Real Estate Market Bulletin Blog

I frequent a very informational website called www.mortgagenewsdaily.com and listen to one of the smartest guys in the industry in my opion “Adam Q”. I took my job with this blog to simplify what he writes in a way that is easy to follow and easy on the eyes.  It is looking very likely we can start targeting 3.75% with 0 points if things go as planned for a couple days later this week or early next week.

“On November 3, 2010 I anticipate the Federal Reserve will announce another Quantitative Easing program. This event is expected to lead consumer borrowing costs back down to record lows, which means we should see mortgage rates dip below 4.00% with much more attractive float down structures   -Mortgage News Daily

5 Quick Questions Answered No One Else Even Made You Aware Of:

1.  Why You Chose to wait:

� If you’re still a passenger on the float boat, it’s because you made a decision to pass on rates below 4.25% in favor of a chance to lock in a rate below 4.00%. It’s because you decided to PLAY THE RANGE UNTIL BERNANKE PLAYED YOU� - Mortgage News Daily

2.  Did you know rates Have Risen 5 Of The Last 7 Days?

“Consumer borrowing costs have now risen in 5 of the last 7 sessions…and the nervous chatter in the air is deafening.  The best par 30 year fixed mortgage rates have risen to the 4.125% to 4.375% range for well qualified consumers. 4.25% is “best execution�. 4.375% is widely quoted.�  - Mortgage News Daily

Mortgage Rate Disclaimer:  Loan originators will only be able to offer the lowest conventional and government (FHA/VA) 30 year fixed mortgage rates to borrowers who have perfect credit profiles. If the terms of your loan trigger any risk-based loan level pricing adjustments (LLPAs), your rate quote will be higher. If you do not fall into the “perfect borrower� category, make sure you ask your loan originator for an explanation of the characteristics that make your loan a riskier investment. (eg. investment properties and second homes trigger an adjustment )

3.  What is my plan to get you into a 3.75% 0 Points

Last Friday we waved one last “Lock now or hold your peace until November 3″ warning flag….. - Mortgage News Daily

Plain and Simple:

“When QEII was first mentioned by the FED the Bond Market over reacted to your benefit.  The excitement then wore off and the “tradersâ€� took advantage of the correction by making profitable transactions.  This led to an unexpected short term trend of rising rates, one Adam Q expects to run out before November 3rd.

***READ******   On November 3, 2010 I anticipate the Federal Reserve will announce another Quantitative Easing program. This event is expected to lead consumer borrowing costs back down to record lows, which means we should see mortgage rates dip below 4.00% with much more attractive float down structures”   -Mortgage News Daily

4.  Why won’t it just keep going lower?

“Do I think mortgage rates will go lower than 3.75% if the Fed announces QEII?

No I do not. Why don’t I see rates moving below 3.75? Because I don’t see 3.0 MBS trading in enough liquidity to allow lenders to offer rates below 3.75%. This is a bold prediction considering we don’t know exactly what the Fed is plotting.  If 3.0s do trade in size, lenders will be able to go as low as 3.25%�     Mortgage News Daily

5.  How long do I think QEII will keep mortgage rates at the record lows??

These rates only hit their record lows for a day or two before they bounce up a little, we want to hit the lowest part.  Adam Q. brought up another interesting point:

“I fully anticipate another dip in home prices over the winter. If you’re waiting to refinance and you know home values in your area have already been negatively affected by foreclosures, make sure you keep track of sale prices in your neighborhood, especially if you see “HomePath� signs hanging in the front yards of homes for sale in your area.  You don’t want to miss an opportunity to refinance at  record low rates because your home lost another 5% in value while you were waiting for borrowing costs to go even lower.� - mortgage news daily

What if the Fed chooses not to announce QEII on November 3, 2010 ???

“If QEII is not announced, the bond market would sell off and mortgage rates would suffer, instantly. The 3.50 MBS coupon would become illiquid and the best par 30-year fixed mortgage rates would move up to at least the 4.375% to 4.625% range for well-qualified consumers.”
Adam Q = Adam Quinones -

Now I realize the majority of this blog was quoting Adam Quinones, but I think the value comes from simplifying what he is trying to say so you can understand how important it is to be proactive rather then reactive to the news.  Please call me at the number below because I have a plan for you to be one of the few ready for this.

Michael Kelleher
Phone: 781 477 0110 ext 132
Mobile; 781 367 0068
Fax: 781 477 0220
www.MYATMI.COM
MB3255  Lis. # 50041
324 Essex Street, Swampscott, MA

A number of conflicting reports suggest that while the housing market recovery has yet to start, we are closer to the end of the carnage than the beginning.

