Norada Real Estate Investments

20 Tips for a Positive New Year

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Amidst all the difficulties we hear each day in the media about the economy, we must remember that there still are opportunities out there.

Here are 20 tips for a positive new year:

1. Stay Positive. You can listen to the cynics and doubters and believe that success is impossible or you can know that with faith and an optimistic attitude all things are possible.

2. When you wake up in the morning complete the following statement: My purpose is _______________________.

3. Instead of being disappointed about where you are, think optimistically about where you are going.

4. Take a morning walk of gratitude. It will create a fertile mind ready for success.

5. Eat breakfast like a king, lunch like a prince and dinner like a college kid with a maxed out charge card.

6. Transform adversity into success by deciding that change is not your enemy but your friend. In the challenge discover the opportunity.

7. Make a difference in the lives of others.

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The U.S. Housing Market's False Bottom

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Existing home sales surprised the markets by rising 7.4% to an annual rate of 6.54 million units in November, the highest since February 2007, according to the National Association of Realtors (NAR). That's only 10% below the all-time peak in 2005.

What's more is that house prices, as measured by the S&P/Case-Shiller 20-City Home Price Index, rose for the fourth consecutive month in September before stabilizing in October when prices were flat.

The NAR is inevitably convinced that the worst is over and that housing is due for a rapid recovery, and that home prices will take out 2006's peaks some time in 2011 or 2012.

Not so fast, guys!

The recovery in housing has been boosted by just about every artificial means imaginable:

Of course it looks like the housing market has recovered! The question is what happens when some of these subsidies are taken away?   [Read more…]

The Quick and Expected Climb to 6% Mortgage Rates

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Mortgage rates have been steadily climbing, from a low of 4.5% around November 27, 2009 to above 5% on December 22, 2009.  For the past two months I've been warning that this will eventually happen.  It's not because the economy is recovering; it isn't recovering.  The reason mortgage rates will rise to 6% or above, sooner rather than later is because that is the "natural" market.

About a year ago, the Federal Reserve announced a $1.25 Trillion mortgage rates subsidy, by purchasing mortgage-backed securities in the open market, through March, 2010.  Right before the subsidy was announced, mortgage rates were at or above 6%.  The subsidy was referred to as Bernanke's "nuclear option" meaning he was using an extraordinary monetary stimulus to keep mortgage rates artificially low.

One year and 12 months into the 15-month game, we're at $1.07 Trillion spent on this open market MBS purchase program.  This means that the Fed still has about $150 Billion to spend in three months, so mortgage rates should stay around 5%, right?  After all, the Fed only spent $80 billion/month and they have at least 2 months of money left.

Markets are discounting mechanisms meaning that traders anticipate how potent the Fed can be.  The Fed is just about out of bullets and MBS traders know it.  Let me try to give you an example of what the Fed did by recanting the explanation I gave, to a Del Mar Realtor, on the beach this summer.

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Government Handcuffs Real Estate Investors

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Leave it to the government to take a crippled housing market (which they helped destroy) and make it worse by prolonging its recovery.

Regulators have taken a loose and passive role watching the housing bubble inflate.  Now, true to their nature, regulators are making the problem worse with their slow response and lack of real-world solutions.

, in my opinion, have been unfairly squeezed by the ever tightening underwriting guidelines.  We are dealing with larger down payments, higher credit scores, larger cash reserves, and lower debt-to-income ratios.

As a , Fannie Mae and Freddie Mac require you to have a bullet proof credit profile to even be considered for financing. When you consider that investors put up a larger down payment than most home buyers, require better credit, and typically research and with a cash-on-cash return, lenders and regulators should be more willing to finance these solid transactions. They would also help solve the housing crisis by reducing the excess foreclosure inventory sought by rehabbers and wholesalers.

