Daily Archives: February 4, 2013

Securitization led to riskier corporate lending: NY Fed ( you think?) | Armonk Homes

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2/4/13 3:17pm

A heavy reliance on the loan securitization model not only led to a crisis in the housing market, but similarly led to riskier corporate lending, according to researcher João Santos with the Federal Reserve Bank of New York.

Santos released a report Monday, saying historically banks kept loans on their books after origination, but this model was replaced with a preference for selling off loans on the secondary loan market. Corporate lending wasn’t immune to this trend, Santos claims.

“The securitization of corporate loans grew spectacularly in the years leading up to the financial crisis. Prior to 2003, the annual volume of new collateralized loan obligations (CLOs) issued in the United States rarely surpassed $20 billion. Since then, this activity grew rapidly, eclipsing $180 billion in 2007,” Santos wrote.

Santos says corporate loan securitization gave banks a chance to get these loans off their balance sheets. But Santos concluded, “As with the securitization of other securities, the securitization of corporate loans, however, may lead to looser underwriting standards.”

Click here to read the full report.

via housingwire.com

Housing Packs Punch for U.S. Growth in 2013 and Beyond | Cross River Real Estate

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Climbing home prices are lifting household wealth and boosting the purchasing power of consumers. Declining mortgage delinquencies and foreclosures are buttressing bank balance sheets, giving them greater leeway to lend. And rising property- tax revenue is fortifying the finances of state and local governments, alleviating pressure on them to cut budgets.

“The housing recovery will kick into a higher gear as the year progresses,” said Mark Zandi, chief economist in West Chester, Pennsylvania, for Moody’s Analytics Inc. “We’re going to get a lot of juice from the channels” through which it affects other parts of the economy.

The spreading impact of housing will help the economy weather looming federal government spending cuts and tax increases and keep on growing. Rising residential construction and its knock-on economic effects will boost gross domestic product by about 0.75 percentage point this year, offsetting much of the drag from the fiscal squeeze, according to Zandi. He sees GDP growing at about 2 percent again this year.

Elsewhere, increasing political tension in Europe caused stocks to fall there and in the U.S. The Standard & Poor’s 500 Index decreased 0.7 percent to 1,502.34 at 10:55 a.m. in New York. The Stoxx Europe 600 Index slid 1.2 percent.

A report from the Commerce Department showed U.S. factory orders rose less than forecast in December, reflecting a drop in non-durable goods that partly countered gains in construction equipment and computers.

via bloomberg.com

L.A.’s affordable housing crunch | North Salem Real Estate

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Los Angeles, a city where 63.1% of residents rent their homes, is in the midst of a crisis in rental housing.

A recent study by the U.S. Department of Housing and Urban Development laid out the stark facts. Los Angeles rents have increased, after adjusting for inflation, by nearly 30% over the last 20 years. During the same period, renter incomes have decreased by 6%.

One important part of the problem is an inadequate supply of affordable rental units. Only 37 units are available and affordable for every 100 would-be renters living at the average renter income level.

 

Moreover, the foreclosure crisis, which many predicted would relieve pressure on the rental market by increasing the volume of rental units, has instead exacerbated the problem. Families who lost their homes through foreclosure have turned to the rental market and are competing for units, which has made for an even tighter rental market and more upward pressure on rents.

The effects of the affordability problem extend well beyond those struggling to find places to live. Adequate affordable housing is a key factor for continued growth in a region. Without it, employers can’t hire enough skilled workers, and cities have trouble attracting new businesses.

What’s more, the abolishment of redevelopment agencies in California, which each year provided more than $1 billion statewide and $50 million in Los Angeles alone for affordable housing, has stymied development at a time when we need it most.

It’s against this backdrop that the next mayor will take office. The three leading candidates — Eric Garcetti, Wendy Greuel and Jan Perry — all seem to recognize the challenges, and at a forum last month convened by Housing for a Stronger Los Angeles, they expressed a commitment to solving the city’s housing crisis. Here are some ways the next mayor can address some of the key challenges:

Establish a dedicated, consistent source of funding to support affordable housing. Finding new money in a time of tight budgets is never easy, but for years policymakers have agreed on the need for a dedicated pool of money for city-backed loans to support the construction of affordable housing. This would not be a giveaway because loans would be repaid. Rather, it would be an investment in the city’s future, and the next mayor needs to see that such a fund is created and sustained.

Take advantage of the opportunities presented by transit expansion. Over the next 10 years, Los Angeles will be adding dozens of new transit stations. What happens around these stations could help ease the city’s housing crisis, but only with thoughtful community planning. Yes, we need higher-density, transit-oriented developments, but it will be crucially important to ensure that this housing isn’t exclusively for the affluent. The mayor should lead the way on this.

Attack homelessness with renewed vigor. Los Angeles has more homeless people than any American city other than New York, and the number of homeless veterans continues to be unacceptably high. The next mayor should focus resources from across government and the private sector on addressing the issue. This will require a comprehensive assessment of the needs of those on the streets in order to develop the kinds of assistance and housing that will make the biggest difference.

Address the city’s foreclosure crisis before it debilitates neighborhoods. Concentrated foreclosures can lead to neighborhood distress that extends beyond the foreclosures themselves. The city must provide leadership that limits the extent of this damage, both by working with at-risk neighborhoods to make sure homeowners are aware of the resources available to them and by using the considerable financial leverage it has to encourage lenders to work with homeowners in trouble.

Preserve the affordable units that we have. Construction can ease pressure on rents, but only if it adds units to the total stock of housing. Merely tearing down old units and erecting new ones doesn’t help. The city needs to exercise its zoning and permitting power to encourage development that expands housing opportunities.

