June 2011

Time to buy a home? Now, says Barbara Corcoran

By | Jun 27, 2011

“What you have here are the good old days that we were all talking about for 20 years,” says real estate magnate Barbara Corcoran. “You have cheap money, 4.5 percent for a fixed-rate mortgage, and you have prices that are 40% cheaper than they were before.” Corcoran told MoneyWatch that the residential real estate market looks very attractive right now, but potential buyers are too pessimistic to take advantage.

A combination of pessimistic housing figures, the expiration of the home-buyer tax credit, and difficultly of securing credit have weighed on the market and consumer confidence, says CBS economic correspondent Rebecca Jarvis. According to the National Association of Realtors, there is a glut of housing: 3.72 millions houses are on the market, and that doesn’t include the “shadow inventory” of foreclosed homes that haven’t hit the market.

Corcoran, who parlayed s $1,000 loan into a $5 billion real estate business, says that we tend to focus on the bad news, while ignoring signs of recovery. “What happens in neighborhoods is that negative news grabs a headline, but nobody is talking about the 20 percent of the market that, despite all odds, is turning around and appreciated in price.”

To find a neighborhood on the verge of recovery, Corcoran says, pay attention to the little offbeat things that will give you an edge over the other buyers.

  • Less bad news:“You can take a drive and see if there are fewer than three foreclosure signs within a 10 block radius. The minute those foreclosure signs become less, you should be buying.”
  • Shiny subcompacts:“Look for brand-new cheap cars. Because if you see them on the street, young people are moving in.”
  • Overachievers: “If SAT scores are going up in any local area, you can bet your bottom dollar that prices are starting to go up as well.”

As for advice to potential buyers, Corcoran advises against trying to nail the precise bottom of the market. “Everybody thinks that they’re going to time the market, they’re going to sharpshoot the market, and buy right at the bottom. The truth of the matter is that nobody is good at it. I’ve been in real estate for my whole life, I’ve been trying to sharpshoot the market with my investments, I’m never right. All you need to do is get near the bottom. That’s good enough. What we are in now is near the bottom.”

“A funny thing happens in real estate,” she adds with a grin, “when it comes back, it comes back up like gangbusters.”



More on MoneyWatch

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Hope in the Housing Market?

10 States Where Foreclosures Are On Sale

Families: How to Find a Great Neighborhood


Read more: http://moneywatch.bnet.com/economic-news/blog/moneywatch-editors/time-to-buy-a-home-now-says-barbara-corcoran/290/#ixzz1QbnC7IEj

Freddie Mac: Better Days Ahead in Housing

Freddie Mac’s chief economist is optimistic that the housing market and economy will improve in the second half of 2011.

Freddie Mac Chief Economist Frank Nothaft said mortgage rates will likely remain historical lows of between 4.5 percent and 5 percent for the remainder of the year. Also, he expects more buyers to stop waiting on the sidelines as recent price drops in home prices have improved affordability.

Nothaft said consumers’ uncertainty about the economy has caused them to delay home purchases and other “big-ticket items.”

“Some potential buyers who have the means to buy are awaiting clearer signs that home values have firmed,” Nothaft says.

But Nothaft says they should be getting their signs in the second half of the year, with projected job gains, and a growing, improved economy.

“Even though near-term concerns over income and sales growth are restraining consumer spending, business hiring, and new building, a number of positive signs in the economy indicate that growth will continue and is likely to accelerate in the second half of this year,” Nothaft said. “Look for a gradual improvement in housing activity in the coming year.”

Source: “Freddie Mac Economist Sees Sunny Economy in Second Half,” HousingWire (June 27, 2011)

It’s all happening in the city, eventually

By Tara Tran • Jun 23rd, 2011 • Category: real estate newsflash

California’s big cities are projected to lead the way in the state’s job recovery and the Bay Area is forecasted to be the starting point for the state’s employment resurgence. The Silicon Valley boom is no small part of that push.

However, a bifurcated recovery is expected throughout California. In contrast to the state’s inland and central valleys where the local economy depends more on residential construction and commuting, the Bay Area and other like-minded California coastal hubs are likely to experience more job growth on account of their diversified and technology-driven industries.

