More Government Equals Fewer Jobs
With today’s unexpected decline in December payrolls, the cry for more job-related stimulus will grow even louder. But the sad truth is that any new stimulus or jobs bills will ultimately swell the ranks of the unemployed, thereby raising calls for an even bigger federal effort. If we are not careful, government regulations, subsidies, and spending, all designed to fight unemployment, could push the labor market into a death spiral.
Regulation acts like a tax on job creation. By subjecting employers to all sorts of extra expenses when they hire people, regulations increase the cost of employment far beyond the wages employers actually pay their workers. In fact, some regulations are specifically tied to the number of workers employed. This provides some employers with a strong incentive to stay small and not hire.
The minimum wage law, which is really just a very visible workplace regulation, actually makes it illegal for employers to hire certain individuals and destroys entire categories of jobs. For instance, faced with high labor costs, some restaurants will avoid hiring dishwashers by switching to plastic utensils and paper plates. On a larger scale, factories may decide to switch to robotic assembly lines if human labor gets too expensive.
Other types of regulations, such as those that prohibit discrimination, create incentives for employers not to hire individuals that fall within the protected class. This is the result of potential litigation costs that may result from wrongful termination lawsuits. In other words, the more expensive government makes it to fire workers, the less likely they are to hire them in the first place.
Subsidies produce the opposite effect of regulation, but sometimes the results can be just as harmful. Government subsidies divert resources towards politically favored activities, resulting in more jobs in areas such as health care and education, but fewer jobs in other sectors such as manufacturing. The net effect of this transfer is to diminish the productive capacity and efficiency of the economy, which lowers real economic growth and diminishes employment opportunities.
Although not as visible as regulations and subsidies, government spending also plays a large role in job destruction. The more money government spends, the more resources it drains from the private sector. The fiscal 2011 budget proposed by President Obama contains $3.8 trillion in federal spending. Think of government as a cancer feeding off the private sector. The larger it grows, the more jobs it kills. Unfortunately, most politicians follow the misguided advice of economist John Maynard Keynes, who advocated government spending as a means of job creation. In reality, government spending merely results in government jobs replacing more efficient private sector jobs.
Some economists point to taxes as the primary job killer, and argue that lower taxes will boost employment. While I have sympathy for this view, it misses the larger issue that the burden of government is not what it taxes but what it spends. The proposed fiscal 2011 federal budget contains “only” 2.4 trillion of taxes. The remaining 1.4 trillion of spending is borrowed (incredibly, for every dollar the government collects in taxes, it now spends almost $1.60). I would argue that a dollar borrowed kills more jobs than a dollar taxed. Therefore, cutting taxes and borrowing the shortfall kills more jobs then it creates. This is true because jobs require capital and government borrowing more directly crowds out private capital investment than taxes do.
In the end, I fully expect the government to directly provide make-work jobs to the armies of the unemployed. This will accelerate the pace of private sector job destruction and make our economy even less productive than it is today. This means that while the government may be able to provide people with jobs, the wages they pay will provide little in the way of purchasing power. In the end, we will become a nation of government employees, with plenty of work but little to show for it.
Rewards Abroad
President Obama's State of the Union message only serves to reinforce my forecast that investors will continue to find better returns in markets outside America and in currencies other than the U.S. dollar. Indeed, the reward gap may well increase.
Nothing in the President's speech indicated willingness to do the hard work of cutting spending. Rather, he reiterated his commitment to a costly new healthcare entitlement and more spending on make-work programs. Only days later, his budget acknowledged that, even before factoring in the cost of his proposals, the federal government is unlikely to be in surplus for the foreseeable future. In response, Moody's has issued a warning that the United States' triple-A credit rating is not unassailable. In short, the trend set some ten years ago will continue.
Since 1999, those who invested in U.S. stocks, as measured by the S&P Index, have lost about half of their wealth, in real terms.[i] On the other hand, those who invested abroad, measured by the Morgan Stanley Emerging Market Index,[ii] [iii] have doubled their investments in real terms. This is because capitalism is flourishing abroad, while being curtailed progressively in so-called advanced economies, where the projected aggregate growth rate for 2010 is now only some 2.5 percent. Somewhat optimistically, this assumes no double dip recession. [iv]
Most of the emerging economies are far less leveraged than those of the advanced countries and are relatively well insulated from the massive dollar deleveraging that began in 2007. Crucially, their government spending is geared largely to infrastructure and far less to expensive government bureaucracy and wealth-depleting entitlements. Most importantly, even formerly communist governments, like that of China, have embraced free-market capitalism, while many in the advanced governments are flirting with socialism.
