Norada Real Estate Investments

Archives for March 2010

National Housing Price Slide May Be Over

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A year after record-setting declines, the slide in national housing prices appears to be nearing an end. CoreLogic projects overall price appreciation of 4.5% over the next 12 months.

National home prices were down less than 1% in January compared to one year earlier, and down 1.9% from the previous month, according to First American CoreLogic’s monthly home price index (HPI).

The 0.7% year-over-year decline in January was better than the 3.4% decrease in December. January’s narrowed decline comes exactly one year after the CoreLogic HPI took its biggest annual decline in the 30-year history of the index.

Excluding distressed sales, prices declined 0.4% year-over-year in January, CoreLogic said. That’s better than 3.3% in December 2009.

CoreLogic projects house prices will continue to decline another 3.7% into the spring before bottoming out in April. After prices begin to stabilize, there will be a modest recovery for the balance of 2010. Excluding distressed sales, prices are projected to decreased only another 0.9%.

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Fiscal Survival of the Fittest

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Survival of the fittest applies to economics as well as biology – in fact, some would argue the concept is better applied to the financial arena than any other area of study. Unfortunately, it’s a fact few Americans want to face head on… it goes against the steady diet of “American ingenuity” and the (false) belief that any child born in the good old USA can grow up to be anything they want.  While there are exceptions to every rule, survival of the fittest is an economic trend currently undergoing the equivalent of an ice-age extinction as one era gives rise to an entirely new one. Research by consulting firm McKinsey found a few unsettling statistics that demonstrate the depth of the problem:

Over 70 percent of currently employed Americans work in jobs for which there is low or declining demand. This includes both blue collar and white collar. Competition for jobs that cannot be shipped overseas (healthcare for example) has created high competition which is driving down wages and promoting part-time, per diem, and other “job sharing” situations.

Mainstream stores are doing double-takes as consumers shift spending habits. Not only are brick and mortar stores under heavy competition from online retailers like Amazon but the bleak economy is finally taking a toll.  Violating one of the core marketing principles ‘never undercut your own product', heavy weights ranging from Proctor & Gamble to Macy's are rolling out discount versions of their more expensive popular items.  Cost of Tide got you down?  Don’t worry, you can now buy Tide Basic…a discount version.  Research shows 1/2 of Americans have already reduced spending and 1/3 plan to do so permanently with 18 percent of consumers switching from name brands to generics in the past two years alone.

So, how are Americans spending their money both today and into the near future?

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One in Every 200 Residential Loans Were Fraudulent

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Nationwide, one in every 200 residential loans funded last year, totaling $14 billion, involved fraud, according to First American CoreLogic.  Despite what looks like an unsettling amount of shadiness lurking within the mortgage market, the company says the fraud rate has been steadily declining for the past three years and is now about 25 percent lower than when it peaked in the third quarter of 2007.

Since then, First American notes, lenders have been more aggressive in curtailing mortgage fraud – a prudent reaction considering banks have been forced to buy back billions of dollars in fraudulent loans sold to investors during the boom, when standards were lower and many loans were made without verifying the applicant’s information.  "In 2010, 2011, and 2012 you won’t see nearly the amount of [fraud] reports that you’re seeing today," said Tim Grace, SVP of fraud analytics at First American CoreLogic.

First American CoreLogic says 25 percent of foreclosures show fraud in the initial application, and as much as 70 percent of early payment defaults show indications of fraudulent activity in the application process.  The company’s conclusions are based on its analysis of 80 million loans passing through its proprietary national fraud data repository.

U.S. Housing Market Intelligence Report (March 2010)

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Categories are graded from A thru F:

Economic Growth: D+
Overall economic growth was about the same this month compared to last, and the results for our economic growth metrics were mixed. The revised fourth quarter GDP growth rate increased to 5.9% from the preliminary estimate of 5.7%. Much of the growth was still the result of recent government stimulus and an increase in inventories. The pace of job losses also eased this month, although in the last 12 months the U.S. has lost 3.24 million jobs, which is equal to a decline of 2.5% of the total payroll workforce. The unemployment rate remained flat this month at 9.7%, while the broader measure of unemployment, the U-6, increased to 16.8%. The length of unemployment in the labor force declined slightly to just under 30 weeks this month, yet remains the second highest month on record since the BLS began tracking the statistic in 1948. Personal income improved in January and has returned to positive year-over-year growth for the first time since December 2008, increasing by 1.1%. The CPI (all items) decreased to 2.6% from one year ago, while the Core CPI (minus food and energy) also dropped to 1.6%.

Leading Indicators: C
Overall leading indicators held relatively steady this month, but several individual metrics actually improved. The Leading Economic Index 6-month growth rate declined in January to 9.8% from 12.2% last month, and remains very high compared to history. The ECRI Leading Index – an indicator of future U.S. growth – increased in January to its highest level since May 2008. The index increased 21.5% year-over-year, and has experienced positive year-over-year growth for the past 8 months. Stocks improved in February after declining in January, and all four major indices have now experienced large positive year-over-year growth, ranging from +46% to +62%. The S&P Homebuilding Index also improved this month. The spread between corporate bonds and the 10-year treasury fell in January, declining to 160 bps after peaking at nearly 270 bps in March. Since the 10-year treasury is seen as a risk-free investment, the spread between corporate bonds and the 10-year treasury displays the perceived risk of investing in corporate bonds, which has declined recently as Wall Street has become less worried about businesses failing. According to the 4th quarter CEO Confidence Index, CEOs are now much more confident about the economy. Despite the increase, the outlook index remains lower than earlier this decade. Business credit availability remains very poor, but deteriorated at a slower rate in the first quarter of 2010.

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Jacksonville, Florida Investment Property

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Florida is back!

We just released our latest real estate investment in Jacksonville, Florida.  These are fully refurbished foreclosures within the greater Jacksonville market.  The properties are all tenant occupied and managed by a professional management firm.

The properties provide investors with a positive cash flow of $100 to $250 per month (assuming a 20% down payment), generating a cash-on-cash return of 9.4% within it's first year of operation.

Additionally, all our properties are 25% below market value.  And many are up to 30% below market value.  That is a tremendous return on your investment of 20% down.

These are 3 and 4 bedrooms single-family homes, with 2 to 3 baths, and up to 2 car garages located in desirable neighborhoods.  The fact that they are like-new and fully refurbished makes them an attractive turnkey for novice as well as seasoned investors.

Download the Free Investment Report here: Jacksonville Investment Property

New Home Construction Not Keeping Up With Population Growth

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The US could be heading for a national housing shortage this year despite the real estate sector struggling with healthy inventories, three million foreclosures, falling values, and rising vacancy rates, it is claimed.

Several leading economists are warning that not enough new properties are being built to keep up with expected population growth. They estimate that only a third of what will be needed is currently under construction.

According to Brian Wesbury, chief economist at First Trust Advisors, the US needs to add 1.5 million housing units per year just to keep up with population growth plus another 100,000 for fires and tear downs. ‘We need 1.6 million or more per year. Right now we’re down to about six and a half, seven months’ inventory, whether you look at new homes or existing homes. Housing starts are now between 500,000 and 600,000 a year,’ he said.

‘I think one of the secret investments, if you will, over the next decade is going to be housing. It is extremely cheap, inflation is on the way. But people are running away from it. You know, it’s that old adage – when there’s blood in the streets, that’s when you invest. And this is the time, I think, for real estate,’ Wesbury added.

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