Monday, November 30, 2009

Commercial Real Estate next to sink

NAR Chief Economist Lawrence Yun sounded a downbeat note on the state of the commercial real estate market over the next few years in an address Friday afternoon at the 2009 REALTORS® Conference & Expo.

Yun said the most immediate problem for this sector is simple: There aren’t nearly enough buyers.

"Who is buying? The answer is no one,” he explained. “The level of transactions is way down. We're looking at an almost 90 percent decline from peak to current levels."

One particularly hard-hit area of commercial is the office sector: Vacancy rates are getting precariously close to 20 percent and sales volume has fallen as far as 93 percent from its peak just a few years ago.

The industrial part of commercial is also performing well below the norm, due in large part to warehouses, Yun said. There's more space, but much less need for it. Rents fell more than 10 percent this year, and probably will again next year.

The prospects for retail and multifamily are somewhat better. Yun predicts that as housing prices rise, people will be more inclined to spend, which will benefit retail. In addition, young people and professionals who’ve fallen on hard times will be able to move out of their relatives’ households and into their own residences as the economy slowly recovers. This will boost both multifamily and housing, Yun said, but he added that the employment picture will have to improve first.

However, the overall commercial market will probably continue to move down—too many indicators point to more trouble. For instance, cap rates are starting to rise for the first time since the beginning of this decade. Issuance of commercial mortgage-backed securities (CMBS) actually fell to zero during a few recent months. Moreover, CMBS delinquency rates have skyrocketed over the past couple of years.

That isn’t even the worst part, though. The biggest concern in the coming years is defaults. Commercial real estate debt maturities will spike at $1.8 trillion in 2012, and much of that amount is comprised of poor-quality loans.

"The credit situation in the commercial market is very disconcerting,” Yun said. “On the residential side, there is more government backing. That's not the case for commercial real estate. In commercial, there will be another letdown before things improve."

However, he also expressed confidence that the federal government would try to prevent a large collapse in the commercial sector. The Federal Reserve and Treasury Department have extended the Term Asset-Backed Securities Loan Facility (TALF), a federal relief program intended to increase credit availability, through 2010.

Yun said he expected to see more relief efforts in the future.

"The policy makers clearly understand that commercial real estate is the next shoe to drop, so they're looking at things they can do. That doesn't mean they have the policy to implement yet," he said.

Source: Brian Summerfield, REALTOR® magazine

Friday, November 27, 2009

What is a Short Sale?

As more homeowners find themselves underwater -- owing more on their mortgage than their home is currently worth -- and unable to make the monthly mortgage payments, many are turning to short sales, which allow a homeowner to sell their home for less than owed on the mortgage. Short sales can be a win-win situation for all parties, because they enable home buyers to purchase properties in desirable neighborhoods and at favorable prices.


• Theoretically, short sales should be a win-win for the bank and the homeowner. Although the bank does not receive the full amount owed on the mortgage, it also does not incur the costs of foreclosure and/or eviction, if necessary. Many homeowners also prefer short sales because it is less damaging to their credit scores than a foreclosure. However, many real estate experts say that the majority of banks are reluctant to approve short sales, and often let properties go into foreclosure, even when there are reasonable offers on the property. In addition to considering the price, most lenders also take into consideration whether the homeowner can demonstrate financial hardship. If the homeowner is capable of making payments, many lenders will try to work out a loan modification, rather than a short sale.

• Unlike foreclosed properties, which may be run-down and vacant for many months, short-sale properties are likely to be better maintained, as most owners may still live in the home.

• Short sales often are more time intensive than traditional transactions and often require additional paperwork. Due to the large number of offers on short sales, many take as long as a few months to receive approval. If information or required forms are missing or incomplete, the bank may set the offer aside, which could delay the process and cause the property to go into foreclosure. To expedite the process, sellers should work closely with their REALTOR® to provide all of the necessary paperwork.

• Working with a REALTOR® who has experience with short sales can help both sellers and home buyers during the transaction. A seasoned REALTOR® will be able to serve as the mediator between the seller and the lender, and lead to a successful transaction.

• It is important to remember that in a short sale, although the seller may be anxious about selling the property and willing to accept any offer, it is ultimately up to the lender to determine if, and at what price, the property can be sold. Home buyers should work closely with their REALTOR® to submit realistic offers.

Landlord Tips

Landlord Tips: Never take a personal check from a tenant when the tenancy is commenced. Be sure to receive cash or a cashier's check.

Wednesday, November 25, 2009

Sellers Continue to Cut Prices

Nearly 25 percent of all U.S. homes for sale on Aug. 1 had a price cut in July, according to data compiled by the real estate Web site

The percentage of price reductions has continued to increase month-over-month for the past three months. The total value slashed off active listings now totals $27.8 billion. The average reduction was 10 percent from the original price.