As the most leveraged of the major economies, America in particular faces great problems with regard to regenerating consumer demand. Looking at the future of U.S. stock markets, the following five bearish observations stand out.
First, it appears that the ruling Democratic Party is out of touch with the realities of economics. Paying little apparent heed to their sensational defeat in Massachusetts, President Obama and his Democrat Congress are making no realistic attempt to rein in, let alone cut, runaway government spending. Yet, the current path leads to spiking debt costs, huge tax increases, and unprecedented U.S. dollar debasement. In addition, because many Congressional Democrats were elected by disaffected conservatives during the Bush years, the party cannot agree to terms on reform legislation. This leaves businesses fraught with uncertainty as to how they will be impacted.
Because of the focus on new spending, we have only seen empty gestures with regard to tax-cutting. This is the ultimate form of "stimulus," but one that must be earned through reduced spending. While President Obama has talked tax cuts, his actions indicate only a redistributionist impulse to set up federal programs for which business and the productive classes must pay. Whether or not that satisfies his ideological goals, it is a recipe for economic disaster.
Second, while the Fed has signaled that it will hold interest rates down for the foreseeable future, it is likely that in the medium and long end of the yield curve the market will soon force rates higher. This will lead U.S. bond and equity markets to better reflect their real values, and end the nominal recovery we have seen thus far.
Third, despite increased government hiring in wealth-consuming jobs, total employment, and especially private, wealth-creating employment, continues to fall. [v] Those jobs are moving abroad. Last year, the U.S. witnessed the steepest drop in demand for H1B visas in recent history. [vi] This indicates that America is losing its appeal as the place for the world's enterprising young minds to strike it rich.
Fourth, the Dow has risen at a historically fast rate over the past nine months, while volume has thinned. [vii] In other words, the rally is being pushed by speculative traders, not long-term investors. It is, therefore, highly vulnerable to collapse.
Finally, political uncertainty, rising unemployment, and an outlook for increased taxes are destroying any looming consumer confidence. Fourth-quarter GDP grew an annualized 5.7 percent on inventory restocking, but no one is in the mood to spend. [viii] Consequently, those stockpiles will drag on GDP growth for several quarters.
With this somber picture at home, it was not naïve to have hoped the President would shift to a common sense agenda in the State of the Union. Unfortunately, this Administration may not have the fortitude to implement an austerity program. One way or another, the U.S. is going to have to face the economic reality; the longer we wait, the bigger head-start we give to our competitors in the developing world.
Investors Heighten Interest In Inland Distribution Sites
Investors with deep pockets appear to be renewing their interest in Inland Southern California's best distribution sites, several people that follow the area's real estate said.
KTR Capital Partners LLC recently announced it had purchased 1.2 million square feet of warehouse space near the intersection of interstates 10 and 15 in Ontario. It was the second major acquisition in the last two months for KTR, a New York City-based private equity investment firm.
Panattoni Development Co. was the seller, and each of the five buildings has multiple tenants, said Darla Longa, vice chairman of C.B. Richard Ellis, who marketed the property for Panattoni. The tenant list includes Charlotte Russe and Volvo, Longo said.
Longo said KTR was not the only company interested in the property, and she said it looks like private investment firms, after a long period of caution, want to make some moves.
"I think capital is back and wanting to buy," Longo said.
Redlands-based economist John Husing, who has followed the Inland logistics business for years, said he's been contacted by representatives of several well-funded commercial real estate companies recently who want to retain him for counsel on future deals.
Husing said these companies recognize that when the recession is over, the Inland region will look the same as it did before 2007, when it was viewed as probably the top distribution hub in the country. The transportation arteries and the huge work force will still be here.
"It's almost like someone turned on a switch," Husing said of the new interest. "It looks like the commercial real estate community is sensing that the worst is over, and the smart ones are positioning themselves for the next bull run."
Growth in the warehouse industry is largely based on consumer demand. Despite some good January results announced Thursday by several major retailers, consumers are still worried about persistently high unemployment.