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U.S. Housing Market Intelligence Report (December 2009)

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Categories are graded from A thru F:

Economic Growth: D
The economy remains weak and although some indicators have improved compared to last month, they are improving from very low numbers. The third quarter GDP growth rate was revised downward to +2.8% from the preliminary report of +3.5%. Despite the downward revision, it still marks a great improvement from the second-quarter, and is the first quarterly increase in four quarters.

Job losses have eased slightly compared to last month, yet remain awful compared to history. In the last 12 months the U.S. has lost nearly 4.7 million jobs, which is equal to a decline of 3.4% of the total payroll workforce – representing one of the largest declines in 60 years. The headline unemployment rate surprisingly declined this month, reaching 10.0% in November, down from 10.2% in October.

The U-6, a broader measure of unemployment that covers part-time workers who would like full-time work and those who have given up looking for work, also decreased to 17.2% in November, down from 17.5% in October. Mass layoff events – defined as a cut of 50 or more jobs from a single employer – eased once again in October to 2,127, and marks the first year-over-year decline since August 2007, representing a 3.5% drop compared to last year.

The length of time required to find employment continues to increase, with job seekers taking over twice the normal length of time to find employment. The November CPI (all items) rose to 1.8% from one year ago, while the Core CPI (minus food & energy) remained flat at 1.7%.

Leading Indicators: C-
The U.S. leading indicators took a leg down this month after a run of steady improvements in recent months. In October, the Leading Economic Index 6-month growth rate declined to 10.2%, yet remains one of the largest year-over-year growth rates on record since 1983. Although the ECRI Leading Index, which is a gauge of future economic growth, also declined to 23% since one year ago, it still represents one of the largest growth rates since ECRI began tracking the statistic in 1968.

Stocks continued to perform well throughout November. All four major indices we track have now posted positive year-over-year results, ranging from +17% to +40%, compared to one year ago. The S&P Homebuilding Index inched up in November and has shown a year-over-year improvement for the second time since April 2006. The spread between corporate bonds and the 10-year treasury increased slightly in November, reaching 177 bps. 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. CEOs are now much more confident about the economy, according to the CEO Confidence Index.

Affordability: C-
Affordability improved once again this month as home prices and mortgage rates continued to decline. Our housing-cost-to-income ratio has fallen to 26.1%, which is near the lowest level since data for the index began in 1981. Homeownership costs have fallen drastically in the past year, and now owning the median-priced home is just $54 more expensive than renting the average apartment – and in many parts of the country homeownership costs much less. Due to large job losses and government furloughs, household income has fallen 4% year-over-year to $53,293. Despite the decline in incomes, the median-home-price-to-income ratio remains below the historical average, currently at 3.2. The 30-year fixed mortgage rate continued to decline, reaching 4.78% by November month-end, while adjustable mortgage rates fell to 4.35%. The Fed’s overnight lending target rate remains at a range of 0.00% to 0.25%, which is the lowest level on record. The share of ARM applications declined to 4.8% in the last week of November which is a significantly smaller share than the peak level of 35% of total applications in early 2005.

Consumer Behavior: D-
In general, consumer behavior declined compared to last month. Consumer confidence experienced a negligible uptick compared to last month, reaching 49.5, and remains very low compared to history. Consumer sentiment declined in November to 67.4 and also remains well below the historical average. The Consumer Comfort Index increased slightly in November to a monthly average of -46.4. The personal savings rate fell to 4.4%, which is down from a recent peak in May of 6.9%. The U.S. net worth increased nearly $2.7 trillion dollars in the third quarter from the prior quarter. Despite the recent quarterly improvement, the decline year-over-year of $3.4 trillion remains one of the largest on record. The Misery Index – which is based on the unemployment rate and inflation – increased this month.

