Thomas Hoenig, president of the Federal Reserve Bank of Kansas City, and Richard Fisher, head of the Federal Reserve Bank of Dallas, indicated that although economic growth is cooling, more stimulus is not necessary. Hoenig also reiterated his stance that the Fed should increase its key interest rate to 1% to keep inflation at bay and counter the threat of asset-price bubbles. Meanwhile, Fisher said additional asset purchases by the Fed are not needed.
Bloomberg
Yes Mr Hoenig, it is time for the Fed to stop buying financial assets and to start buying real assets... try real property so that the Dollar is backed by something in addition to gold.
Showing posts with label real estate. Show all posts
Showing posts with label real estate. Show all posts
Thursday, July 8, 2010
Fed worries about economic slowdown, considers taking a stimulus role
The U.S. Federal Reserve is considering taking a stronger role in boosting economic growth, with Congress deadlocked on how to cope with a troubling slowdown. Options being weighed include buying more mortgage securities and cutting interest paid to banks that are putting funds on deposit with the central bank from 0.25% to zero, giving financial institutions more incentive to loan.
The Washington Post.
As usual the Federal Government is culpablly and dangerously late in diagnosing the problem. Of course banks are not lending to the public.
They would be sued for imprudent business practises by shareholder activists. After all, it is the height of managerial irresponsibility to make loans to risky borrowers when a risk free, high profit margin alternative borrower - The US Treasury - is panting at the door.
No, Mr Geithner, any first year MBA student will identify correctly that the problem is NOT the interest rate paid to banks, it is the very incentive to replace bad mortgage assets with pristine capital so regulatory capital levels are acceptable.
Until the real problem, which is the continual drop in value of the real estate collateral that is the bulk of assets of lending institutions is addressed this kind of Govertnment meddling will make the problem worse and worse.
The Washington Post.
As usual the Federal Government is culpablly and dangerously late in diagnosing the problem. Of course banks are not lending to the public.
They would be sued for imprudent business practises by shareholder activists. After all, it is the height of managerial irresponsibility to make loans to risky borrowers when a risk free, high profit margin alternative borrower - The US Treasury - is panting at the door.
No, Mr Geithner, any first year MBA student will identify correctly that the problem is NOT the interest rate paid to banks, it is the very incentive to replace bad mortgage assets with pristine capital so regulatory capital levels are acceptable.
Until the real problem, which is the continual drop in value of the real estate collateral that is the bulk of assets of lending institutions is addressed this kind of Govertnment meddling will make the problem worse and worse.
Thursday, June 24, 2010
US home forfeitures
This page is about distressed sales of homes. Its a little dry but is vital reading for all.
The main questions are whether the backlog is being cleared and whether distressed sales are affecting prices.
Thank you Clear on Money.
http://www.clearonmoney.com/dw/doku.php?id=public:us_home_forfeitures
Summary
23 Jun 2010.
The underlying trend in US distressed home sales has been upward for about a year. Despite some ambiguity and incompleteness in the seven available data series, it is clear that the upward trend remains intact.
House prices are inversely related to the fraction of all sales that is distressed, where bank sales and short sales constitute the distressed category. The rate of change in house prices is inversely related to the inventory of existing homes, measured in months of supply. Both of these measures now suggest falling prices.
The main questions are whether the backlog is being cleared and whether distressed sales are affecting prices.
Thank you Clear on Money.
http://www.clearonmoney.com/dw/doku.php?id=public:us_home_forfeitures
Summary
23 Jun 2010.
The underlying trend in US distressed home sales has been upward for about a year. Despite some ambiguity and incompleteness in the seven available data series, it is clear that the upward trend remains intact.
House prices are inversely related to the fraction of all sales that is distressed, where bank sales and short sales constitute the distressed category. The rate of change in house prices is inversely related to the inventory of existing homes, measured in months of supply. Both of these measures now suggest falling prices.
Tuesday, May 26, 2009
Home Prices Continue Downward March
REAL ESTATE MAY 26, 2009, 10:01 A.M. ET
By KERRY E. GRACE and KEVIN KINGSBURY
U.S. home prices continued their multiyear tumble in March, according to the S&P Case-Shiller home-price indexes, as the downdraft shows no near-term signs of abating.
