MBA Refi Index Fell 15.1%

Despite record-low mortgage rates, the number of qualified or willing borrowers continues to drop. The Mortgage Bankers Association refinance index dropped 15.1% while the purchase index dropped a seasonally adjusted 3.3%.

30-year fixed-rate mortgages averaged 5.02% last week, up from 5% the previous week, while 15-year fixed-rate mortgage carried a 4.34% average rate, up from 4.33%.

The Securitized Headwinds Have Not Subsided

This artwork is for those who believe it's a good time to buy a home. Chances are they are sellers, not buyers.

Wonder why?

When Realtors Opine... Run!!!

The chief economist for the National Association of Realtors published this book in 2005 - just months before the peak in real estate prices.

They are now busy trying to find a way to put all their members back to work - otherwise there will be no association soon!

When a realtor speaks economics but doesn't understand that a property is nothing more than a leveraged investment, the result is no different than CNBC "talent" discussing the merits of the stock market.

These are the types of signs that tell you when it's actually better to keep your savings in a mattress!

The Bigger They Are...

January 25, 2010 8:41 a.m. EST

THE WALL STREET JOURNAL

Tishman Abandons Stuyvesant Venture By LINGLING WEI AND MIKE SPECTOR A group led by Tishman Speyer Properties has decided to give up the sprawling Peter Cooper Village and Stuyvesant Town apartment complex in Manhattan to its creditors in the collapse of one of the most high-profile deals of the real-estate boom. The decision comes after the venture between Tishman and BlackRock Inc. defaulted on the $4.4 billion debt used to help finance the deal. The venture acquired the 56-building, 11,000-unit property for $5.4 billion in 2006 -- the most ever paid for a single residential property in the U.S. The venture had been struggling for months to restructure the debt but capitulated facing a massive debt load and a weak New York City economy that has undercut rents and demand for high-priced apartments. The property's owners signaled they would be unable to reach a deal with lenders and instead decided to allow creditors to proceed with what amounts to an orderly deed-in-lieu of foreclosure, which means a borrower voluntarily gives the property back to lenders to avoid a foreclosure proceeding. "It has become clear to us through this process that the only viable alternative to bankruptcy would be to transfer control and operation of the property, in an orderly manner, to the lenders and their representatives," the venture said in a statement to The Wall Street Journal. "We make this decision as we feel a battle over the property or a contested bankruptcy proceeding is not in the long-term interest of the property, its residents, our partnership or the city." The troubles at Stuyvesant Town reflect the dismal condition of the apartment market throughout the country as high unemployment hammers rents and occupancy levels. Hardest-hit are highly leveraged deals done by private companies that, unlike large public real-estate companies, have been closed out of the capital markets. Pressure on the Tishman group has mounted in recent weeks as some of the creditors have threatened to foreclose. In a letter sent to Tishman last week a group including Concord Capital, an affiliate of Winthrop Realty Trust, said it intends to pursue "its rights and remedies," including possibly moving to foreclose on the property within 90 to 180 days. By some accounts, Stuyvesant Town is only valued at $1.8 billion now, less than half the purchase price. By that measure, all the equity investors -- including the California Public Employees' Retirement System, a Florida pension fund and the Church of England -- and many of the debtholders, including Government of Singapore Investment Corp., or GIC, and Hartford Financial Services Group, are in danger of seeing most, if not all, of their investments wiped out. The Tishman venture's decision to hand back the keys represents a defeat for a company that for years represented the gold standard of commercial real-estate deals, reaping high returns for investors. Tishman Speyer owns such trophy assets as Rockefeller Center and the Chrysler Building, and its founder, Jerry Speyer, has been a major player in both real-estate and political circles for years. His son Rob Speyer is being groomed to take over the family real-estate empire. The Stuyvesant Town deal is one of several Tishman Speyer did at the top of the market that the company is trying to save. But the company itself isn't threatened. It took advantage of easy credit and investors' eagerness to buy into real estate during the good times. As a result, it didn't put much of its own cash into deals. Of the $5.4 billion price tag on the Stuyvesant property, Tishman invested only $112 million of its own money, with about $56 million from Jerry Speyer and Rob Speyer, co-chief executives of the New York-based company. Tishman has earned more than $10 million in property-management fees since the Stuyvesant Town acquisition, according to analysts at Deutsche Bank AG. Tishman Speyer "would not consider a long-term management contract to continue operating the property that does not involve ownership," the partnership said in the statement. "Without a restructuring that would keep our ownership group as part of the equity, we felt it best that the new owners install a new management team." The Stuyvesant Town complex was developed by MetLife for returning World War II veterans and remained a middle-class haven even as rents in other parts of the city soared. Tishman's plans were to raise the rents for hundreds of the units to market rates. But the strategy backfired because of a slowing New York economy, a heavy debt load and a court ruling hindering the owners' ability to convert rent-controlled units to market rentals. In January, the property depleted what was left in reserve funds and defaulted on its first mortgage. Nationwide, scores of other apartment deals also are tanking as landlords are being forced to cut rents and offer incentives like flat-screen TVs to attract and retain tenants. San Francisco's Lembi family, the biggest apartment owner in that city, has been forced to give up numerous apartment properties to its lenders because it couldn't repay debt. Investors who purchased commercial-mortgage-backed securities, or CMBS, also are facing losses. In December, more multifamily CMBS loans moved into delinquency than for any other property type, with 113 new loans, totaling $1.1 billion, becoming delinquent, according to Moody's Investors Service. The Stuyvesant Town collapse comes amid mounting woes in the market for retail stores, hotels, apartments and other commercial property. Mall-giant General Growth Properties and hotel-chain Extended Stay Inc. filed for bankruptcy-court protection last year, and more commercial-property projects could fail amid an inability to repay debt because of dwindling rent rolls and still-scarce financing for all but large real-estate investment trusts. The troubles experienced by landlords nationwide are stoking fears among regulators and bankers that turmoil in commercial real-estate may derail the hoped-for economic recovery. Research firm Foresight Analytics estimates delinquencies on commercial real-estate loans held by banks will rise to 9.47% in the fourth quarter, up from 5.49% a year earlier. Meanwhile, the delinquency rate on CMBS stood at 4.9% in December, according to Moody's, up five-fold in just a year.

