Multifamily Property Market Is on the Mend

Sales of multifamily housing is picking up nationwide, commercial practitioners say.

Buyers believe the sector is a sound bet because current prices are below construction costs in many cases and rental business is improving. Plus, there has been little additional development in the past couple of years and some industry analysts believe that shortly there will be a shortage in some markets.

Financing for apartment buildings is at a 50-year low, with seven- to 10-year mortgages available for as little as 4 percent.

The sector could face some pain. Yields are about 5 percent while a year ago investors were getting close to 6 percent with about a quarter of the transactions involving distressed sellers.

Source: The Wall Street Journal, Dawn Wotapka (09/22/2010)

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Are Cramdowns the Answer to Underwater Properties?

The rising number of home repossessions could encourage Congress to pass cramdown legislation, something lenders fought vigorously and prevailed against when bankruptcy laws were reformed.

But the cramdown concept has been working successfully in Chapter 12 of the bankruptcy code, which affects farmland.

Cramdowns, or more properly “bifurcation,” divide the value of the debt between that which reflects the current appraised value of the property and that which is now unsecured because the underlying value has declined. The borrower is required to pay the secured portion of the loan and the remainder is treated as unsecured debt – and generally forgiven.

Economists for the Federal Reserve Bank of Cleveland wrote in a research paper that is getting a lot of attention that the negative effect of cramdowns in agricultural lending has been minor. Cramdowns succeed in keeping farmers on their properties and banks get what they would have gotten if they had foreclosed.

Source: Universal Syndicate: Lew Sichelman (09/19/2010)

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Fannie, Freddie in the Home-Selling Business

Fannie Mae and Freddie Mac repossessed more than 191,000 homes during the first six months of 2010, twice as many as a year earlier.

The mortgage financiers must act carefully to avoid flooding the market with foreclosures, which tend to depress neighborhood home prices in the process.

As an alternative, Fannie Mae has launched a pilot “lease-and-hold” program in which foreclosures are rented rather than sold; the move could pose challenges, however, as the firm takes on the new role of property manager.

Source: The Wall Street Journal, Nick Timiraos (09/17/10)

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Where Is the Shadow Inventory?

For the last year, the real estate industry has been talking about shadow inventory and the coming flood of distressed properties. Where are they?

Here’s what’s happening, according to a recent paper by Alan Mallach, a senior fellow the Brookings Institution:

· Some delinquencies have been resolved through loan modifications or people working out the problems on their own.
· Banks are getting better at managing short sales.
· Investors are aggressively buying up properties, sometimes in bulk, directly from the banks or at courthouse auctions so they don’t hit the market.

The likeliest outcome, Mallach predicts, is a steady flow of foreclosures over a long timeframe that will prevent another crash in home prices, but will probably lead to low or no appreciation in home prices.

Source: The Wall Street Journal, Nick Timiaros (09/16/2010)

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Number of Price Reductions Rise in Some Cities

Price reductions on properties for sale have increased for the third consecutive month to 26 percent, according to statistics provided by Trulia.com.

While home sellers in some cities cut prices aggressively, those in 24 of the 50 cities tracked by Trulia held steady.

“We’re seeing gradual improvement in many U.S. cities – several for consecutive months,” said Pete Flint, CEO of Trulia. “What this shows us is that while we’re in for a long climb to bring stability back to the housing market and while it’s going to take time, that climb appears to at least be underway in some parts of the country.”

Cities with the highest percentage of price reductions in September were:
1. Minneapolis, 43 percent
2. Milwaukee, 40 percent
3. Phoenix, 39 percent
4. Mesa, Ariz., 37 percent
5. Albuquerque, N.M., 35 percent
6. Memphis, Tenn., 35 percent
7. Boston, 35 percent
8. Tucson, Ariz., 34 percent
9. Baltimore, 34 percent
10. Dallas, 34 percent

Cities with the lowest percentage of price reductions in September:
1. Detroit, 16 percent
2. Miami, 18 percent
3. Oakland, Calif., 19 percent
4. El Paso, Texas, 19 percent
5. San Jose, Calif., 20 percent
6. New York, 20 percent
7. Los Angeles, 22 percent
8. San Antonio, 23 percent
9. Denver, 23 percent
10. Fort Worth, Texas, 23 percent

