Investors Bank on Rentals and Abandon Flipping
Investors are renting out about half of the homes they purchase instead of renovating or flipping the properties, according to a new survey.
The latest Campbell/Inside Mortgage Finance HousingPulse Tracking Survey, which surveyed about 2,500 real estate professionals, found that investors are struggling to resell properties so they are leaning toward renting the homes out instead. The survey estimated that investors will rent out nearly 50 percent of the properties they acquired in July. In July 2010, investors would have rented out only 28 percent of their properties.
The survey also found:
More first-time home buyers are emerging: The survey found that first-time home buyers increased to 36.9 percent in July compared to 35.4 percent the prior month.
Many real estate professionals says that Congress’ debate over the U.S. debt ceiling negatively impacted home buyer activity in July. The debate made many buyers uneasy about purchasing due to economic concerns, survey respondents reported.
Source: “Investors Who Can’t Resell, Rent,” RISMedia (Aug. 23, 2011)
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Investors Sue BofA, Citing Misrepresentations
Bank of America is being sued by investors who want the bank to buy back mortgage loans or pay damages, accusing Countrywide–which Bank of America now owns–of making several misrepresentations about its mortgage loans.
The lawsuit is among the first by investors seeking to force a major bank to buy back loans packaged into securities, Reuters News reports. The lawsuit was filed in the New York supreme court in Manhattan.
Eleven companies say they are suing on behalf of a trust that owned 6,531 loans, in which they hold more than 25 percent of the certificate balances, according to the complaint filed in court.
The companies accuse Countrywide of making false representations on about 1,432, or nearly 66 percent, of the 2,166 mortgage loans they investigated, Reuters News reports.
“This complaint is completely meritless and suffers from numerous procedural and substantive defects,” Bank of America spokesman Jerry Dubrowski told Reuters News. “This appears to be a group of sophisticated investors looking to blame someone for investment losses incurred during a period of economic downturn.”
In recent months, Bank of America has faced several lawsuits tied to Countrywide, once the nation’s largest lender.
Source: “Investors Sue BofA, Seek Countrywide Loan Buyback,” Reuters News (Feb. 23, 2011)
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Vulture Investors Eye New York
The prospect that the Federal Reserve will push interest rates even lower has hungry vulture investors circling New York. “Everybody is still hoping the bottom will fall out,” Peter Duncan, CEO of George Comfort & Sons Inc., said Thursday at a real estate briefing sponsored by Bloomberg.
While U.S. commercial property prices hit the lowest level in eight years in August, according to Moody’s Investors Service, other observers don’t believe prices will fall any further because lenders are loosening lending.
“Without leverage real estate is just another mediocre asset class,” said Stephen Meringoff, a managing partner at Himmel & Meringoff Properties in New York.
Source: Bloomberg (11/04/2010)
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Bank of America Urges Funding for Investors
Analysts from Bank of America have proposed that instead of further funding TARP to help distressed home owners hold onto their properties that the money go to property management companies, which would turn the properties into rentals.
In a recent research paper, Bank of America analysts suggested that the government spend as much as $400 billion to encourage property management companies to buy properties and rent them out, bringing the homeownership level to “a more natural level of 62 percent to 64 percent” from its current 67 percent. The investors would be prevented from reselling the properties quickly.
Source: The Wall Street Journal, Emily Peck (09/27/2010)
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Commercial Real Estate Yields Spur Investors
Yields on U.S. commercial real estate are nearing a record high compared to Treasury bonds. Many investors take that as a signal to buy property.
Capitalization rates, a measure of real estate yields, averaged 7.22 percent in the second quarter, as calculated by the National Council of Real Estate Investment Fiduciaries. That was 4.29 percentage points higher than the yield on 10-year government bonds as of June 30 and 4.75 percentage points higher than Treasury yields as of Aug. 31.
These returns are near the record 5.39 percentage points in the first quarter of 2009, when the U.S. was dealing with the worst economic downturn since the Great Depression. The spread shrank to less than 80 basis points when commercial real estate prices peaked in 2007.