No Secret Here But...

Home Economics: The 'American Dream' Is a "Scam", James Altucher Says

Posted Jan 22, 2010 10:30am EST by Aaron Task

The past few years have certainly challenged the idea that real estate prices only go in one direction. But the downside of the "American Dream" is even more pronounced, says James Altucher of Formula Capital.

Owning a home has "never been a great investment," Altucher says, noting housing went up a dismal 0.4% annually vs. 8% for the stock market from 1890 to 2004, according to the Social Security Advisory Board.

Moreover, Altucher says the notion buying a home is a ticket to financial security is a "scam" perpetrated on the American people by corporations seeking to keep us in debt, less mobile and with the storage to purchase all sorts of needless consumer goods.

That's a provocative statement, hard to prove, and certainly subject to debate. Such a view also leaves out the intangibles of home ownership, such as the stability and other benefits raising a family in a community can bring.

Still, it's hard to argue with Altucher's main point, as detailed in a recent Daily News article: from a purely economic basis, there's a lot of downsides and hidden costs to home ownership that get lost in the "American Dream" discussion:

• Insurance premium.
• Property taxes (which usually offset any tax deduction you get from your mortgage interest).
• Maintenance (pipes break, electricity problems, etc.).
• Remodeling costs.
• Utilities (utilities and maintenance for renters is often reflected in the rental price, but it's not reflected in a mortgage when you own).
• Yard work, pest control, etc. (again, rents usually have this built into the price, but mortgages don't).
• A down payment of at least 15%, which is $90,000 on a $600,000 home.
  Closing costs, usually 5% of loan amount, or another $25,000.

Rather than concentrating so much of your wealth in a potentially illiquid asset, Altucher says most of us would be better of renting. If you want to bet on a housing recovery - and he does believe housing is a good short-term bet here - Altucher recommends buying a REIT like the iShares FTSE NAREIT Residential Plus Capped Index Fund (REZ).

So if buying a house is a bad investment, should the more than 20% of American mortgage holders currently under water just walk away, as some advocate? Check the accompanying video to hear Altucher's take on this highly controversial topic.

The Appraisal Process Is Readjusting!

Bad Appraisals Would Not be Low Appraisals

The National Association of Realtors (NAR) is unhappy about new regulations that require that appraisers be picked independently of the realtor or the bank issuing the loan. The NAR complains that the appraisals are being driven down by inexperienced appraisers who don't understand the local market in which they are evaluating prices. If true, then it would be expected that there would be more variation in appraisals, but there is no reason that appraisals should come in consistently low. There is no reason to believe that these appraisers would have a bias towards issuing low appraisals.

Once again we have the villian admitting publicly that the game is rigged and corrupt.

THINK about it. Appraisals, by definition, should be almost mechanical, driven by a code of generally accepted and uniform rules.

The fact that the NAR is so intensly interested in controlling the appraisal process is like a siren going off. The NAR is concerned that without control of the process, independent price discovery may blossom and the "free market" may actually have a chance of working.

NO more bubbles?

Sometimes, logic "is" the right answer

"During the bubble years, the median period of homeownership was just 5 years. In prior times it was 7 years overall, but less than 5 years for low- and moderate-income families. With house prices likely to fall another 10-15 percent as the remaining air goes out of the bubble, it is improbable that even a homeowner who ends up with zero equity as a result of a principle write-down will have accumulated any equity at the point where they sell their home.

Furthermore, most modifications are likely to still leave homeowners paying more in ownership costs than they would pay to rent a comparable unit. This means that each month, they are effectively throwing away money that they could otherwise spend on their children, on saving, or other uses. It is difficult to see how this excess spending on housing benefits homeowners and their families."