Los Angeles is an expensive place to live. Its broad economic base, diverse and interesting population and temperate climate make it a very desirable place to live, which necessarily drives up costs. This won’t change. The next mayor must take an assertive approach and deal with the affordability challenges directly

via latimes.com

 

This Is Housing Bubble 2.0: David Stockman | Mt Kisco Real Estate

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Many have named a U.S. housing recovery as a bright spot in a so-called broader domestic economic recovery.

And data seems to support this analysis, despite a slowdown in sales momentum at the end of the year. Existing home sales in December were up 12.8% from the same time in 2011, with the total number of sales in 2012 rising to the highest level in five years, according to the National Association of Realtors. Meanwhile, the annual price for existing homes also jumped to the highest level since 2005, with the median price of a home up 11.5% in December from the same period in 2011.

 

But David Stockman, former director of the Office of Management and Budget in the Reagan Administration sees little to get excited about.

He tells The Daily Ticker, “I would say we have a housing bubble…again.”

Stockman argues a combination of artificially low interest rates and speculation are to blame, not unlike the last boom and bust cycle in real estate.

“We don’t have a real organic sustainable recovery because in a world of medicated money by the central bank, things aren’t what they appear to be,” Stockman argues.

And according to Stockman, it’s this medicated, cheap money being put to work by investors that’s driving the apparent healing in some of the hardest hit real estate markets in the country.

“It’s happening in the most speculative sub-prime markets, where massive amounts of ‘fast money’ is rolling in to buy, to rent, on a speculative basis for a quick trade,” he contends. “And as soon as they conclude prices have moved enough, they’ll be gone as fast as they came.”

By ‘fast money’, Stockman is referring to professional investors like hedge funds and private equity firms. To his point, global investment firm Blackstone (BX) has spent more that $2.5 billion on 16,000 homes to manage as rentals, according to Bloomberg. It’s now the country’s largest investor in single-family homes to manage as rentals, with properties in nine markets. And Blackstone is joined by others like Colony Capital LLC and Two Harbors Investment Corp. (SBY) in trying to turn this market into a new institutional asset class, Bloomberg reports.

 

Stockman argues the problem in housing is the two forces needed for a recovery, first-time buyers and trade-up buyers, are missing. With the combination of 7.9% unemployment and staggering student loan debt, he doesn’t see a young generation of new home buyers coming into the market. And with baby boomers heading for retirement with less than adequate savings, he thinks they’ll be trading down with their homes, not up.

 

Stockman sees a rise in interest rates as the trigger for any kind of bust. He says you can’t have zero rates forever, referring to the Fed’s ZIRP and quantitative easing policies of the last several years.

“As soon as the Fed has to normalize interest rates, housing prices will stop appreciating and they’ll probably head down,” he explains. “The fast money will sell as quickly as they can and the bubble will pop almost as rapidly as it’s appeared. I don’t know how many times we’re going to do this, and the only people who benefit are the top one percent – the hedge funds, the LBO funds, the fast money people who come in for a trade, make a quick buck, and move along to the next bubble.”

Mortgage rates, for their part, rose from an average 3.42 percent to 3.53 percent on Thursday, the sharpest increase in 10 months, according to the weekly survey of 30-year mortgages by Freddie Mac, the government-backed mortgage company. Even still, mortgage rates are hovering around their lowest levels in more than 30 years.

As for the “American Dream” of home ownership, Stockman argues the past model where the government was trying to get to 69% home ownership was a huge policy mistake that led to no-downpayment loans, liars loans, and a degradation of lending standards. He says the government should have no dog in the hunt when it comes to ownership versus renting.

“Let the market decide,” Stockman says.

via finance.yahoo.com

 

California luxury market outpaces traditional home sales | Bedford Hills Real Estate

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California is known for its rich and famous property owners, but could they be getting richer? The number of California homes that sold for $1 million or more jumped to a five-year high in 2012.

Analysts believe a recovering economy, rising home prices and a record number of cash purchases are all driving factors behind this increase.

Taking things a notch higher, the number of homes sold for more than $5 million reached an all-time high. 

San Diego-based DataQuick reported that a total of 26,993 homes sold for $1 million or more in 2012, a 26.9% increase from the 21,267 sold in 2011.

It seems that the luxury-home market is outpacing overall sales in California. The 2012 luxury-home increase of 26.9% was significantly higher than the 8.2% increase in overall sales. 

“It should go without saying that buyers and sellers in the prestige market tend to respond to different motivations and incentives than the rest of the market,” said John Walsh, DataQuick president. “Job security, down payment sizes and mortgage interest rates don’t play the same role. Returns on investments in a low interest-rate financial environment and safe-haven investing do play a role.”

This shift in sales toward luxury homes has established itself within the past two years.

In the state of California, 697 homes were sold for more than $5 million in 2012, compared to the 491 sold in the Golden State in 2011.

For homes ranging from $4 million to $5 million, a record 460-homes sold, up from the 344 sold in 2011.

DataQuick reported that the most expensive confirmed purchase last year was an 8,930 sq. ft., 4-bedroom, 4.5 bathroom luxury-home in Woodside, Calif., selling for $117,500,000 in November. 

Richard Green, director of the USC Lusk Center for Real Estate, says it’s not surprising that luxury homes are flying off the market right now. 

“If you look at the 1%, they are doing better than everybody else since the recovery started in 2009,” said Green. “The most recent data I’ve seen shows that benefits of the recovery have gone 93% to the top 1%, so it’s not surprising that their demand for housing is stronger than everybody else.”

mhopkins@housingwire.com

via housingwire.com