But the struggling economy also sets up buying opportunities, especially for properties in or close to Ontario. Western San Bernardino County, called the West End in commercial real estate circles, is considered the more desirable location for warehouses because of the confluence of freeways and its proximity to Ontario International Airport.
The KTR purchase is within two miles of the airport, according to a statement from the company. The company did not disclose the price, and a representative did not return several phone calls.
KRT closed on a 656,000-square-foot distribution center in Ontario leased to the shoe company Converse in December, said Dane Fedora, client services manager in the Ontario office of commercial property firm Grubb & Ellis.
The Converse distribution center is only 2 years old, Fedora said. The price of a piece of warehouse property in the West End has declined about 30 percent since 2007, meaning there are bargains out there.
"This is a great example of the kind of top-tier product buyers are chasing," Fedora said. "There's private capital out there just waiting to pounce."
KRT also has properties in Fontana and other areas of Southern California and picked up the bulk of them in 2009, according to its statement. Most of its holdings are in Florida and Illinois.
"They're a well-known player that's picked up multiple holdings," said Mary Sullivan, a commercial real estate consultant. "They appear to be buying well-located, leased properties in the mature West End. It bodes well for us."
http://www.pe.com/business/realestate/stories/PE_Biz_W_warehouses05.363160c.html
Your Neighbor Is Being Foreclosed On But You Don’t Know It
Click Here For Link To Original Article
People love to overpay for homes in California. It seems to be a rite of passage. Even if it meant that someone needed to go into a property with the leverage only available through an Alt-A or option ARM toxic loan. People don’t get that some cities still have a tremendous amount of shadow inventory and that prices will come down unless the economy improves and improves significantly. Yet I understand that statistics don’t drill down into the personal reality of what is happening on the ground. So today, I will show you that all in one block (3 nearly identical homes in size and room) we have shadow inventory, an overpriced home, and a rental reflecting the realities of what homes are really worth.
Today we salute you Cerritos with our Real Home of Genius Award.
The Home for Sale in Cerritos
Cerritos currently has a median home sale price of $610,000. This is simply absurd given that the average household income is $89,000. This is the prime example of a shadow inventory city. Each shadow inventory city has a unique attribute that people think is unique to the area. Pasadena has the idea of the Rose Bowl and the allure of it being close to L.A. and Cerritos has the draw of quality schools. But that in itself does not sustain an area if incomes don’t match up to housing values.
The above home is 1,106 square feet with 3 bedrooms and 1 bath. It has been listed on the MLS for 9 days. The current list price is $549,000 so if you look at the city median price, this seems to be in line with that figure. But again, this is simply another area that is in a deep bubble and will correct in the next year or two. Why?
Because only a few houses down, we have a home that is scheduled for auction and a rental that shows a very different market:
Let us first look at the home that is part of the shadow inventory. The data on the home scheduled for auction is nearly identical with the home that is for sale. It is a 3 bedroom and 1 bath home. It is listed at 1,100 square feet so this area seems to be a suburban box neighborhood where many homes are built nearly the same way. The home for sale was built in 1969 and this foreclosed home was built in 1970. Let us look at what occurred on this property:
This home was bought during the peak of insanity for $630,000 in 2006. This was a 100 percent financing deal. They took out a first mortgage of $503,900 and a second of $125,900. Greenpoint Mortgage by the way was a toxic mortgage superstar. So now after three years the home is scheduled for auction. When the notice of default was filed in October of last year the borrower was already behind by $37,447. The auction was only scheduled a couple of weeks ago. This home is nowhere to be found on the public view. Keep in mind a few houses down the other home above is being sold for $549,000.
You can see the problem already growing. This home if it were to be added to the inventory would add pressure to the price of the other home. Clearly the current borrowers have stopped making their payments. So who really knows where this is at but this is a clear case of shadow inventory.
But let us run the numbers on that $549,000 home if we go with 3.5% down and a wonderful FHA insured loan:
First, you will need a household income of $154,000 (nearly twice the average for the city) to qualify for the loan. Next, your monthly housing payment (PITI) is going to come out to be $3,600. But did you notice that the above rental is going for $2,150? You are paying 40 67 percent more per month to own the home ($1,450 more per month). This is insanity. It will always be more expensive to own, that is correct. But nothing like this. In other words, this area is in a gigantic bubble. Keep in mind your total housing payment is coming out of your net income. All your wonderful tax subsidies and breaks come at the end of the year when you file your taxes. The rental rate is more reflective of the actual local market because it is subsidy free and what a local area renter is able and willing to pay out of their net income.