Recent stats:

1. The Massachusetts Housing Partnership reported that a potential 65,000 or more homes could add to the state’s inventory of unsold homes due to pending foreclosures, or homes likely to be foreclosed on even after mortgage modifications.  This possible 2nd foreclosure wave would add as many homes to the market as are typically sold in a given year, suggesting further price depression.
2. At the same time, the Fed’s March 3 Beige Book reports slow but steady strengthening of the economy, including stabilizing employment and rising wages, all of which will help reduce the chance of future foreclosures as those who still have their homes and jobs will be in a position to keep both.
3. Ultimately, home prices are the best gauge of market health.  Those prices have been stopped declining in most parts of the US and are starting to rise in some, according to the Case Shiller index. See S&P PDF file with the current national home price rate of change.

As of the writing of the post, mortgage rates are as low as 4.625% for 30 year convential mortgages (where the buyer has excellent credit of course).  A few years ago, these rates would have stoked the real estate bubble further and invited criticism of easy money, but the fact that most lending activity continues to be primarily for refinancing (despite an overall increase of 8.5%) indicates that the housing market itself is still not healing.

The frozen housing market is one argument that rates will remain where they are (or possibly decline), however if other macroeconomic indicators continue to improve such as GDP or jobs (which has shown stabilization), expect the Federal Reserve to consider increasing the discount rate in early 2010, which will likely force mortgage rates up (by increasing the cost of borrowing to lenders).

We probably have at least 1 - 2 quarters before major movements in rates, but if you are considering purchasing a home or refinancing, start to plan it now!

According to the Warren Group, which compiles statistics on the housing market, Massachusetts home sales rose for the second straight month.  August sales rose 2% year over year, following an 11% YOY increase in July.

Still, there’s quite a ways to go - the median sale price for homes in te Bay State remains 10% below last year’s median price, according to the press release.

Carolyn Maloney, joint economic committee chairwoman of congress was quoted as she exited a committee hearing last week that commercial real estate is a “ticking time bomb�.Following that comment, multiple news sources including the AP, the Washington Post, Reuters, CNBC, and Bloomberg starting reporting bad news in the commercial real estate industry.

One question many people may be asking upon hearing this news or even just reading the headline is “How can commercial real estate be a ticking time bomb when we’re already more than two years into the sector’s decline?�Well the answer isn’t as simple as looking at the facts and figures. The June store sales data released several weeks ago shows that overall sales came in down between 4.3 and 5.1 percent.Also recently released was a report showing regional mall vacancies hitting 17-year highs.A real estate analysis company, Capital Analytics shows that commercial real estate worth about $108 billion is now defaulting.

The problem facing the industry right now is that much of the real estate needs to be refinanced in the next few years.That will prove to be extremely difficult in the current economy.In lieu of traditional sources of funding such as commercial banks, life insurance companies, etc. commercial real estate owners will need to start turning to government programs that have been put into place including the “TALF� and the “PPIP�.

The commercial real estate market is certainly a mess right now, and it’s safe to assume the defaults, foreclosures and delinquencies are only going to increase in the near future before anything gets better. It’ll be interesting to see the future of commercial real estate and whether or not the government will ultimately need to bail out yet another industry.

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Commercial Real Estate

In time of economic hardship, Manhattan rarely reflects any sort of economic suffering. However with the most recent data released all that has changed. During the second quarter of the year, the average price for an apartment had fallen between 13 and 19 percent from a year ago.

Dottie Herman, president of Prudential Douglas Elliman a large real estate brokerage in New York said, “The city did a nosedive. There was virtually no business.�

On top of that, and not surprisingly the price of luxury apartments declined at an even steeper rate, between 17 and 26 percent. Luxury buyers disappeared when Wall Street jobs subsided and the so-called “jumbo loans� (anything totaling more than $730,000) disappeared along with the jobs.
Sales of new condos also suffered a similar fate. Fannie Mae, one of the largest mortgage lending houses enforced new rules requiring 75% of a new condo development to be outright sold before it would issue any mortgages to the potential condo buyers.

On a positive note sales started to show signs of recovery at the end of the second quarter, especially on the lower side of the market. This could be aided by the $8,000 federal tax rebate offered to new home buyers.

StreetEasy.com stated, “Sellers are beginning to adjust to the market. In the second quarter, the number of price cuts more than doubled from a year ago, with reductions averaging between 8 and 9 percent for condos and cooperatives.�

“It’s the beginnings of the new reality,” said Pamela Liebman, CEO of The Corcoran Group, “that 2007 and 2008 were not the norm, but the peak.” Time will naturally regulate the prices and adjust sellers to match buyers’ demands.

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Housing Trends

Since World War II the United States has never seen such a down market for the sales of new homes as we’ve seen in the past two years. This fact can be attributed to several things and can/has raised more questions about when to expect the current recession to end.

Will the houses built during the boom ever be sold? Have home builders kept up with the market in lowering their prices?

