Real estate
- permabear
- Normxxx
- NewGuy
- axolotl
- honeyoneohone
- TonyFromGlendale
- permabear
- Normxxx
- Happy_2
- TonyFromGlendale
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» permabear - Sustained decline forecast in U.S. housing market
Slightly different angle reporting same story:Posted 12/7/2005 9:37 AM Updated 12/7/2005 9:57 AM
Sustained decline forecast in U.S. housing market
By Alex Veiga, Associated Press
LOS ANGELES — The U.S. housing market will see a sustained decline next year, causing a drag on the nation's economy but falling short of triggering a recession, according to the quarterly UCLA Anderson Forecast.
"We expect housing to start slowing the economy this quarter or the next," writes Edward Leamer, director of the University of California, Los Angeles, Anderson Forecast.
"Some jobs in manufacturing might well disappear as a result of weakness in housing," he writes.
The cooldown in the housing sector is likely to be spread over several years, with as many 500,000 construction jobs and 300,000 financial sector jobs lost, according to the report.
The forecast notes that eight of the last 10 economic recessions began with housing market slowdowns.
Previous UCLA Anderson Forecasts suggested that a decline in housing construction would begin by the middle of this year.
The current report cites several signs that the decline could be under way:
• New construction of housing in October was down 5.6% from the previous month, with new construction of single-family housing accounting for a 3.7% dip.
• New-home sales have declined.
• Applications for home mortgages have trended downward since late September as rates increased.
• In some regions, homes are remaining unsold longer and the pace of housing construction is outpacing population growth, which could spell a decline in demand.
"On all these grounds, we believe housing is due for a sustained decline," economist Michael Bazdarich writes in the Anderson Forecast. "The remaining questions are how hard the fall will be and when it will begin."
The forecast for California, where housing prices lead the nation and housing-related jobs have been driving economic growth, resembles the national outlook.
Economist Ryan Ratcliff says the state's housing market will see a slowdown in spending along with job losses in construction and related sectors.
He expects California home prices to plateau while sales and new construction see moderate decreases during two years of weak growth.
"If the housing market slows more than we are expecting, a recession is not out of the question," Ratcliff writes.
Signs of a slowdown are cited in San Francisco County, where housing sales have been off 20% since peaking in June, 2004, and in San Diego County, which has seen sales slow about 13%, while monthly price gains have plummeted to low single digits.
-- posted by permabear
» Normxxx - 12-monthHousePriceChange
12-month House Price Change
Note that the curves have all reversed, with the (formerly leading) top markets now at the bottom (and, conversely).
-- posted by Normxxx
» axolotl - END OF THE SO CALLED BUBBLE IS GOOD..........
If the prices continued in the "HOT" markets, imagine another doubling of prices over the next 5 or 6 years - a real bubble! The WSJ recently had an article on housing and mentioned Phoenix having nearly 10% "investors" in the market that is described as becoming slower. I have read that Ft. Lauderdale condos are still red hot, but reports nationwide are certainly about slowing down. Good.-- posted by axolotl
» honeyoneohone - Re: Investment Risks
In response to Investment Risks posted by NewGuy:.
Location, location, location.
-- posted by honeyoneohone
» TonyFromGlendale - Apartment Owner
As someone who has owned rental units for about 35 years, I would "second" the advice of "location, location, location." Rentals helped me go from a school teacher at $530.00 a month (yes, a month) to someone who now owns several million dollars worth of property. Screening tenants is something we do carefully, and it has helped keep apartments full and the landlord out of court. Rent Control will kill you though, and I would avoid areas with RC or where it might happen. I have a 22 unit now for sale at $5,150,000 that I paid $273,000 for almost 30 years ago if you are interested. Tax advantages, depreciation on paper, and real $$$ appreciation of properties...WHAT A COUNTRY!-- posted by TonyFromGlendale
» permabear - Re: Investment Risks
In response to Investment Risks posted by NewGuy:http://www.creonline.com/commercial-real...
http://www.real-estate-online.com/wwwboa...
Above are some good real estate discussion sites that you may find helpful.
My two cents coming from a permabear on both the stock and real estate market. I believe real estate is near a top in terms of the boom we've experienced for the past ten years. If you buy now, you may be buying near the top of the market. I still feel real estate can be a good longterm investment. But I would be careful not to use too much leverage and to have a good positive cash flow. I wouldn't be investing in real estate these days for a quick turnaround flip, which many are doing these days, because prices aren't going to be flying higher like they've been doing the past several years.
-- posted by permabear
» Normxxx - Freebie Window Is Closing
Minimum-Payment Loans Get Maximum Crackdown; Or
The Freebie Window At The Mortgage Place Is Closing.
By Kenneth R. Harney, WP-RE | 11 December 2005
Federal financial regulators appear to be on the verge of reining in one of the most popular mortgages in hot housing markets nationwide— loans that allow 1 percent to 2 percent payment rates leading to "negative amortization."