- Dean Baker, CEPR

RE Market Requires Re-employment - So Dream On!

David Rosenberg had this to say about this very troubling trend:

"We started the decade with a national payroll level of 130.8 million. We finished the decade practically unchanged at 130.9 million. Meanwhile, the total pool of available labour rose from 146 million to 159 million. In other words, we have the same number of jobs today as we did a decade ago, and yet we also have 13 million more people competing for them. It was more than just a lost decade for the equity market. It was a lost decade for the labour market. Today’s report validated the Fed’s concern over the outlook for employment, which dominated the FOMC minutes released earlier in the week. Those pundits calling for an early exit from the central bank’s accommodative stance may have some reconsidering to do."

An even better way to visualize this, is the difference between the total number of civilians employed and the total US population (308.3 million). The number in December is a record 170.5 million. Keep in mind only 137.8 million are currently employed (source: BLS).

The employment picture in America is horrendous and getting worse. Rosenberg again:

"The so-called ‘employment rate’ — the ratio of employment to population — fell 58.2% from 58.5% in November and the cycle peak of 63.4% in 2007. This is extremely significant because what it means is that it would take an expansion in employment of 20 million over the next five years just to get back to those old cycle highs. But here’s the problem — the country has never before managed to come close to creating that number of jobs over a half-decade period, so what the future holds is one of ongoing deflationary labour market pressure as far as the eye can see."

That said, place Hoboken's employment concentration of developers, realtors, bankers and insurers in context and you've got a lot of hope with no REality.

Nov. Pending Home Sales in the Northeast and Midwest down 25.7%

Pending Home Sales Plunge in November, Exactly as Predicted

Pending home sales in the Northeast and Midwest were down 25.7 percent.

---

The National Association of Realtors reported that pending home sales fell 16.0 percent in November, hitting their lowest level since June. Remarkably, this decline appeared to surprise many analysts. It should have been entirely predictable.

In the prior three months, there had been a sharp surge in home sales. This surge was obviously driven by the desire to close on a sale before the expiration of the original first-time buyers tax credit at the end of November. Because it depended on the closing date of a sale, buyers had to sign contracts by mid-October to ensure that they would qualify for the credit. This was before they knew that the credit would be extended.

This created a situation in which many people who would have otherwise purchased their home in 2010, or possibly even 2011, moved their purchase forward to take advantage of the credit. The pending home sales index for October, as well as the existing home sales for November (which reports closings, not contracts), hit their highest levels since 2006, at the peak of the bubble.

The collapse of sales was also foretold by a plunge in purchase mortgage applications in late October and November. People who sign contracts apply for mortgages. When the weekly applications numbers collapsed, hitting their lowest level since the late 90s, it should have been apparent that house sales would fall sharply.

In fact, the decline is likely even worse than the national data may indicate. There were sharp differences by region. While sales in the South were down 15.0 percent, roughly in line with the national average, sales in both the Northeast and Midwest were down 25.7 percent. The November level for the Midwest was the lowest for the year. These sharp plunges were offset by a relatively modest 2.7 percent decline in the West.

Part of the story in the West is that sales peaked in September (October numbers were down by 10.9 percent), but it is also likely that there is a different dynamic taking hold. With prices down by 50 percent or more in some of the former bubble markets, there are likely many investors moving in to buy large numbers of homes. This is helping to place a bottom on these markets.

While this is good news for the West, there is likely to be considerably more weakness in the rest of the country than is generally recognized. This will be amplified in the months ahead as mortgage interest rates rise due to the end of the Fed's mortgage-backed security purchase program. The curtailing of FHA loans will also reduce the number of potential homebuyers. And the ending of the extended homebuyers credit at the end of April will further reduce demand. (The new credit is tied to the signing of the contract rather than the closing of the sale, so it should lead to some boost in sales into May and June.) This weakness virtually ensures that the house price decline will resume somewhere in the next few months, even if we do not get back into the free fall seen last year.

The more newsworthy report this week was the release of construction data showing that both residential and non-residential construction fell in November. Residential construction fell 1.6 percent, which partially reversed an extraordinary jump in October. Private non-residential construction was down only minimally, but the October data was revised down to show a 4.8 percent drop. The November level was 20.6 percent lower than the year ago level.

All the components of the non-residential index are now below their year ago level, most sharply lower, with the exception of power plants. The boom in bio-fuels, that had supported construction of manufacturing facilities, is over and this component is now dropping sharply, off 13.1 percent from its July level. Public construction also edged downward in November, suggesting the boom associated with the stimulus might have reached its peak. While residential construction is likely to be reasonably stable at low levels in 2010, non-residential construction will be a drag on economic growth.

- January 6, 2010

---

CEPR's Housing Market Monitor is published weekly and provides an incisive breakdown of the latest indicators and developments in the housing sector.