For the first quarter, the S&P/Case-Shiller U.S. National Home Price Index posted a 19.1% drop from a year earlier, the biggest quarterly decline for the reading's 21-year history. S&P Case-Shiller releases 10-city and 20-city indexes every month, but also releases a broader national index every quarter.
Separately, the monthly numbers showed 15 of 20 major metropolitan areas posted price declines of more than 10% from a year earlier, with the Sun Belt continuing to be hit hardest. Nationally, home prices are at levels similar to the fourth quarter of 2002.
David M. Blitzer, chairman of S&P's index committee, noted that March was only the second time since October 2007 that both the 10- and 20-city index didn't report record annual price declines.
More
Sortable Chart: Home Prices, by Metro Area Developments: How to Invest in Foreclosures Econ Newsletter: Click here to sign up Still, three of the 20 metro areas reported record monthly declines: Minneapolis, Detroit and New York. Minneapolis had a 6.1% drop just in March, the biggest-ever monthly decline measured by the index.
The indexes showed prices in 10 major metropolitan areas fell 18.6% in March from a year earlier and 2.1% from February. In 20 major metropolitan areas, home prices dropped 18.7% from the prior year and 2.2% from February.
Two regions reported a slight price increase in March from a month earlier: Charlotte and Denver. A third, Dallas, was flat. Also, nine of the 20 areas reported better month-to-month results in March than February.
For the 12th straight month, no region was able to avoid a year-over-year decline. Phoenix and Las Vegas were again the worst performers, with drops of 36% and 31%, respectively. Phoenix is down 53% from its peak in June 2006. Dallas has been the least hurt, down 11% from its June 2007 peak.
Write to Kerry E. Grace at kerry.grace@dowjones.com and Kevin Kingsbury at kevin.kingsbury@dowjones.com
By KERRY E. GRACE and KEVIN KINGSBURY
U.S. home prices continued their multiyear tumble in March, according to the S&P Case-Shiller home-price indexes, as the downdraft shows no near-term signs of abating.
For the first quarter, the S&P/Case-Shiller U.S. National Home Price Index posted a 19.1% drop from a year earlier, the biggest quarterly decline for the reading's 21-year history. S&P Case-Shiller releases 10-city and 20-city indexes every month, but also releases a broader national index every quarter.
Separately, the monthly numbers showed 15 of 20 major metropolitan areas posted price declines of more than 10% from a year earlier, with the Sun Belt continuing to be hit hardest. Nationally, home prices are at levels similar to the fourth quarter of 2002.
David M. Blitzer, chairman of S&P's index committee, noted that March was only the second time since October 2007 that both the 10- and 20-city index didn't report record annual price declines.
More
Sortable Chart: Home Prices, by Metro Area Developments: How to Invest in Foreclosures Econ Newsletter: Click here to sign up Still, three of the 20 metro areas reported record monthly declines: Minneapolis, Detroit and New York. Minneapolis had a 6.1% drop just in March, the biggest-ever monthly decline measured by the index.
The indexes showed prices in 10 major metropolitan areas fell 18.6% in March from a year earlier and 2.1% from February. In 20 major metropolitan areas, home prices dropped 18.7% from the prior year and 2.2% from February.
Two regions reported a slight price increase in March from a month earlier: Charlotte and Denver. A third, Dallas, was flat. Also, nine of the 20 areas reported better month-to-month results in March than February.
For the 12th straight month, no region was able to avoid a year-over-year decline. Phoenix and Las Vegas were again the worst performers, with drops of 36% and 31%, respectively. Phoenix is down 53% from its peak in June 2006. Dallas has been the least hurt, down 11% from its June 2007 peak.
Write to Kerry E. Grace at kerry.grace@dowjones.com and Kevin Kingsbury at kevin.kingsbury@dowjones.com
Friday, May 8, 2009
The Great Re-Leveraging
It's time to buy.
Over the last 30 days, a new wave of liquidity has hit Wall Street. Real estate companies are suddenly able to raise new equity at attractive prices. And big banks, which the government says need billions in additional capital, have seen their share prices rally substantially - a sign that plenty of money is now available. That clearly shows the government's efforts to stimulate the economy and provide more liquidity to the market is now working.