Although a job upturn will be slow, economists of the UCLA Anderson Forecast predict employment in California will grow 1.7% in 2011, 2.4% in 2012 and 3.1% in 2013.

first tuesday take: The UCLA Anderson Forecast of employment does not parallel first tuesday’s forecast for the next several years. We believe 2011 will be very weak in job growth through the beginning of 2012. Parts of the nation are getting up to speed, but we are not ready to take off just yet. Much corrective action is needed before we can settle down for any long pleasant recovery. [For a forecast of employment in California and the implications it has for the housing market, see the first tuesday Market Chart, Jobs Move Real Estate.]

The Anderson percentage predictions calculate an addition of 239,328 jobs in 2011. This would bring California’s total employment to 14,317,427 by end of 2011. California presently (as of May 31, 2011) has 14,071,600 paying jobs and we do not see anywhere near an additional 250,000 jobs coming in by the end of 2011 as would be needed to meet the Anderson forecast. But we will see – it would definitely be nice for rental properties.

Anderson forecasts California will have 14,661,045 jobs by end of 2012 and 15,115,538 by end of 2013. One half year more of that kind of job growth and by mid-2014 we will have recovered all the jobs lost since the December 2007 peak of 15,348,200 jobs. first tuesday senses the full recovery in jobs will not come for another two years, in 2016. December 2011 numbers will enlighten all of us as we simply do not now know what consumer confidence numbers will show after a year of this most sluggish recovery.

The Anderson numbers seem high to us, but this volume of job creation in California is not out of the question. February, March and April of 2011 each saw an increase of at least 36,000 jobs. Only at that pace would we would easily attain the Anderson numbers.

California employment trends also forecast changes for demographics since wherever these jobs do appear, people will follow. This job forecast for coastal communities holds weight, especially since California’s job-hungry and mobile-minded Generation Y (Gen-Y) continues to express its preference to live in more intimate, low-maintenance housing closer to their work – essentially a life in the city. It’s only a plus for them as the city is just the place where the more technical jobs they want will be. [For more information on the coming role of Gen-Y in California real estate, see the October 2010 first tuesday article, The demographics forging California’s real estate market: a study of forthcoming trends and opportunities – Part I.]

With employment scarce and the demand for work frantic, expect California’s demographics – led by Gen-Y – to shift significantly from its post-1980 suburban sprawl. Also a word to agents, brokers and investors: anticipate the demand for rentals and multi-family housing condo sales to go up – in the city, that is. [For more information on the growing urbanization trends, see the March 2011 first tuesday article, If you build it downtown, they will come.]

RE: “Bay Area could lead the way for jobs recovery – but it won’t happen right away” from MercuryNews.com


Housing Slowdown? Not in Silicon Valley

Technology stock sales and initial public offerings are making residents in California’s Silicon Valley feel wealthy again as the tech boom days re-emerge, and they are using the new-found wealth to cash in on real estate, USA Today reports.

Home values are quickly rising. For example, in Palo Alto, where Facebook is based, the median price of single-family homes increased 20 percent in May from a year earlier to $1.63 million. That marks the largest jump there since 2008.

Meanwhile, in Mountain View, LinkedIn’s headquarters, home prices have continued to rise the past year, increasing 3.1 percent in May alone to $957,500.

“I suspect we’ll see an explosion in the next couple years,” says Kenneth Rosen, an economist at the University of California-Berkeley. “You’ve got young people with real money, and it’s not surprising they want to have a house.”

The biggest gains in the real estate market have been in the San Jose area and in million-dollar areas. In these places, traffic at home showings have tripled, home prices are edging up from multiple bid situations, and younger buyers in their mid-30s seem to be generating the most traffic in recent weeks, according to reports.

“The market seems to be returning to the crazy days, and the question is whether or not it is a false recovery or a sustained recovery,” says Sean Scott, a buyer looking for properties million-dollar properties in Palo Alto. “I suspect that it is a sustained recovery, given the planned liquidity events with social-networking companies.”

Is Washington, D.C. Next?

Reports of bidding wars on homes is also occurring in Washington, D.C. Real estate agents there are reporting that properties priced slightly under the market, in good condition, or that show strong renovation potential are seeing the most bidding wars.

However, “we’re not seeing crazy-high bids,” says Fred Kendrick, a real estate professional with TTR Sotheby’s International Realty in Georgetown. “It’s difficult for people to go much over the asking price because of the lack of financing. . . . In the old market, everything appraised. Today, the question is: How much over the price can you go before you run into problems with the lender?”