Source: Trulia.com (09/15/2010)

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Home Buying and Selling Tips for Fall

HGTV’s real estate site Front Door says the weeks between now and the end-of-the year holidays are the best ones to find a bargain. Here are some of their tips for fall buyers and sellers:

Fall Sellers:
· Replace faded summer plants with fall-blooming flowers and add autumn decorations to the home.
· Expect low-ball offers and be prepared with higher counter offers.
· Freshen up listing photos by shooting pictures that make it less obvious that the seasons have changed.
· Price the home to sell. A price that is a little lower than the competition may be a winning move.
· Be willing to show the property and hold open houses whenever potential buyers are ready.

Fall Buyers:
· Look for motivated sellers who have a reason to move on by the end of the year.
· Explore new constructions. Builders are often particularly interested in selling before the new tax year.
· Beware of fall maintenance issues. Consider overflowing gutters and leaf-covered lawns warning signs.
· Shape offers carefully. Even in this market it is possible to turn sellers off with a too-low bid.

Source: FrontDoor.com (09/16/2010)

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CoreLogic Predicts Days On Market Could Double

The majority of the 3.3 million delinquent mortgages will end in foreclosure and that will drive down prices before year-end, CoreLogic analysts said Thursday.

CoreLogic also predicted that the additional inventory of foreclosed homes could double the time to sell from the current 11-month average.

“Given that the tax credit simply pulled demand forward, the distressed share is expected to rise … during the fall, when non-distressed seasonal sales begin to decline,” analysts said.

Source: Reuters News (09/16/2010)

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10 Reasons to Buy a Home

Time magazine is being overly pessimistic in its recent cover piece that called into question the benefits of homeownership. In fact, now is a great time to buy. And, what’s more, tomorrow will be a great time to own, because the fundamental strength of homeownership hasn’t changed.

Why is now a great time to buy? Here are 10 reasons:

1. You can get a good deal. Prices are down 30 percent on average. They’re at a level that makes sense for people’s income.
2. Mortgages are cheap. At 4.3 percent on average for a 30-year fixed-rate mortgage, your costs to own are down by a fifth from two years ago.
3. You can save on taxes. When you add up the deductions for mortgage interest and others, the cost of owning can drop below renting for a comparable place.
4. It’ll be yours. The one benefit to owning that never changes is that you can paint your walls orange if you want (generally speaking; there might be some community restrictions). How many landlords will let you do that?
5. You can get a better home. In some markets, it’s simply the case that the nicest places are for-sale homes and condos.
6. It offers some inflation protection. Historically, appreciation over time outpaces inflation.
7. It’s risk capital. If the economy picks up, you stand to benefit from that, even if you’re goal is just to have a nice place to live.
8. It’s forced savings. A part of your payment each month goes to equity.
9. There is a lot to choose from. There are some 4 million homes available today, about a year’s supply. Now’s the time to find something you like and get it.
10. Sooner or later the market will clear. The U.S. is expected to grow by another 100 million people in 40 years. They have to live somewhere. Demand will eventually outpace supply.

Source: Wall Street Journal, Brett Arends (9/16/10)

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70 Percent Say Buying Now is Good

A survey by Fannie Mae shows that 70 percent of Americans believe it is a good time to buy a home.

That is up from 64 percent in January 2010.

Still, 33 percent–up from 30 percent in January–say they’ll rent next time around.

About 67 percent believe housing is a safe investment, down from 83 percent of people questioned in a similar survey in 2003.

Source: Reuters News (09/16/2010)

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Owners, Practitioners Think Prices Will Fall

About 48 percent of real estate professionals and 33 percent of homeowners believe home prices will decline over the next six months, according to a survey by HomeGain.

Only 10 percent of real estate professionals and 18 percent of homeowners believe home prices will increase in the next six months.

Sellers continue to doubt the accuracy of prices recommended by practitioners, with 79 percent believing that their homes are worth more than professional appraisals.

On the other side of the fence, 69 percent of practitioners say that their home-buying clients think homes for sale are overpriced.

Source: Real Estate Economy Watch, Steve Cook (09/21/2010)

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