Over the last 30 days, a new wave of liquidity has hit Wall Street. Real estate companies are suddenly able to raise new equity at attractive prices. And big banks, which the government says need billions in additional capital, have seen their share prices rally substantially - a sign that plenty of money is now available. That clearly shows the government's efforts to stimulate the economy and provide more liquidity to the market is now working.
Stress Test and MetLife, an odd reult
So much for my MetLife short... It's among the six institutions the stress-test results indicate won't need to raise new capital.
Why MetLife rallied is beyond me. It's holding more than $30 billion in commercial real estate exposure – half of all its loans are commercial real estate.
Commercial real estate deals are defaulting at a rate of more than $200 billion a year. And get this: Subprime, the straw that broke the banking system's back, was about a $1.3 trillion market when it started blowing up. Commercial real estate loans total more than $3.5 trillion and are probably in even worse shape. The worst is yet to come.
I find it difficult to believe MetLife will remain untouched. And by passing the stress test, it'll probably get complacent and not raise the capital it'll need once the commercial deals start becoming OTTI: "other than temporary impairments." That'll take time because nobody wants to sell at current prices, which indicate impairments of 50%-65%. They'd rather hang on as long as possible and be forced into bankruptcy.
On Tuesday, I watched a scary presentation by Igor Lotsvin of Soma Asset Management. Igor says 25% of commercial real estate in Nevada is impaired... and when 25% is impaired, the entire market is impaired.
Why MetLife rallied is beyond me. It's holding more than $30 billion in commercial real estate exposure – half of all its loans are commercial real estate.
Commercial real estate deals are defaulting at a rate of more than $200 billion a year. And get this: Subprime, the straw that broke the banking system's back, was about a $1.3 trillion market when it started blowing up. Commercial real estate loans total more than $3.5 trillion and are probably in even worse shape. The worst is yet to come.
I find it difficult to believe MetLife will remain untouched. And by passing the stress test, it'll probably get complacent and not raise the capital it'll need once the commercial deals start becoming OTTI: "other than temporary impairments." That'll take time because nobody wants to sell at current prices, which indicate impairments of 50%-65%. They'd rather hang on as long as possible and be forced into bankruptcy.
On Tuesday, I watched a scary presentation by Igor Lotsvin of Soma Asset Management. Igor says 25% of commercial real estate in Nevada is impaired... and when 25% is impaired, the entire market is impaired.
Wednesday, May 6, 2009
Banks to lose further $216bil by end 2010
As part of the bank stress tests, the Fed is projecting losses of up to 12% on commercial real estate loans over two years. If the Fed is right, the country's banks, which hold $1.8 trillion of commercial real estate debt, would lose $216 billion by the end of 2010.
The ominous forecast isn't news to Sam Zell, who liquidated his enormous commercial real estate holdings in early 2007. According to Zell, "Very few '03 to '07 financings are above water... You have more debt than you have value." As a result, the market for commercial property is frozen. REITs won't sell a property with negative equity... They'd only have to contribute more equity to cover the loan. So troubled REITs are holding out as long as they can, hoping the government's actions will "reflate" property values and rents, helping them cover ballooning interest payments.
So... we have a race between the government's efforts to reflate the property bubble and the coming maturities of commercial real estate loans. Some of the stronger REITs, like Simon Property Group and Kimco Realty, are raising equity hoping to take advantage of the coming bankruptcy sales.
The ominous forecast isn't news to Sam Zell, who liquidated his enormous commercial real estate holdings in early 2007. According to Zell, "Very few '03 to '07 financings are above water... You have more debt than you have value." As a result, the market for commercial property is frozen. REITs won't sell a property with negative equity... They'd only have to contribute more equity to cover the loan. So troubled REITs are holding out as long as they can, hoping the government's actions will "reflate" property values and rents, helping them cover ballooning interest payments.
So... we have a race between the government's efforts to reflate the property bubble and the coming maturities of commercial real estate loans. Some of the stronger REITs, like Simon Property Group and Kimco Realty, are raising equity hoping to take advantage of the coming bankruptcy sales.