Let us now look at the rental:
The rental is identical in size to the other two homes. A 3 bedrooms and 1.75 bath home listed at 1,100 square feet. This is an excellent example of what is going on because we have virtually three identical homes all in the same block but telling us very different stories. You would have to be out of your mind to pay the current price. You would be buying at a peak low in mortgage rates in an area that can clearly only support a rental income of $2,150. Think about that. No investor in their right mind would pay this amount. And rates will go up. Just look what happened to the markets today once people realize a country can’t pay their debt (hello California!). If you bought this home as an investor, you would be negative cash flowing by over $1,000 per month depending on your down payment. That would be a dumb move right off the bat and keep in mind, for investment properties the interest rate is much higher and you have to go in with at least 20 percent down. This is why I believe we are far from a bottom in many markets that are filled with shadow inventory. And let us run those numbers.
Cerritos in our last month of data had 21 homes sell. The MLS has 49 homes listed. Not bad right? After all, that is about 2 months of inventory. But let us run the shadow inventory numbers:
Notice of defaults: 83
Auction Scheduled: 143
Bank owned: 16
242 homes in the shadow inventory versus 49 homes on the MLS. In other words, you would be speculating into a bubble area right now if you decided to buy.
Today we salute you Cerritos with our Real Homes of Genius Award.
Banking Solution to Financial Crisis is to Ignore Distress Inventory – California had 1,200 Foreclosure Filings Per Day in 2009 – The California Real Estate Foreclosure Machine. Countrywide Financial, WaMu, and Wells Fargo top Foreclosure List in Q4 of 20
Click Here To View Original Article
Even in the best of times foreclosure is a financially traumatic event. And these are definitely not the best of times. Yet you wouldn’t know that by watching the financial cable shows. In that corner of the world, everything has miraculously improved and their solution to foreclosure is to simply ignore it. Those Alt-A and option ARMs lingering around festering a rotten mess in California, just pretend they aren’t there. Banks are in many cases even ignoring missed payments on homes and not preceding with foreclosure. So they are helping with HAMP right? Not really. Consider it a form of bailout inertia. Yet somehow those in the tiny realm of the world that ignore economic reality somehow now think that by doing nothing they are now solving the crisis. In fact, mark-to-market, that absurd notion that you don’t need to value assets at their current worth is somehow permeating through the entire housing market.
If banks had to value assets at their current worth, the entire banking system would become insolvent overnight. So they choose to purposefully ignore the reality on the ground. And for those that think things have improved let me present to you exhibit A, California notice of defaults for the last few years:
Last year, as in the year that saw the stock market rally with the momentum of a bull stampede, California witnessed the largest number of notice of default filings ever. Worst year ever. California had 450,000+ notice of defaults filed in a year that supposedly saw recovery. Now this data does reflect the new world order where banks choose to ignore bad data and pretend Alt-A and option ARMs turning into platinum bars. How bad is this?
1,232 people per day in 2009 received a notification of default because they missed at least 3 mortgage payments in California.
Now this doesn’t seem like a healthy market in my book. In fact, last year saw nearly a record amount of actual foreclosures, closely resembling 2008:
Now just look at 2006. We went from nearly no foreclosures to quickly approaching 250,000 in 2008 and 2009. In other words, the market is horribly unhealthy. As in today. When I look at the California budget and our 12.4 percent unemployment rate it should be apparent that no housing market can boom when the real economy is floundering. Can we sell homes in the short-term? Of course. Can we get people into homes with low interest rates and tiny down payments? Absolutely. But did we not learn with the Alt-A and option ARM fiasco that getting people into a mortgage is only half the battle? Ideally you want people to have the ability to service the mortgage for years to come, not only for a short period of time.
And that is largely where the California housing market has gone off track once again. I was listening to the radio and heard a mortgage broker empathically say, “we need to get mortgage rates back to the low 4% range to get housing going again!” I think globally we are far beyond ever seeing those ridiculous rates. The average 30 year mortgage rate for the past 40 years is 9 percent and a rate at that level would cause housing to come to screeching halt. A rate that was fine for many years and when households earned less income is now somehow unpalatable. It is hard to envision because our economy is running on the exhausted fumes of debt. Just think about every program we have done to keep housing propped up:
-The Federal Reserve buying $1.25 trillion in mortgage backed securities to keep rates artificially low (coming to an end)
-The home buyer’s tax credit (isn’t too much home buying what got us into this mess?)