For the past thirty plus years existing home sales and new home sales have tended to fluctuate up and down by the same minimal percentage (as pictured in the chart). In past recessions sales of new homes have certainly been less successful however their levels have never reached what we’re currently seeing for as long as we’re currently seeing it.

Floyd Norris of the New York Times said, “At the peak of the housing boom in 2005, sales of both existing and new homes were running at twice the 1976 rate. This year, the sales rate for existing homes seems to have stabilized at about one-third higher than the 1976 rate. New-home sales also seem to have stabilized, but at about half the 1976 rate.�

Even worse than new home prices according to the graphs are the prices of existing homes, at one point this year the median price for existing homes was 29% off from the peak. Norris add, “Median home price figures need to be used with caution, since there is no way to know how the median home sold in one month compares, in terms of size and location, to the median home sold in a different month. But in past recessions, new-home prices have tended to be weaker than existing-home prices, the opposite of what has happened in this cycle.�

Time will only tell what happens to new homes and the prices of existing homes,

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Just like the average American, celebrities are having financial issues often springing from their real estate or leading to the sale or foreclosure of their real estate. It shouldn’t really come as a surprise to anyone given the size and cost of celebrities’ homes these days. On top of the size and cost of celebs mansions, the current housing market is anything but thriving. Let’s take a look at a few current celebrities facing real estate hardships.

Case 1: Timothy Geithner. After reducing the price of his home to $1.575 million he was attempting to sell he finally resorted to renting his New York suburb mansion out for just $7,500 a month, surely not covering his $27,000 a year taxes and two loans covering the cost of the house.

Case 2: 50 Cent. After having his Farmington, CT house on the market for 2 years he gave up on selling the mansion. It had gone from selling originally at $18.5 million eventually creeping down to $14 million, and even at that price it couldn’t sell. It didn’t help that the house had been known for its legal issues stemming from an issue where 50 Cent had the house repaired for $6 million whereas it had been appraised at only $500,000. On top of that a real estate appraiser leaked to the Hartford Courant that the house isn’t worth a $1 over $5 million.

Case 3: Mel Gibson. Only a short drive away from Mr. Cent in Greenwich, CT Mel Gibson has been having problems selling his mansion (not to mention his divorce). The mansion, nicknamed “Old Mill Farm� had been originally put on the market for a price of $39 million. Even with its 15 bedrooms and 17 bathrooms it couldn’t fetch that price. So Gibson lowered the price to $29 million where it has been sitting for some time now.

Case 4: Elle McPherson. The British model took $2 million off her asking price for her 1850s Victorian house which has been on the market for almost 2 years now. The 6 bedroom home hasn’t attracted much attraction from potential buyers apparently.

It may console you to know that it’s just the average joe having real estate problems. Then again, it confirms the fact that the real estate market is pretty stagnant.

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Celebrity Real Estate

The entire world has felt the pains of the current economic crisis that originated in the United States, however some countries have felt the effects more than other countries.  In this brief article you can see there are certainly some real estate bargains to be had out there.

New Zealand: Foxton

Price: $125,500

Bedrooms: 4   Bathrooms: 2

Czech Republic: Prague

Price: $144,000

Bedrooms: 2   Bathrooms:1

Croatia: Istria

Price: $150,700

Bedrooms: 3 Bathrooms: 2

Portugal: Evora

Price: $150,500

Bedrooms: 2 Bathrooms: 1

South Africa: Jeffery’s Bay

Price: $152,500

Bedrooms: 5 Bathrooms: 3

Russia: Chrystye Prudy Area, Moscow

Price: $152,000

Bedrooms: 2 Bathrooms: 2

Argentina: Buenos Aires

Price: $149,000

Bedrooms: 2 Bathrooms: 1

So there you have it, all the real estate you could buy around the world with a mere $150,000.  Read More

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International Real Estate

The only United States location to find its way onto the list of most expensive real estate markets for 2009 was New York City coming in at an average price per square meter of $14,989. It should come as no surprise that Monte Carlo comes in first place more than three times more expensive per square meter than New York City at $47,578.

London and Moscow come in at a close 2nd and 3rd. Both coming in at just above $20,000 per square meter for real estate. The price index was based off of a 120 sq. m. good condition high-end apartment in 110 cities around the world.

As you can see from the table, several Asian cities have been on the rise in the past several years. Tokyo and Hong Kong came in 4th and 5th respectively overtaking Paris and Rome a phenomenon that has taken place only several times in the past half a decade.

For those who are bargain hunters, some of the cheapest real estate was detailed as well. The cheapest coming in at just $574 per square meter was found in Cairo, Egypt. In general the cheapest real estate was found in the Middle East, Asian and Latin America. It’s interesting to note that some of the cheapest real estate is found in Asia as well as some of the most expensive.

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