“The data indicate that real estate is poised for a rebound,” says Gerardo Lietz, who advises pension funds on property investments.
Source: Bloomberg, Hui-yong Yu (09/01/2010)
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Investors Turn to Flipping for Quick Profits
Private equity firms and other groups of wealthy people are purchasing foreclosures at distressed prices, rehabbing them, and selling them for a quick profit.
This used to be a game for amateurs, but because of the lack of other investment opportunities, the money-management pros have stepped in.
The influx of new players is pushing up auction prices and making it harder to make a profit. The average discount at auctions — the difference between a home’s sale price and its actual value — is 21.6 percent, down from 28 percent in January 2009, according to ForeclosureRadar.
“In crisis there’s opportunity,” says Rick Hudson, president of investment firm Prosperity Group Real Estate in Irvine, Calif. “Right now there’s huge opportunity with flipping houses.”
Source: Los Angeles Times, Walter Hamilton and Alejandro Lazo (08/20/2010)
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Three Reasons to Buy a Home Now
Stocks are up 50 percent from the March 2009 bottom. Some commodities have risen dramatically. The only asset class left in the cellar is real estate, says Michael Murphy, editor of the New World Investor stock newsletter.
As a result, Murphy is advising investors to buy now for these three reasons:
• Desperate sellers: Both home owners and lenders are eager to unload a flood of foreclosed and underwater properties. Buyers with the patience to push through these complex deals can save a bundle.
• Little competition. Because most people don’t have what it takes to negotiate their way through short sales and REOs, patient investors are winners.
• Low rates. Mortgage rates are at their lowest level in 40 years. If you believe inflation is inevitable, lock in now.
Source: MarketWatch, Michael Murphy (08/19/2010)
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Investors to Pick Up Slack in Mortgage Backs
The Federal Reserve ends its purchase of mortgage securities this week and private investors are expected to step in.
The change probably won’t push mortgage rates up very much. Analysts expect they will rise less than a quarter of a percentage point in the next three months. That gain would increase a monthly payment on a $250,000 mortgage by $30.
In a statement released March 12, Freddie Mac predicted that mortgage rates would average 5.2 percent on a 30-year fixed loan after the Fed stops buying. Fannie Mae put the rate slightly higher at 5.13 percent.
Source: Bloomberg, Kathleen M. Howley (03/30/2010)
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Retail Investors to Enter Market in 2010
Jones Lang LaSalle’s 2010 Retail Outlook projects retail transactions and sales volumes to increase as customer demand starts to gradually recover.
In the new year, investors looking to take advantage of low acquisition prices are likely to find some of the biggest value in Class A trophy shopping malls.
Kris Cooper, managing director in the retail investment sales practice, remarks, “The continued lack of liquidity in the debt markets has contributed to pent-up demand, and we expect opportunistic investors to cautiously re-enter the market in early 2010. We’re just now seeing lenders’ willingness to lend to strong sponsors open up, but those lending offers are at far more conservative levels than we’ve seen in the past.”
Because of pending debt maturities and the need for capital, highly leveraged institutional investors are expected to hold on to properties unless forced to dispose of them. Cooper concludes, “Buyers will probably stick around for the next six to nine months before seeking better opportunities. We are also seeing significant interest from international buyers who feel now is the time to re-enter the U.S. market.”
Source: GlobeSt.com, Katie Hinderer (12/13/09)
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Investors Seek $1.4 Billion Under TALF CMBS Program.
NEW YORK -(Dow Jones)- Investors applied for $1.4 billion in loans from the Federal Reserve to buy existing commercial mortgage-backed bonds.
One market participant said there has been a flurry of bid lists put out by money managers to match the tremendous demand from investors to buy eligible securities.
This demand also helped improve spread levels on the derivative index that tracks commercial mortgages. The closely watched Markit CMBX AAA 5 was about 10 basis points tighter Thursday at 333.