Cities showing significant increases in the percentage of listings with price cuts from June 1 to Aug. 1 were:
  • Fresno, Calif.: 67 percent

  • Colorado Springs, Colo.: 27 percent

  • Kansas City, Mo.: 25 percent

  • Oklahoma City, Okla.: 24 percent

  • Albuquerque, N.M.: 22 percent.

Cities with significant declines in the percentage of listings with price reductions included:

  • Dallas: -42 percent

  • Las Vegas: -33 percent

  • Louisville, Ky.: -33 percent

  • Los Angeles: -19 percent

  • Washington, D.C.: -17 percent

Source: (08/14/2009)

Sunday, November 8, 2009

Landlord Tips

#Landlord Tips: Never enter into a lease where the tenant has to make repairs.

Banks Plan to Keep Lending Tight

Banks tightened standards for all types of loans in the second quarter, the Federal Reserve reported Monday.

About 35 percent of senior loan officials said they tightened standards somewhat and none of the 51 responding banks said they loosened standards for prime mortgages. The rest said their standards for mortgages remained the same or were substantially stronger.

Banks also told the Fed that they expected to maintain strict lending standards until at least the second half of 2010.

“Most banks have woken up to the fact that there is a lot more risk in their loan books than they ever thought possible,” says Joel Conn, president of Lakeshore Capital LLC in Birmingham, Ala. That has caused many banks to reconsider their requirements for future lending, Conn says.

Source: Bloomberg, Craig Torres (08/17/2009)

Buyers Shouldn't Wait on Falling Prices

Fear of overpaying for property is common these days, especially in places like New York where prices continue to be unstable.

If you encounter potential buyers who are frozen because they are concerned that they will pay too much, here are some factors to point out:

Waiting for the right time can be expensive. Some buyers would have more equity today, despite falling prices, if they had bought when they were first considering it, instead of continuing to pay rent.
Financing is fickle. Some people who were highly qualified last year can’t find financing this year because the credit market has tightened or their personal financial situation now makes them an undesirable borrower.
Interest rates are headed up. If prices decline by another 10 percent, but interest rates increase by 1 percentage point, the monthly payment will be the same.

Source: The Wall Street Journal, Douglas Heddings (07/27/2009)

Wednesday, November 4, 2009

Landlord Tips

#Landlord Tips: Your tenant should be required to put all service requests in writing. This should be part of the rental agreement.

What Has the Housing Crash Cost Americans?

How much real wealth have Americans lost so far in the real estate crash?

The Federal Reserve estimates that the total market value of U.S. homes fell 18 percent from $21.9 trillion to $17.9 trillion or about $13,000 per person from the end of 2006 through March 31, 2009.

The Fed also estimates that homeowner’s equity has declined 40 percent from the peak and now accounts for just 41.4 percent of real estate values. By comparison, after the last slump in the 1990s, home equity levels remained in the high 50s.

This collapse in equity makes it difficult for potential buyers to sell their homes and trade up, which many experts say will weigh heavily on the housing recovery.

Source: The Wall Street Journal, Brett Arends (08/20/2009)

Sunday, November 1, 2009

Top 10 Cities With Most Price Reductions

Real estate research site says 24.6 percent of current homes on the market in the United States as of July 1, have had at least one price cut, totaling $27.1 billion in reductions.

The average price-reduced home has had a 10.4 percent reduction, down slightly from 10.6 percent as of June 1.

Some areas appear to be stabilizing quickly with the overall number and percentage of price reductions declining, including Las Vegas, Los Angeles, Dallas, Washington, D.C., and Baltimore.

“All real estate is local and we’re seeing glimmers of hope as price stabilization occurs in major cities across the nation, including some of the earliest hit cities that have experienced huge declines in the past few years,” says Trulia CEO Pete Flint.

The top-10 cities with the most price reductions as of July 1 are:

  1. Jacksonville, Fla., 39 percent

  2. Boston, 35 percent

  3. Minneapolis, 33 percent

  4. Milwaukee, 33 percent

  5. Honolulu, 33 percent

  6. Tucson, Ariz., 31 percent

  7. Chicago, 31 percent

  8. New York, 31 percent

  9. Austin, Texas, 31 percent

  10. Raleigh, N.C., 31 percent

Source: (07/10/2009)

Best Cities for Finding Opportunity

Where are the best cities to live in the United States if you want to work hard and get ahead?

Forbes magazine examined the nation’s 40 largest metropolitan statistical areas and based on the number of Forbes' 400 best big companies and 200 best small companies that are headquartered in each, it identified what it considered places with the most opportunity.

The magazine says it took this route because the best big companies provide opportunities for those who seek to be employees, and the rate of success of small businesses indicates how the area treats entrepreneurs.

Here are the top 10:

  1. Houston

  2. Dallas

  3. Minneapolis

  4. Pittsburgh

  5. Boston

  6. Washington, D.C.

  7. Austin

  8. St. Louis

  9. Kansas City, Mo.

  10. New York

Source: Forbes, Lauren Sherman (06/19/2009)

Landlord Tips

#Landlord Tips: Landlords, check your units at least once every 6 months, especially for water leaks.