Some Washington, D.C., real estate professionals report that the bids compared to housing’s peak are much more conservative with two to four bidders and ranging from $5,000 to $20,000 over the sales price.

Source: “Silicon Valley Housing Market Is Heating Up Fast,” USA Today (June 24, 2011) and “Real Estate Bidding Wars Are Back in Parts of D.C. Area,” The Washington Post (June 24, 2011)

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Tight Credit Continues to Shut Buyers Out

With the tightening of credit over the last few years by banks, more potential buyers find they are being shut out of home ownership, unable to obtain financing for their home purchase. And it’s not just buyers with poor credit histories being rejected for home loans–some buyers are even coming with stellar credit scores and big down payments, experts say.

For example, Amy Menell told The Wall Street Journal how a bank denied her for a home loan, despite her credit score being above 800, no debt, and having a down payment of more than 50 percent of the cost of the $400,000 home. However, Menell, who was in the process of finalizing a divorce, works as a real estate agent and didn’t have much income in 2009. While her business has picked up since then, she did not have the two years of documented income the banks wanted to process her loan application.

Other qualified buyers coming with good credit scores and credit histories are also finding themselves unable to get a home loan. Those who are having the toughest time are those who have seen their incomes drop or interrupted by a time of unemployment and self-employed applicants.

The percentage of mortgage applications rejected by the nation’s largest lenders increased last year: The country’s 10 largest mortgage lenders denied 26.8 percent of loan applications in 2010, which is up from 23.5 percent in 2009, according to an analysis by The Wall Street Journal.

The analysis showed denial rates for loans were highest in Miami, Detroit, and New Orleans. In Miami, for example, nearly 44 percent of home loan applications were denied last year (home prices in Miami have dropped by 50 percent since their 2006 peak), according to The Wall Street Journal. Lenders denied the fewest loans in Raleigh, N.C.; Bethesda, Md.; and San Jose, Calif.

An Ease in Sight?

Banks continue to be under pressure to avoid heavy losses, which fueled the tightened standards in the first place.

“Clearly we got too loose. This is a return to historical standards,” says Doug Duncan, Fannie’s chief economist.

Lenders don’t appear to have plans to ease credit soon either. Nearly four in 10 banks reported even tighter mortgage lending standards for the 12-month period ended in February, according to a survey by the Office of the Comptroller of the Currency. Only 8 percent of the banks surveyed said they had eased their credit standards.

Study Reveals Fastest Growing Real Estate Clients

Minorities and immigrants will drive growth in housing demand in coming years, a new study reveals. Within the next 15 years, researchers say they expect this population segment to drive demand for condominiums, smaller starter homes, and first trade-up homes.

Also, this growing demographic is expected to represent a rapidly growing segment of the middle and middle-upper markets for housing, finds a new report, “The State of Hispanic Homeownership,” by the National Association of Hispanic Real Estate Professionals.

“The Latin boom has been forecasted for years but we are now seeing the front edge of it and it has the potential to help the nation’s housing system get back on track if we can create a safe credit environment for new buyers to get into the market,” says Carmen Mercado, NAHREP president.

Hispanics make up the largest minority group in the country and represent a significant portion of the 26 to 46 age group most involved in home sales.

Plus, Hispanics tend to value home ownership more than other demographics. For example, according to a recent study, 57 percent of Hispanics say they consider owning a home a symbol of success compared to 33 percent of all Americans.

Source: “NAHREP Report: Latinos, First-time Homebuyers Are Key to Housing Recovery,” RISMedia (June 20, 2011)

Libya, Europe and the future of NATO

Always waiting for the US cavalry

Jun 10th 2011, 15:58 by The Economist | BRUSSELS


It LOOKED, for a moment, like a return to the days of European interventionism. For the first time since Suez, Britain and France led an intervention in the Middle East. And unlike the disaster in Egypt in 1956, the action in Libya of 2011 was supported by America and by part of the Arab world too.

America was visibly reluctant to get involved, let alone lead the action. And, having helped to knock out Libya’s air defences and conduct some of the initial air-to-ground strikes, it pulled back from the front-line operations. But America’s role remains essential, not least in providing air-to-air refuelling, as well as intelligence and reconnaissance for the European allies.