This is the fourth round of such cheap loans offered by the central bank to investors under its Term Asset-Backed Securities Loan Facility, or TALF. The program allows for the purchase of existing securities and new securities. Thus far, no new securities have been sold under the program, while the Fed has settled $2.143 billion of loans.
The Fed’s program is aimed at reviving the struggling commercial real estate market, which has been hurt by the economic downturn and the hesitation among banks to take on large commercial real estate loans.
The market continues to be in turmoil as delinquent loans rise, and maturing loans find it difficult to refinance.
To bring essential funding to this market, the Fed extended the TALF program to June 30, 2010, for newly issued CMBS and to March 31, 2010, for all other TALF-eligible bonds. The program was initially set to expire at the end of this year.
The Fed, however, is particular about the type of collateral for which loans for CMBS will be extended. Under current rules, the existing CMBS must have top- notch triple-A ratings from at least two rating agencies out of five rating firms selected by the Fed. If they are rated by any other firm, the CMBS must carry the top ratings from them as well. They cannot even be on watch for downgrade from any of the other rating agencies.
The next loan application deadline for CMBS is Oct. 21.
-By Prabha Natarajan,
Dow Jones Newswires
Copyright (c) 2009 Dow Jones & Company, Inc.
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The real story.
CNNMoney: Credit 2008: Year of the freeze
If the story of 2008 was the government’s unprecedented multi-trillion dollar bailouts of the financial sector, then the credit market was the story behind the story.
The issue of credit moved to the forefront in the past year, as the typically benign market exploded into crisis-mode, and nervous investors bought up historical amounts of safe government debt. It was a year of violent changes in borrowing rates and lending behavior, guided by countless government programs aimed at easing credit for corporate America, banks and consumers.
The so-called credit crunch began after the subprime meltdown of late 2007. High-risk loans on banks’ balance sheets became almost worthless, and as banks were forced to take large writedowns on these so-called “toxic assets,” they became less likely to lend, unwilling to take on more risk.
For much of the year, financial institutions were in a quandary. They had difficulty acquiring loans and at the same time resisted issuing loans. The credit crunch made everything from financing payrolls to getting car, student and home loans difficult for businesses and borrowers.
Then, after the credit situation started to improve somewhat in the summer, Lehman Brothers’ epic collapse on Sept. 15 marked a stunning turning point in the financial markets from which Wall Street is still recovering.
Within two days, overnight Libor, a key interbank lending rate, soared to an 8-month high of 3.06%. Within a week, the market for commercial paper, a key form of business lending, had shrunk to a 2-1/2 year low of $1.7 trillion. And within 10-days, two key measures of risk sentiment – the Libor-OIS spread and the TED spread – were at all-time highs.
However, as the year comes to a close, there are signs that the credit environment has been slowly improving.
Borrowing rates fell from historical highs to all-time lows: the 3-month Libor has dropped from a 2008 high of 4.82% to 1.42% on Dec. 31. And the overnight Libor rate has plunged from an all-time high of 6.88% on Sept. 30 to 0.14% at the end of the year – just 0.03 percentage points higher than the all-time low set a week ago.
Meanwhile, the “TED spread,” a measure of banks’ willingness to lend, slipped to 1.34 percentage points Wednesday – below where the measure stood just before Lehman’s collapse.
But most economists believe it’s still a long road to recovery. Though many of the bailouts have reduced borrowing and costs, all the lending facilities and liquidity programs in the world won’t encourage private lending on their own. Many have said the Fed can only push on a string.
Alan Greenspan, the former Fed chief, has said that we will know the credit markets have returned to normal when the Libor-OIS spread returns to just a hair above the anticipated Fed funds rate. That will show that banks are confident about the market conditions and have resumed normal lending practices. Libor-OIS was less than 0.8 percentage points before Lehman collapsed. It reached a record high of 3.64 percentage points on Oct. 10, and sits at 1.24 today. So according to Greenspan, we’re a little more than halfway to recovery.