-Massive taxpayer subsidies on interest rate deductions (why penalize those who choose to rent?)
-Foreclosure delays – HAMP and statewide moratoriums (refer to charts above to show success rate)
-Banks stalling and massive build up of shadow inventory (the new mark to market stalling tactic)
And after all of the above, foreclosures are still raging and homeowners are still unable to make their payments. Just look at the trend:
California tried a foreclosure moratorium in 2008 and look what that did. Once that program was over the can was punted into Q1 of 2009 where HAMP was there to pick up the slack. Even with that, notice of defaults were still rising because of an unemployment rate of 12.4 percent. If you can’t pay your mortgage does it matter that your payment is $2,000 instead of $4,000? Many families and individuals are simply unable to pay their debt. There isn’t any gimmick to fix that. The only remedy to that is something called a job. Is our financial system so twisted that we think of jobs only after every measure above has been exhausted to create a transfer of wealth to Wall Street?
And if we look at the top defaults in Q4 of 2009 we find a list of very familiar names:
Names that will go down in infamy and will always be associated to the housing bubble are still causing problems today. The subprime and option ARM crusaders. They have littered California with these surprises and we know they are going off. Just look at those notice of defaults. You don’t get a notice of default for paying your mortgage on time. Yet the amount of foreclosures on the market does not even reflect what the NOD data is projecting. Banks are merely holding off the debt and pretending all will be well. But employment is still in the trough of this cycle. What industries are hiring large numbers of people? Or what industries are paying people enough for some of those inflated neighborhoods? No wonder why FHA insured loans with a 3.5 percent down payment are now the rage in California and all across the country.
Now think of this. Of the 5,290,000+ homes with a mortgage in California 35 percent are underwater. 1,850,000+ homes are in a negative equity position. Walking away is now picking up steam because why would you continue making the payment on a home that is now so severely underwater? To keep the bank current? And the bulk of people not paying, those 450,000 NODs in 2009 got that way because of the economy.
Now if home sales were booming because jobs were coming back and our real economy was growing then I can understand the trend to a certain degree. But if home sales are only going up because of gimmicks then we know this story all too well since we just lived it a few years ago. Hard to believe we are creating housing bubble 2.0 but this time, we may not have the same inflating power as we did in the last run.
Fewer Hotels Sold For Less Money
There were far fewer hotels sold in California last year for much lower prices, according to the latest annual report from hotel brokerage firm Atlas Hospitality Group.
Hotel shoppers spent just $524.9 million to buy 92 hotels in California last year, according to the report.
It was a 75 percent drop in spending compared to 2008 when 187 hotels were sold for $2.13 billion.
It hasn't been for lack of buyers and financing, said Alan Reay, president of Atlas Hospitality Group. Sellers and lenders with foreclosed hotels on their books have balked at selling properties at clearance prices, he said. Much like the recent housing industry, which has seen multiple bidders on a single home, hotel sales are sometimes receiving 30 to 40 bids each, he said.
What slowed hotel sales in 2009 to a historic low were unrealistic prices, he said.
In 2010 sellers and lenders will be forced to sell unless they can afford to hold on to properties for a long time, Reay said.
San Bernardino County was the only region in California where more hotels were sold last year, 11 hotels versus 8 in 2008. The amount paid for those hotels dropped 3 percent though to $24.4 million. Reay said most of those were sold by lenders and priced appropriately.
The priciest hotel sold in the Inland region was the 292-room Marriott in downtown Riverside for $19.3 million, a bargain for Pinnacle Hotels USA in San Diego which bought it from Sunstone Hotel Investors last June. At the time, Barry Lall, president and CEO of Pinnacle, said he preferred, "buying low and selling high."
In Riverside County, seven hotels were sold last year for $34.5 million versus 18 in 2008 for $73.8 million.
Los Angeles County had the steepest drop in hotel sales. Just four were bought last year, 89.7 percent fewer, for $41.1 million versus 39 sold in 2008 for $1.08 billion.
Life was tough for the nation's hotel owners in 2009 as most saw the number of rooms occupied, average daily rates and the revenue earned per available room all drop 8.7 percent, 8.8 percent and 17 percent respectively, according to Smith Travel Research which tracks hotel trends.