Existing Home Market: C-
The change from last month in the existing home market was mixed. According to the National Association of Realtors (NAR), seasonally adjusted annual resale activity continued to experience large gains in October, rising to 6.1 million home sales, and improving 10% from last month. The 12-month rolling count of resale sales activity has also improved for four consecutive months. Resale sales have experienced an increase due to the $8,000 federal tax credit that was set to expire November 30th, before it got extended to Spring 2010. The national median price of an existing single-family home fell to $173,100 in October from $175,900 in September, and has fallen 7% year-over-year. The pace of decline in the Case-Shiller national index, which tracks paired sales, improved drastically in the third quarter, and marks only the second time in over three years that the index decline eased. Although the Case-Shiller national index remains down nearly 9% year-over-year, it is a sharp improvement from 19% decline reported in the first quarter. The monthly 10-market and 20-market Case-Shiller indices also remain down year-over-year, yet have experienced month-over-month improvements since May, and the annual declines have eased in recent months. The number of unsold homes declined again in October, and fell to 7.0 months of supply, reaching very close to the historical average. In October, pending home sales volume improved again, increasing almost 32% year-over-year. As of the third quarter, 23% of all homes with a mortgage throughout the U.S. were worth less than the original value of the mortgage.

New Home Market: D
The new home market was mixed this month. Builder confidence declined in December as the Housing Market Index fell to 16. The seasonally adjusted new home sales volume increased in October compared to September, reaching 430,000 transactions – up 5.1% year-over-year. The median single-family new home price increased to $212,200 in October, but has declined 0.5% year-over-year. The inventory of unsold homes fell to 6.7 months, down from 7.4 months last month, and is a large improvement compared to 12.5 months of supply in the beginning of 2009.

Repairs and Remodeling: D-
The conditions for repairs and remodeling remain poor this month. Homeowner improvement activity worsened in the third quarter, representing a decline of 9.4% year-over-year. The Remodeling Market Index improved to 39.8 in the third quarter, and has rapidly rebounded after bottoming in the fourth quarter of 2008. Despite the recent increases, the index remains well below the historical average of 50. The decline in residential construction eased slightly in October, although it has fallen 24% year-over-year.

Housing Supply: F
Housing supply worsened this month. Total completions improved 9% compared to the prior month, reaching 810,000, although they have fallen 25% year-over-year. Seasonally adjusted new home starts increased this month, as single-family starts rose 2% and multifamily starts improved 67% compared to last month. Seasonally adjusted total permits also increased in November to 584,000 units. Total permit activity has fallen 7% year-over-year and over 74% since its most recent peak in September 2005. Although vacancy rates in the U.S. have improved in recent quarters, the majority of the U.S. remains oversupplied compared to history. Just four states in the U.S. are currently undersupplied – Texas, Louisiana, West Virginia and Iowa.

* US Building Market Intelligence™ report is produced by John Burns Real Estate Consulting.

10 Cities Where Real Estate Is Surging Again

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Housing prices have taken a beating over the last few years all around the country.  However, a few major cities have finally hit bottom and are on their way back.

The question that some are asking now is whether the rebound is temporary, or a clear sign that those markets have come back from their trough.

Here are ten major cities that are clearly on the mend:

City / Market Rebound off
the Bottom		 2009
Bottom		 Y/Y Change (Aug '09) Monthly Change (Aug '09)
Minneapolis, Minnesota 12.94% April – 14% 3.2%
San Francisco, California 12.5% March – 13% 2.8%
Cleveland, Ohio 10.9% March – 3% 0.5%
Denver, Colorado 8.19% February – 2% 1.0%
Dallas, Texas 8.10% February – 1% 0.2%
Washington, D. C. 7.79% March – 8% 1.4%
Boston, Massachusetts 6.94% March – 4% 1.0%
Chicago, Illinois 6.75% April – 13% 2.7%
San Diego, California 6.17% April – 9% 1.6%
Atlanta, Georgia 5.82% March 11% 1.0%

A large percentage of the sales activity today is coming from first-time home buyers and investors.  In some markets this activity makes up over 75% of the total sales volume.

Remember that job growth is the primary driver of housing demand.  And job growth translates into more people with incomes who can buy or rent homes.  These markets have not been affected as much by the high unemployment we see in other parts of the country.

