of all investment home purchases in 2011 were distressed homes, as were 39 percent of vacation homes.
The median investment-home price was $100,000 in 2011, up 6.4 percent from $94,000 in 2010, while the median vacation-home price was $121,300, down 19.1 percent from $150,000 in 2010.
Investment-home buyers in 2011 had a median age of 50, earned $86,100 and bought a home that was relatively close to their primary residence – a median distance of 25 miles, although 30 percent were more than 100 miles away.
The typical investment buyer plans to hold the property for a median of 5 years, down from 10 years for buyers in 2010.
The typical vacation-home buyer was 50 years old, had a median household income of $88,600 and purchased a property that was a median distance of 305 miles from the primary residence; 35 percent of vacation homes were within 100 miles and 37 percent were more than 500 miles. Buyers plan to own their recreational property for a median of 10 years.
Lifestyle factors have consistently been the primary motivation for vacation-home buyers, while the desire for rental income drives investment purchases. Vacation homes purchased last year were more likely to be in suburban or rural areas; investment homes were concentrated in suburban locations.
Eighty-two percent of vacation-home buyers said the primary reason for buying was to use the property themselves for vacations, or as a family retreat. Thirty percent plan to use the property as a primary residence in the future, and only 22 percent plan to rent to others.
Half of investment buyers said they purchased primarily to generate rental income, and 34 percent wanted to diversify their investments or saw a good investment opportunity.
Forty-two percent of vacation homes purchased last year were in the South, 30 percent in the West, 15 percent in the Northeast and 12 percent in the Midwest; 1 percent were located outside of the U.S.
Forty-four percent of investment properties were in the South, 23 percent in the West, 17 percent in the Midwest and 15 percent in the Northeast.
Eight out of 10 second-home buyers said it was a good time to buy. Nearly half of investment buyers said they were likely to purchase another property within two years, as did one-third of vacation-home buyers.
Currently, 42.1 million people in the U.S. are ages 50-59 – a group that has dominated second-home sales since the middle part of the past decade and established records. An additional 43.5 million people are 40-49 years old, while another 40.2 million are 30-39.
NAR believes that given that the number of people who are in their 40s is somewhat larger than the 50-somethings, the long-term demographic demand for purchasing vacation homes is favorable because these younger households are likely to enter the market as their desire for these kinds of properties grows, and individual circumstances allow.
NAR’s analysis of U.S. Census Bureau data shows there are 8.0 million vacation homes and 42.8 million investment units in the U.S., compared with 75.3 million owner-occupied homes.
NAR’s 2012 Investment and Vacation Home Buyers Survey, conducted in March 2012, includes answers from 2,241 usable responses about home purchases during 2011. The survey controlled for age and income, based on information from the larger 2011 NAR Profile of Home Buyers and Sellers, to limit any biases in the characteristics of respondents.
Posted by Scott R. Lodde