The industry entered the recession after a hotel construction boom, which only meant more empty rooms once fewer travelers - both for leisure and business - took trips.
While the occupancy rate nationwide is expected to stay where it is this year and average daily rates will continue to decline by 3.2 percent or so, most industry leaders are expecting 2011 to be "heaven," said Jan Frietag, vice president of global development with Smith Travel Research.
"The news is getting less bad," he said. "Things are going to get a lot better two years from now."
Reach Kimberly Pierceall at 951-368-9552 or kpierceall@PE.com
Slow sales
The number of hotels sold in California in 2009 dropped 51 percent to 92.
Riverside County:
Hotels sold: 7 (61% drop)
Largest sale: Marriott Riverside at 3400 Market St. for $19.3 million
San Bernardino County:
Hotels sold: 11 (37% increase)
Largest sale: Red Roof Inn at 1818 E. Holt Blvd. for $5.65 million
Source: Atlas Hospitality Group
Pending Sales Edge Up 1%
The number of contracts to buy previously owned U.S. homes was little changed in December after a record plunge, indicating a renewed tax credit will take time to revive sales.
The index of purchase agreements, or pending home sales, rose 1 percent after a 16 percent drop in November that was the largest since records began in 2001, the National Association of Realtors announced in Washington. Compared with a year earlier, pending sales rose 11 percent.
Demand jumped last year as first-time buyers rushed to qualify for an $8,000 government incentive due to expire Nov. 30. The subsequent renewal and expansion of the initiative may help underpin sales, cushioning the damage from mounting foreclosures and a possible increase in mortgage rates as Federal Reserve policy makers withdraw from the market.
"We've had a lot of volatility because of the tax incentive," said David Sloan, a senior economist at 4Cast Inc., a New York forecasting firm, who correctly projected the increase. "We're in a moderately improving underlying trend. There is some pent-up demand for housing from very weak levels. Housing will be a source of support for the economy in the coming year. Things will slowly get better."
The real estate industry hopes the recovery will continue, and Mike Larson, a real estate analyst with Weiss Research, said the index "sets the stage for a more positive spring selling season."
But the industry has to overcome significant challenges, such as high unemployment, rising foreclosures and tight lending standards.
"The result? We'll likely just muddle through instead of witness a V-shaped recovery like those that followed previous housing busts," Larson said.
President Barack Obama and Congress extended the first-time buyer credit in early November to cover deals signed by April 30 and closed by June 30, and expanded it to include some current homeowners. Even so, some economists believe the original measure pulled sales forward, restraining demand for a few months.
About 2.4 million households will take advantage of the credit this year, according to a projection by Lawrence Yun, the real estate group's chief economist. Yun anticipates existing home sales will rise to 5.6 million this year from 5.16 million in 2009.
Another provision in the legislation allowed builders to use losses incurred in 2008 and 2009 to recoup taxes on profits going back as many as five years, three more years than usual. Lennar Corp., KB Home and Ryland Group Inc. are among the construction companies that have reported quarterly profits because of the tax refunds.
http://www.pe.com/business/realestate/stories/PE_Biz_W_pending03.36c295f.html
Foreclosure Counseling Available
A major owner of distressed mortgages has arranged with a nonprofit counseling center in Ontario to screen its delinquent clients in Riverside and San Bernardino counties to see if their homes can be saved from foreclosure with help from the Obama administration's mortgage refinancing and modification program.
The Federal Home Loan Mortgage Corp, called Freddie Mac, a government-sponsored investor in home mortgages, selected the Neighborhood Partnership Housing Services in Ontario as one of six centers nationwide that will do outreach and foreclosure prevention counseling for homeowners with Freddie Mac-owned loans, said spokesman Brad German.
Inland Southern California was chosen because of its high concentration of foreclosures, said German. The other centers are in Phoenix, Chicago and the Washington, D.C., suburbs.
Jed Davis, chief executive of the Neighborhood Partnership Housing Services, said Freddie Mac's outreach program, which was launched in Ontario last week, will be extended to other parts of the country if it is successful.
Davis said the Ontario office, 320 West G St., received a $150,000 one-year grant from Freddie Mac to pay the salaries of two foreclosure counselors who will provide in-person counseling for Freddie Mac borrowers and for other program costs such as marketing.