If you are a sitting on the sidelines waiting for a bottom then this may be the nudge you need to get up and start investing.  There are a large number of prudent available today with historically low interest rates to boot!

Mortgage Loan Limits for Conventional, FHA and VA

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The mortgage loan limits and policies established in 2008 and 2009 will continue through 2010.

There are several types of mortgage loan limits. Generally, most borrowers need to look at conventional, FHA and VA loan limits to see how much can be financed with the most-widely originated loans.

If you borrow at or below the conventional loan limit for non-government mortgages, you would have what is generally known as a “conforming” loan. If the amount borrowed is above the conventional loan limit, you would have a “jumbo” loan and face a higher rate because larger loans imply more risk to , the folks who buy mortgages.

Conventional Loans

For 2010 the conventional loan limits depend on the county where you’re located. Instead of one national mortgage limit, we now have one for each county – and there are more than 3,200 counties.

In general terms, 2010 loan limits for a single-family home range from $417,000 to $729,750. Once you know the loan limit for a single-family home in a specific area you can then see the limits for owner-occupied homes with two to four units.

 

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The Housing Bust… The Final Chapter

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The mortgage crisis has been the main shark in the water over the past couple of years. You should know where that shark is and whether or not it is hungry. The chart below shows you those ferocious fish may still have an appetite:

Housing-Bust-1

It shows you that we are past the viscous subprime crisis, when that shark chewed through the balance sheets of a number of banks and financial institutions, in some cases devouring them whole. However, it is not yet safe to get back in the water:

There are these other slices of mortgages that are not quite as risky as subprime that reset in the next couple of years. Years 2010 and 2011 face big resets in so-called Alt-A and Option ARM loans. What this means is more write-downs and more losses for banks and others who hold these mortgages.

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When Will Mortgage Interest Rates Increase?

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Maze-Interest-Rates On November 19, 2009 Freddie Mac recorded an average 30 year mortgage rate at 4.83%, down from 4.91% the previous week. Just over one year ago, the 30 year mortgage rate averaged 6.04%.  So long as you have solid credit and a 20% down payment, whether or homeowner, this time in history is certain to mark historic lows for home buying.  In addition, those who still have equity in their property can take advantage of an incredible refinance opportunity.

Mortgage companies have seen steady rises in applications for refinance, but certainly not at the volumes seen just two years ago. Why isn't everyone flocking to refinance? The answer is quite simple, homeowner appraisals are often below the requirements needed to refinance and many homeowners are dealing with loss of income due to unemployment or wage cutbacks. The only solution is for the economy to pick up and create more jobs along with more competition for increased wages. Unfortunately such a task, although eventually likely, is not in the near future. Economists across the nation are predicting additional declines in jobs during the first quarter of 2010. Job creation is likely to remain slow during most of 2010.

Yet there is still a silver lining to the doom and gloom. It is likely that the federal government will do all they can to keep interest rates low up until actual job creation becomes more robust. Interest rate hikes over the next 6 to 9 months will only occur if outside-international influences force the hand of our financial markets to increase rates. Although a remote chance of this exists, I for one believe we have another year of healthy-low interest rates within the real estate market. Once rates do inch up it is likely to be welcome, so long as inflation remains tame and not hyper.

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The Housing Market is About to Get Even More Oversupplied

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While both the media and stock investors believe that housing has bottomed, they are unaware of the massive supply of homes that are already in the foreclosure process that will certainly drive home prices down even further when they are sold. We have been projecting a “W” shaped recovery for some time, and we are becoming even more convinced that we are right. The shape of the second leg down is almost completely dependent on the level of government intervention that will take place.

For a number of reasons, banks have not been aggressively taking title to homes and selling them, which has resulted in very few distressed sales in comparison to the actual level of distress in the market. This delay in REO sales, along with historically low mortgage rates and an $8,000 tax credit, has helped to stabilize the housing market – temporarily.

It is very clear that price stabilization is temporary unless something is done. Here are some facts to help project what housing will be like in 2010:

[Read more…]

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