Norada Real Estate Investments

Archives for December 2008

Real Estate Investing in 2009

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Real Estate Investing in 2009

Investors have clearly felt the pinch of a capital crunch and slumping U.S. economy. In fact, 60% of real estate investors cite availability of financing as their top concern in 2009 – according to a recent study conducted by Marcus & Millichap and National Real Estate Investor.

The cost and availability of capital remain top concerns for investors as illiquidity in capital markets continues to drag down investment real estate sales. Most respondents are not optimistic that access to capital will improve anytime soon. Nearly 40% of respondents expect debt financing to be more difficult to obtain a year from now, while 37% expect financing to be about the same, and 23% expect it to be easier to obtain.

Refinancing could pose some added challenges to an already cash-strapped market.

Nearly 40% of respondents say they need to refinance at least a portion of their portfolio in the coming year. The greatest hurdles to refinancing cited by respondents are underwriting terms (45%), economic factors (44%), and higher cost of capital (36%).  [Read more…]

Top 10 Economic Predictions for 2009

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The U.S. and world economies are about to suffer through some of the worst recessions in the postwar period. Most measures of economic and financial activity look like they fell off a cliff in September and October, and have been deteriorating at an alarming rate ever since. The United States is now officially in a recession that started in December 2007. Japan and many European countries are in the same boat. At the same time, growth in most emerging markets is faltering. IHS Global Insight now believes that global growth will be in the 0.0 – 0.5% range during 2009, compared with 2.7% in 2008.

  1. THE U.S. RECESSION WILL BE ONE OF THE DEEPEST — IF NOT THE DEEPEST — IN THE POSTWAR PERIOD.
    The current downturn is well on its way to becoming the longest in the past six decades. Based on the December IHS Global Insight baseline forecast for the U.S. economy, it will be the fourth deepest in the postwar period (the 1957 recession was the deepest, followed by the contractions of 1973 – 75 and 1981– 82). Nevertheless, given the very negative tone of the incoming data (including the 533,000 drop in November payrolls), the recession could well be the worst in the postwar period. At the same time, the large back-to-back declines in real GDP predicted for the fourth quarter of 2008 and the first quarter of 2009 (down 5.0% and 3.8%, respectively) are the worst since the 1982 recession, and may easily be the worst in more than six decades. Overall, we expect the U.S. economy to shrink at least 1.8% in 2009.
  2. THE FEDERAL RESERVE AND OTHER CENTRAL BANKS WILL KEEP CUTTING RATES.
    The race to zero is on! The Fed has already cut the federal funds rate to 1% and is likely to take it all the way to zero by the end of January. Once the overnight rate is at zero, the Fed may have to engage in “quantitative easing” (direct purchases of long-term Treasuries). It is already engaging (massively) in unorthodox measures such as buying commercial paper, mortgage-backed securities, credit card debt, and loans to small businesses, students, and car buyers. On December 4, the European Central bank joined the fray by cutting the overnight rate by 75 basis points (to 2.5%), while the Bank of England cut by 100 basis points (to 2.0%). IHS Global Insight now believes that the ECB and BoE will push rates all the way to 1.0% and 0.5%, respectively—and could cut all the way to zero. Most central banks around the world have followed suit. Notably, on November 26, the People’s Bank of China lowered rates by 108 basis points, the largest cut in 11 years and the fourth cut since mid-September.

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Where's the Bottom of the Housing Market?

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Speaking in general terms, we may be far from a bottom in the national real estate housing market. Perhaps the government bailout plans and lower interest rates will help, but I remain skeptical that we will reach a bottom by the second quarter of 2009 – today's general consensus.  Why?

The Mortgage Bankers Association reported that 10% of American homeowners are either behind on payments or in foreclosure. This data has been tracked for over 29 years, and we are at an all-time high, as you might have guessed.

These high numbers suggest that loans to sub-prime borrowers, who perhaps shouldn't have gained approval, are only part of the problem. The sub-prime market got the ball rolling, but now unemployment is making that ball accelerate at a frightening speed.