He said last week Neighborhood Partnership and Freddie Mac jointly sent letters to 917 homeowners in Riverside and San Bernardino counties who have Freddie Mac loans and are in the foreclosure process, having received notice of default.
Davis said he expects over the next 12 months Freddie Mac will supply his office with the names and addresses of more candidates for mortgage modification. He did not know the total number of delinquent mortgages that Freddie Mac holds in Inland Southern California.
One of Davis's concerns, he said, is that Freddie Mac borrowers who receive letters from his office may discard them along with the flood of mail routinely sent from for-profit mortgage modification companies.
Unlike the for-profit operations, Neighborhood Partnership Housing Services is certified by the federal government to provide foreclosure counseling and does not charge a fee, Davis said.
Freddie Mac said Neighborhood Partnership Housing Services and the other selected nonprofit organizations will work with Home Retention Services, a wholly owned subsidiary of Stewart Lender Services Inc., to help borrowers connect with their mortgage servicers.
Freddie Mac said Neighborhood Housing Partnership Housing Services "will provide free, confidential holistic counseling to borrowers who have been discouraged or frustrated by the workout process. Holistic counseling will address other debt and credit issues that could affect the borrower's ability to make payments on their mortgage even after it is modified."
A homeowner who wants to know if his mortgage is owned by Freddie Mac can check the Freddie Mac website: Freddiemac.com/my mortgage
Davis said although Neighborhood Partnership Housing Services will negotiate a loan modification with loan servicers on a borrower's behalf, it is important that the borrower gather the financial records needed to determine eligibility. Information about the required paperwork can be found online at NPHScounseling.org
http://www.pe.com/business/realestate/stories/PE_Biz_W_freddiemac03.36c229f.html
Residential and Commercial: The Property Crises Continues But In Different Ways
Everywhere, without exception, the price of real estate (residential and commercial) is now falling. And, in LEAP/E2020’s opinion, this trend will not stop anywhere before summer 2010. At that point, it is highly likely that very different trends will develop.
As regards residential real estate, the US market will continue to fall, as well as in the United Kingdom, Ireland and Spain, and in the micro-markets marked by the real estate bubbles of the past decade (Dubai (1), Baltic states, Marrakesh, Costa Rica, …) (2), to which will be added the Chinese market (still in an artificial bubble phase thanks to the stimulus package initiated by Beijing). As long as there is no come-back in growth paired with a recovery in employment, these markets will be very depressed. And the more time goes by, the more the banks will have to face what is unavoidable: to severely write down the value of their estate. In these markets, this assures that the risk of continuing falling prices remains very high.
Elsewhere, in those markets where the property speculation craze of the last few years did not take place, we will witness a stabilization of prices in mid 2010 after a new downturn which could see prices fall a further 10% to 20% below current prices.
Landlords henceforth know that they have to adapt to the new residential real estate market, a buyers’ market (and no longer a sellers’ market as it was in previous years) (3). In this regard, if one needs to sell, it is better to do it now than a year hence, since prices will then have fallen further.
As for the “post-bubble” markets, try and sell now since the downturn will go on for at least two years, with prices falling a further 20% to 50% compared to current prices (the micro-markets whose property crisis only began in 2008 will be the hardest-hit). In the United States, with the unemployment growth and falling income in the background, residential property repossessions will continue to increase in number, affecting new social categories (5) (notably middle and upper classes (6)). As regards price, the residential property market has therefore only one way to go: downwards (7).
A peculiarity of the current economic situation, probably long-lasting, requires serious thought before any transfer of assets from parents to children. The increasing precariousness of the work situation of those aged twenty to forty demands that one thinks twice, in the children’s own interest, before proceeding, for instance, to transfer a house. Parents, usually retired, are generally exposed to a much smaller risk of foreclosure than younger generations, in the current context of economic crisis characterised by redundancies and bankruptcies in increasing numbers. The crisis is not done yet with letting us discover surprising consequences.
As for commercial real estate, the situation is much simpler. Generally speaking, prices are dropping rapidly in all countries. The supply of offices, commercial centres, shops, hotels, … is disproportionate compared to current demand, in view of the latter’s bearish trend for years to come, in particular. In the United States, there is an ongoing real crash in the commercial real estate market which is of a size never seen until now (see graph below). This contributes directly to the falling income of local authorities (8) and obviously to increase the real liability of American banks (which one day will need to be balanced (9)). Even Manhattan is hard-hit by this great slump in price and turnover (10).