The war in Libya, far from heralding a new era of European activism, has once again highlighted the limits of Europe’s military power, as Robert Gates pointed out today in his valedictory speech in Brussels. He is not the first American defence secretary to complain about low, often declining, defence spending in Europe (The Economist recently ran an interesting chart). Nor is it the first time Mr Gates himself has bemoaned the weakness of European allies. Last year he said the “pacification” of Europe, at first a great achievement, had gone too far and posed a threat to Western security. But his comments today were delivered with the sharpness of a man who knows he is at the end of his career and no longer needs to beg for favours. The speech is worth reading in full. But here is one passage that should make Europeans cringe.

To be sure, at the outset, the NATO Libya mission did meet its initial military objectives – grounding Qaddafi’s air force and degrading his ability to wage offensive war against his own citizens. And while the operation has exposed some shortcomings caused by underfunding, it has also shown the potential of NATO, with an operation where Europeans are taking the lead with American support. However, while every alliance member voted for Libya mission, less than half have participated at all, and fewer than a third have been willing to participate in the strike mission. Frankly, many of those allies sitting on the sidelines do so not because they do not want to participate, but simply because they can’t. The military capabilities simply aren’t there.

In particular, intelligence, surveillance, and reconnaissance assets are lacking that would allow more allies to be involved and make an impact. The most advanced fighter aircraft are little use if allies do not have the means to identify, process, and strike targets as part of an integrated campaign. To run the air campaign, the NATO air operations centre in Italy required a major augmentation of targeting specialists, mainly from the US, to do the job – a “just in time” infusion of personnel that may not always be available in future contingencies. We have the spectacle of an air operations centre designed to handle more than 300 sorties a day struggling to launch about 150. Furthermore, the mightiest military alliance in history is only 11 weeks into an operation against a poorly armed regime in a sparsely populated country – yet many allies are beginning to run short of munitions, requiring the US, once more, to make up the difference.

As well as a paucity of European military resources, NATO faces two other dangers, Mr Gates said. One is the passing of his generation of American leaders, like himself, for whom the security of Europe was the over-riding pre-occupation of their careers. The second is that America, itself under pressure to cut defence spending to curb high deficits and debt, might soon give up on Europe: if the European taxpayers do not want to pay to preserve their own security, why should Americans shoulder the burden? Only five of the 28 NATO allies meet NATO’s recommendation that countries should spend at least 2% of GDP on defence: America, Britain, France, Greece and Albania. Today America’s key security interests are in the Middle East and in Asia. Europe will be the obvious place for America to cut expensive overseas commitments.

Europe has more soldiers than America, but can deploy far fewer of them on overseas operations. This is partly the result of history: in the cold war European armies were built to hold the line in Europe, while awaiting reinforcement by American forces which, by definition, had to be designed for expeditionary warfare. Another is that “Europe” is not a sovereign state, but a collection of small- and medium-sized countries. Its considerable defence spending is hoplessly fragmented among a multitude of armies, air forces and navies.

Specialisation, pooling and sharing equipment is the obvious way forward. Defence experts across Europe have known this for a long time and, here and there, countries have embarked on some important experiments. A recent paper by the Centre for European Reform, and think-tank in London, makes some sensible recommendations ( PDF). But what is rational in terms of defence accounting too often falls foul of political and operational reality. Many smaller countries have little interest in international commitments. And the bigger states that still retain some kind of global vision, like Britain and France, do not want to be dependent on smaller states for their military capability.

Poland, which takes over the presidency of the European Union next month, plans to make a renewed attempt to boost European defence co-operation. It is also pushing for a bigger EU autonomous military headquarters, though the need for this is unclear, given that even the NATO air operations centre had to be reinforced by American experts, as Mr Gates noted acidly. Moreover, Poland is among those countries singled out by Mr Gates for failing to do enough in Libya.

That said, Mr Gates did pick out some allies for praise in carrying out a disproportionate share of the bombing campaign in Libya: Norway, Denmark, Belgium and Canada. Why have they stepped forward when so many have not? Perhaps, suggests one American officials, it is because the action in Libya is seen by them not as an act of big-power bullying, or as part of an endless and ill-defined “war on terrorism”, but as a humanitarian action: the first test of the UN’s new doctrine of “responsibility to protect”. It is not just the fate of Libyans that is in the balance in the war against Muammar Qaddafi, but the commitment of Europeans to maintain – and, when necessary, deploy – serious military forces. Responsibility to protect requires, first and foremost, the means to protect.