In a speech last week to the Consumer Federation of America, Comptroller of the Currency John C. Dugan hinted strongly that banks and their mortgage subsidiaries can expect significantly toughened rules for 2006 governing "payment-option" home loans. Payment-option mortgages have accounted for about a third of all new home loans originated by some major lenders this year. They are especially popular in high-price, high-appreciation markets on the west and east coasts because their low payments permit buyers to purchase costly properties they would otherwise be unable to afford.
Payment-option mortgages typically carry 30-year terms, but allow up to five years of reduced rates as one of several optional payment plans. The other two options allow interest-only monthly payments or fully amortizing payments including principal reduction. About 70 percent of borrowers choose the minimum payment option, according to mortgage securities research.
When a buyer pays the minimum rate, the loan balance increases rather than decreases. A $400,000 original loan balance might balloon into a debt of $440,000, for example. The deferred principal and interest payments get tacked onto the homeowner's total debt on the mortgage, a process known as negative amortization.
Though many lenders restrict the total amount of negative amortization to 15 percent above the starting balance, federal regulators worry that tens of thousands of borrowers may be accumulating heavy debt loads on houses with the expectation that double-digit appreciation will bail them out.
But Dugan warned, "If real estate prices decline— and there already is evidence of softening in some markets— these borrowers could face the bleak prospect of loan balances that exceed the value of the underlying properties."
Payment-option plans have another major worrisome aspect, in Dugan's view: "payment shocks" of 50 percent to 100 percent looming just over the horizon. For example, a $360,000 payment-option loan with an underlying rate of 6 percent and a five-year payment-reset deadline would push a borrower's monthly payments up by 50 percent in year six, even assuming no increase in market rates, Dugan said. "If rates rise to just 8 percent, the payment increase when amortization (principal reduction) begins would [be] nearly double."
Financial regulators worry that thousands of borrowers might not be able to handle the abruptly higher mortgage payouts and would be forced to sell or default.
"Is this an appropriate product to mass-market to customers who may be looking at the less than fully amortizing minimum payment as the only way to afford a large mortgage?" Dugan said.
His clear implication was no— a conclusion with huge potential significance for the real estate market. Dugan's office heads the Treasury Department's main regulatory oversight unit for national banks and their mortgage subsidiaries. If it directs banks and mortgage companies to stop making negative-amortization loans or sharply cut back on them— as it did several years ago with negative-amortization plans for credit card accounts— banks nationwide could shut off the spigots for such loans.
That, in turn, would cut off a key tool being used by buyers to qualify for high-cost homes. Prices on those houses would either have to decline to more affordable levels, or sales would plummet. Either way, it would be painful.
No drastic shut-off of that sort is expected from financial regulators. But a task force of regulatory agencies headed by Dugan's office has been studying mass-marketed creative financing products— payment-options, interest-only, "stated income" and other minimal-documentation loans— for the past several months.
The task force is expected to issue new guidance to banks and their mortgage subsidiaries by the end of this month on how to market, underwrite and service loans that carry elevated risks of borrower default.
Among the key focuses of the new rules, Dugan hinted, will be toughened standards on loan applicant suitability: If home buyers are not likely to be able to afford payments at higher than the minimal rate, lenders should not extend payment-option mortgages to them.
Lenders also will need to disclose all the high-risk scenarios— declining property values, inability to handle payment increases and the dead-weight burdens of negative amortization— that could harm borrowers. And they will need to have programs to deal with cut-rate loan deals that go belly-up.
The bottom line for 2006: Look for tougher standards on popular 1 percent and 2 percent minimum-payment plans, and fewer qualified buyers in high-cost markets where wild appreciation has been sustained in part by reality-bending rate-reduction programs.
[ Normxxx Here: Note: Condos and condo conversions have been keeping the rental availability market from altogether exploding in the multi-dwelling arena, but I bet that any changes along the lines proposed would have a disproportionate affect on condo sales. ]
______________
The contents of this letter/report does not necessarily reflect the opinions or viewpoint of normxxx. They are provided for informational/educational purposes only.
The content of this message is not to be construed as constituting market or investment advice. It is intended for educational purposes only. Individuals should consult with their own advisors for specific investment advice.
-- posted by Normxxx
» Happy_2 - Re: Apartment Owner
In response to Apartment Owner posted by TonyFromGlendale:What kind of a GRM are we talking here?
-- posted by Happy_2
» TonyFromGlendale - GRM
My property is being priced mostly on the "value of the dirt" to build 45-46 condo units. The Gross Mutiplier is about 18.75 x the yearly rental gross. Most units in the area go for around 14 x the yearly rental gross. However a nice property recently sold for 20 plus times gross in the neighborhood. Maybe the gross was low...I do not know...maybe lots of upside.My units, as units and not dirt, has a large upside for rents also. With L.A. rent control a tenant has to move and then the unit may be raised to street value. I have several units in the $900's where a new rental was just rented for $1125 monthly. Otherwise L.A. limits the yearly increase to 3% of the current rent.
-- posted by TonyFromGlendale
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