Notes:
(1) The population of Dubai is falling rapidly and some analysts expect a 17% decrease in the population in 2009. Besides the empty office buildings, one can expect a ghost town as regards housing. Source : Kippreport / EFG-Hermes, 29/03/2009
(2) In these small countries where there is a high concentration of recently constructed property, the “post-bubble” market is easy to decipher because one can see empty residential buildings and offices everywhere, half-finished construction sites, … and displayed prices barely changed despite absent buyers. It is the “asset on the balance sheet of a bank” effect: the finance institution prefers to keep the accounting fiction of a full-price asset rather than to rake in the income of a sale agreed at 30% or 50% of that price, which would shrink the asset in the same proportion. In bigger countries, these same “rotten” assets are generally widely scattered and the visualisation of the extent of the problem is hence more difficult. In both cases however, in our team’s view, not later than after summer 2010, the banks will have to face the reality of the “post-crisis world” and start to get rid of their real estate portfolios at the then market price.
(3) And it has become a tenants’ market as it is already the case in Manhattan, a neighbourhood however famous for the scarcity of its flats. In France, like everywhere else, the banks record a continuous increase in the number of failures linked to home loans. Sources : Bloomberg, 25/08/2009 ; Agefi, 01/09/2009
(4) On this subject, for our readers interested in the French real estate, allow us to cite the growing controversy surrounding the French statistics on this issue. Two years ago, we pointed out French opacity in this field compared to other western countries. The crisis visibly allows this case to become public and this is a good thing. Source : Les Echos, 11/09/2009
(5) Even the American government has to acknowledge that millions of new property repossessions are to be expected. It shows how tragic the situation has become. Source : CNBC, 09/09/2009
(6) Even the richest enclaves are now badly hit as illustrated by this panorama in pictures published by Forbes on 25/06/2009.
(7) The article by Diana Olick published by CNBC on 25/08/2009 presents a very informative analysis concerning what is hidden behind the US “good” real estate summer figures. It has also to be kept in mind that every summer the real estate indices are rising… and then go separate ways depending on the time of year.
(8) Source : SFGate, 24/08/2009
(9) The head of the FDIC (the federal body which currently saves at least three banks a week in the United States) stated during a conference in Tokyo that commercial real estate cause more banks to fail in 2009 and 2010 than residential real estate. Source : MarketWatch, 02/09/2009
(10) Source : New York Times, 09/09/2009
(11) Maybe even five years in the UK, as suggested by the Telegraph on 08/31/2009.
Builders End Worst Year Ever
Construction spending in the U.S. fell in December more than anticipated, capping the worst year on record for the industry.
The 1.2 percent decrease to $902.5 billion during the month matched the decline in November that was larger than previously estimated, Commerce Department figures revealed Monday in Washington. Homebuilding decreased 2.7 and commercial projects fell 0.5 percent.
The figures show the industry at the forefront of the deepest recession since the 1930s will be slow to rebound. Foreclosures that are projected to reach record levels this year may restrain homebuilding, while rising office vacancies will probably discourage new commercial projects.
"Commercial construction is still grappling with sky-high vacancy rates and the unwinding of a building boom," Chris Rupkey, chief financial economist at Bank of Tokyo-Mitsubishi UFJ Ltd. in New York, said before the report. "Construction activity is likely to remain mixed as the economy moves further away from the recession.
Economists forecast spending would decline 0.5 percent in December following a previously estimated 0.6 percent drop the prior month, according to the median of 41 projections in a Bloomberg News survey. Estimates ranged from a drop of 2 percent to a gain of 1 percent.
Construction spending dropped 12 percent in 2009, the worst performance since records began in 1964.
Private residential construction spending decreased 2.8 percent in December from a month earlier, the biggest decline since May.
Non-residential construction, including public projects fell 0.5 percent from a month earlier, the report showed.
Privately funded non-residential construction climbed 0.2 percent in December from a month earlier as gains in the building of power and communications plants offset a drop in spending on new factories.
Public construction decreased 1.2 percent from a month earlier.
While housing may benefit this year from the expansion of an $8,000 tax credit for home buyers signed into law by President Barack Obama, foreclosures remain a hurdle.
http://www.pe.com/business/realestate/stories/PE_Biz_W_construction02.3ac36dc.html