Thursday, April 9, 2009
Banks' "shadow inventory" of housing could destroy the market
Various real estate research firms estimate that banks are sitting on hundreds of thousands of foreclosed homes that they have neither sold nor listed. If these rumors are true, and the banks brought these homes onto market, it would flood an already dismal housing market... causing prices to fall further.
From The San Francisco Chronicle:
Lenders nationwide are sitting on hundreds of thousands of foreclosed homes that they have not resold or listed for sale, according to numerous data sources. And foreclosures, which banks unload at fire-sale prices, are a major factor driving home values down.
"We believe there are in the neighborhood of 600,000 properties nationwide that banks have repossessed but not put on the market," said Rick Sharga, vice president of RealtyTrac, which compiles nationwide statistics on foreclosures. "California probably represents 80,000 of those homes. It could be disastrous if the banks suddenly flooded the market with those distressed properties. You'd have further depreciation and carnage."
From The San Francisco Chronicle:
Lenders nationwide are sitting on hundreds of thousands of foreclosed homes that they have not resold or listed for sale, according to numerous data sources. And foreclosures, which banks unload at fire-sale prices, are a major factor driving home values down.
"We believe there are in the neighborhood of 600,000 properties nationwide that banks have repossessed but not put on the market," said Rick Sharga, vice president of RealtyTrac, which compiles nationwide statistics on foreclosures. "California probably represents 80,000 of those homes. It could be disastrous if the banks suddenly flooded the market with those distressed properties. You'd have further depreciation and carnage."
Friday, April 3, 2009
Commercial meltdown: Companies dumped 25 million square feet
How the commercial real estate meltdown will destroy the insurance industry... Your policies could be at risk.
From Calculated Risk:
Companies struggling to cut costs dumped a near-record 25 million square feet of office space in the first quarter, driving vacancy up and rents down, according to data to be released today by Reis Inc.
The office vacancy rate nationwide rose to 15.2% from 14.5% in the previous quarter, and likely will surpass 19.3% over the next year, according to Reis, a New York firm that tracks commercial property. That would put the vacancy rate above the level during the real-estate bust of the early 1990s, the worst on record.
From Calculated Risk:
Companies struggling to cut costs dumped a near-record 25 million square feet of office space in the first quarter, driving vacancy up and rents down, according to data to be released today by Reis Inc.
The office vacancy rate nationwide rose to 15.2% from 14.5% in the previous quarter, and likely will surpass 19.3% over the next year, according to Reis, a New York firm that tracks commercial property. That would put the vacancy rate above the level during the real-estate bust of the early 1990s, the worst on record.
Thursday, April 2, 2009
Commercial real estate much worse than thought
Yesterday's sale of the John Hancock Tower to Normandy was an interesting market test, with media reports claiming it implied either nothing much or only good things about CRE and CMBS recoveries. A contrarian (and realistic) analysis on the transaction out of Morgan Stanley implies that based on this deal, not all is good in CRE land.
In a foreclosure auction today, the John Hancock Tower - a marquee building in Boston - traded at $660MM to Normandy Real Estate Partners. That same property was appraised for $1.3BN in 2006 and traded for $935MM in 2003. This is VERY negative for commercial real estate. At face, it looks like even top quality assets are down 50% from their peak, but that forgets the value of the financing that Normandy now gets to assume. There will still be a $640.5MM mortgage on the property at a rate of 5.6%.
**The main takeaway: property values are down A LOT more than people think, especially when considering the implied value of financing. Caveat Emptor.**
In a foreclosure auction today, the John Hancock Tower - a marquee building in Boston - traded at $660MM to Normandy Real Estate Partners. That same property was appraised for $1.3BN in 2006 and traded for $935MM in 2003. This is VERY negative for commercial real estate. At face, it looks like even top quality assets are down 50% from their peak, but that forgets the value of the financing that Normandy now gets to assume. There will still be a $640.5MM mortgage on the property at a rate of 5.6%.
**The main takeaway: property values are down A LOT more than people think, especially when considering the implied value of financing. Caveat Emptor.**
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