(Photo credit: AFP)

Cash Buyers Continue to Dominate

For the fifth-straight month, cash buyers accounted for at least 30 percent of existing-home sales, the National Association of REALTORS® reported this week.

In May, all-cash buyers made up 30 percent of existing home sales, which compares to 25 percent in May 2010 and 12 percent two years ago, according to NAR.

Low prices from foreclosures are tempting cash buyers–who are mostly investors–and prompting them to snag deals. They’re turning many of their housing purchases into rentals and immediately finding quick profits, housing experts say.

“These are people who’re … getting back into the market because they see good value,” says Stan Humphries, Zillow chief economist.

Cash buyers tend to dominate in cities where home prices have fallen the most and foreclosures are the most prevalent. For example, in Miami-Fort Lauderdale, 63 percent of first-quarter buyers paid in cash and in Las Vegas, which consistently boasts the highest foreclosure rate, cash buyers made up nearly 50 percent of first-quarter sales, according to Zillow.com.

Without cash buyers, “we would be in much worse shape than we are,” says Jim Gillespie, CEO of Coldwell Banker Real Estate. “They recognize that this is the smartest time to buy.” Home prices are 33 percent below the peak reached in 2006.

Source: “Cash Buyers Scooping Up Homes,” USA Today (June 22, 2011)

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ARMs Stage a Comeback

More home buyers are being tempted again by the ultra-low rates of adjustable-rate mortgages, which have fallen to the 3 percent range. ARMs were once blamed as a contributor in sending the housing market from boom to gloom.

In the first quarter of this year, about 12 percent of the $325 billion in new mortgages made were ARMs. In the fourth quarter last year, ARMs made up 9 percent of new mortgages, reports the newsletter Inside Mortgage Finance. During the housing boom, ARMs made up 45 percent of mortgages issued in 2006.

However, near the end of housing’s heyday, many ARMs began to reset to higher rates and borrowers began to default in floods. Experts say that many borrowers who had ARMs did not fully understand the terms of their loan, causing the public to become more skittish of the adjustable-rate mortgages and their use has drop over recent years.

But ARMs are starting to gain more traction again in financing home purchases. Hybrid ARMs are catching on, in which there’s a period of three or five years where the interest rate is fixed before resetting. Experts say those tend to be good choices if you plan to sell your home in that period because you can take advantage of the low interest rates.

“If you know you will sell the home within five years, then it’s a no-brainer,” says Rick Cason, owner of Integrity Mortgage in Orlando, Fla. “But most people are unsure about what the future holds for themselves or the housing market.”

Source: “Borrowers Wade Back into Adjustable-Rate Mortgages,” The New York Times (June 21, 2011)

Happy Graduation! Here’s Your New Home

In the last year, more parents have been shopping for apartments or condos to give to their children, real estate brokers report. These parents are wanting to take advantage of the dropping real estate prices and low interest rates while also viewing the purchase as an investment, brokers say.

In New York, these lavish real estate gifts many which serve as graduation presents are often studios or small one-bedroom apartments.

“The parents see it as a long-term investment and a good place to park their money,” Barry Silverman, an executive vice president of Halstead Property, told The New York Times.

As for how the “gift” of real estate is structured, some parents buy it as a gift for their children and take advantage of tax gift exclusions, others buy it as an investment property and retain ownership, and some are buying it through a family trust or joint ownership. In some cases, the parents don’t even live in the city but are buying the apartment for themselves so when the child decides to move on, they can move in.

Richard Koenigsberg, a certified public accountant, says it’s a good time to be purchasing property as a gift because of some tax exclusions on gifts.

“We are in a remarkable period of time at the moment,” Koenigsberg says. The tax exclusion on gifts and estates has increased to $5 million from $1 million until the end of 2012. In other words, a parent can give a child as much as $5 million tax free.

“It’s a big opportunity for parents who might want to help their children,” Koenigsberg says.

Source: “The Gift Apartment From Mom and Dad,” The New York Times (June 17, 2011)

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