The U.S. economy lost 1.55 million jobs in the last 6 months. That's the biggest loss of jobs in 30 years. To put this in a little more perspective, 1.55 million is nearly the number of jobs that were lost in the 2001 recession including the months following September 11, 2001 terrorist attacks.

Unfortunately it gets worse.

637,000 people were not counted in the official jobless numbers because they've stopped looking for work, effectively removing themselves from the employment pool.

Another 621,000 people have apparently settled for part-time work because they can't find full-time work. These people count as employed, but it's pretty obvious they will not be contributing much to the GDP by way of spending.

Where's the bottom?

We will reach a bottom of the housing market once we have Stabilization.

Stabilization means the end is in sight. The day will come when the rate of layoffs will slow down and corporate cost-cutting has been done.  However, the latest employment numbers suggest we are a long ways off.

What should you do?

As mentioned in our blog post, “Is it a Good Time to Invest in Real Estate?“, there is an abundance of good real estate deals all over the country today. With real estate values and mortgage rates at historic lows, finding property with neutral or positive cash flow is not difficult to do.

Again, be sure to do your research and buy in markets with the strongest economic fundamentals, then hold on for the long term in order to gain the highest returns.

Is it a Good Time to Invest in Real Estate?

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As we watch the U.S. economy head for its deepest and longest recession since World War II, we ask ourselves if this is a good time to invest in real estate? Especially now as mounting job losses take their toll on consumer confidence and spending.

Last month, U.S. employers cut payrolls at the fastest pace in 34 years as the unemployment rate rose to 6.7%, the highest level since 1993. The 533,000 drop brought cumulative job losses to 1.91 million this year according to the Labor Department in Washington.

Keep in mind that the actual U.S. unemployment rate may be as high as 11% to 13% since the rate published by the Labor Department excludes people who have been unemployed longer than 12 consecutive months.

Additionally, U.S. stocks fell for the fourth time in five weeks as the worsening job market added to concern the recession is deepening.

John Silvia, chief economist at Wachovia Corp. in Charlotte, North Carolina, said the jobs report suggests that the economy shrank at annual rate of 5 percent in the final three months of the year. That would be the biggest contraction since the first quarter of 1982.

So, with all the negative news about our economy is this a good time to invest in real estate?

The short answer is an absolute YES!  Why?

The answer was clearly stated by Sir John Templeton, the legendary investor and mutual fund pioneer.  He said, “The time of maximum pessimism is the best time to buy, and the time of maximum optimism is the best time to sell.”

There is an abundance of good real estate deals all over the country today. With real estate values and mortgage rates at historic lows, finding property with neutral or positive cash flow is not difficult to do.

Be sure to do your research and buy in markets with the strongest economic fundamentals, then hold for the long term in order to gain maximum returns.

Remember that people will always need a place to live!

Investing in San Antonio, Texas

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Founded by Spanish missionaries in the early 1700s, San Antonio, Texas is now the seventh largest city in the United States and the fastest growing region of the state. It is located halfway between the nation's east and west coasts and near other major Texan cities such as Austin, Houston and Corpus Christi.

Considered a gateway of foreign trade, San Antonio is recognized by Business Facilities magazine as one of the five major logistical locations in the country for warehousing and distribution. It benefits from its proximity to Mexico and has reaped the economic rewards of the North American Free Trade Agreement (NAFTA). Over half of the goods moving in and out of Mexico pass through the city of San Antonio and this trade is expected to grow. Plus, thirty percent of the city's retail market demand comes from shoppers living in Mexico.

San Antonio was the nation's second fastest growing major city from 1990 to 2000 according to the US Census Bureau. During that decade, the city grew 14.5 percent to a population of 1,144,646. The reported 2007 population estimate is 1,259,735 indicating a growth rate of 1.4 percent per year over the past seven years.

[Read more…]

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