Demand for U.S. home loans fell as fixed mortgage rates rose last week in a banking period shortened by the Labor Day holiday, the Mortgage Bankers Association said on Wednesday.
Total applications were nonetheless at one of the highest levels seen since early June, with borrowers still eager to take advantage of the federal first-time home buyer tax credit before the program closes at the end of November.
Borrowing costs stayed relatively low. Average 30-year loan rates rose 0.06 percentage point to 5.08 percent last week, up from the record low 4.61 percent in March, but down from 5.82 percent a year ago, the industry group said.
For a related chart of mortgage rates, right click on the code: and select "Related Graph."
The seasonally adjusted mortgage applications index fell 8.6 percent in the week ended September 11 to 592.8, driven by a 10.3 percent drop in its purchase applications index and a 7.4 percent slide in refinancing demand.
These figures were adjusted to account for Labor Day.
Low borrowing costs and the final push for the first-time buyer credit have stirred demand, but the upside is limited by a supply of unsold homes inflated by foreclosures, industry executives and economists said.
"We still have a lot of inventory in the marketplace and that is continuing to put pressure on pricing, but pricing has come down to a level that has really opened the marketplace to a lot more buyers," said Tom Kunz, chief executive of Century 2 Real Estate in Parsippany, New Jersey.
But there is not enough momentum from repeat buyers, including those selling homes to move-up to larger ones, to sustain the housing boost from first-time buyers, he said.
"We need to stimulate the move-up marketplace because there's too much inventory out there," for first-time buyers to absorb, said Kunz.
The real estate industry is pressing Congress to extend the tax credit to all buyers and increase the size to $15,000 from $8,000. Qualified buyers must close on their loans before November 30 under the current program.
"The housing recovery will be constrained by lingering excess supply," Joshua Feinman, chief economist at Deutsche Bank's DB Advisors, said in a report. "The scars from this crisis will likely keep households and financial intermediaries cautious for some time."
Federal Reserve Chairman Ben Bernanke on Tuesday said that the worst recession since the Great Depression was probably over, but the recovery would be slow and it would take time to create new jobs. To read story, click on (Full story).
That would be good news for housing in that the Fed is expected to keep interest rates low for an extended period to bolster the economy,
But a 26-year high in unemployment and wage cuts have added to the hardships in housing, forcing many homeowners into foreclosure.
Job loss and underemployment spread the pain in housing from the subprime sector, where borrowers often only could afford initial payments with exotic and risky adjustable-rate loans, to "prime" borrowers that favor fixed-rate mortgages.
For the first eight months of the year, 69 percent of homeowners who turned to national nonprofit Consumer Credit Counseling Service of Greater Atlanta for foreclosure prevention help had fixed-rate loans. That was up from 53 percent in the same period last year.
US housing: demand for home loans falls
Demand for U.S. home loans fell as fixed mortgage rates rose last week in a banking period shortened by the Labor Day holiday, the Mortgage Bankers Association said on Wednesday.
US commercial property boom decades away - report
The level of U.S. commercial real estate deals seen in the boom years of 2005 through 2007 may take a generation to return, according to a report by real estate services company Jones Lang LaSalle Inc (JLL - news).
U.S. commercial real estate sales in the first half of 2009 totaled $16 billion, down 80 percent from the same period a year earlier and off 93 percent from the market peak of $231.4 billion in the first half of 2007, according to the firm's U.S. Mid-Year Capital Markets bulletin, released on Wednesday.
At $5.2 billion, second-quarter sales were easily the lowest on record, down from $30.7 billion in the year-earlier quarter and off 95 percent from $114.7 billion in the second quarter 2007.
From the peak of the market to the end of the second quarter 2009, U.S. office asking rents fell on average 10 to 25 percent. Office leasing is down 25 to 50 percent. Commercial real estate prices are off 30 to 55 percent, according to the report.
The credit crisis, which accelerated at the end of last year, essentially shut down mortgage lending and other loans critical for real estate sales and refinancing. Although lending to selected borrowers has resumed somewhat, the U.S. recession has pounded rents and occupancy rates.
"It is unlikely that any true debt liquidity will return to the market until mid-2010 at the earliest," Kenneth Rudy, president of Jones Lang LaSalle's Capital Markets practice, said in a statement.
Meanwhile, first-year yields on the building purchases have moved up 2.5 percentage points. The yield, also called a cap rate, moves inversely to the price, and a 2.5 percent cap rate rise could knock a third off prices.
Prices for office buildings are not expected to begin to recover until at least 2012 because commercial real estate performance, which is based on job growth, lags the economy. The retail and lodging markets also will need additional time to recover as they depend on consumer spending and business travel.
Jones Lang LaSalle predicts that U.S. investors will slowly begin to return to the market by mid-2010, though a return to the boom years of 2005 through 2007 will take a generation or longer.
Instead of $231 billion a year in deals, U.S. commercial real estate sales are likely to hover around $100 million on average for the first several years of the next decade.
U.S. commercial real estate sales in the first half of 2009 totaled $16 billion, down 80 percent from the same period a year earlier and off 93 percent from the market peak of $231.4 billion in the first half of 2007, according to the firm's U.S. Mid-Year Capital Markets bulletin, released on Wednesday.
At $5.2 billion, second-quarter sales were easily the lowest on record, down from $30.7 billion in the year-earlier quarter and off 95 percent from $114.7 billion in the second quarter 2007.
From the peak of the market to the end of the second quarter 2009, U.S. office asking rents fell on average 10 to 25 percent. Office leasing is down 25 to 50 percent. Commercial real estate prices are off 30 to 55 percent, according to the report.
The credit crisis, which accelerated at the end of last year, essentially shut down mortgage lending and other loans critical for real estate sales and refinancing. Although lending to selected borrowers has resumed somewhat, the U.S. recession has pounded rents and occupancy rates.
"It is unlikely that any true debt liquidity will return to the market until mid-2010 at the earliest," Kenneth Rudy, president of Jones Lang LaSalle's Capital Markets practice, said in a statement.
Meanwhile, first-year yields on the building purchases have moved up 2.5 percentage points. The yield, also called a cap rate, moves inversely to the price, and a 2.5 percent cap rate rise could knock a third off prices.
Prices for office buildings are not expected to begin to recover until at least 2012 because commercial real estate performance, which is based on job growth, lags the economy. The retail and lodging markets also will need additional time to recover as they depend on consumer spending and business travel.
Jones Lang LaSalle predicts that U.S. investors will slowly begin to return to the market by mid-2010, though a return to the boom years of 2005 through 2007 will take a generation or longer.
Instead of $231 billion a year in deals, U.S. commercial real estate sales are likely to hover around $100 million on average for the first several years of the next decade.
Property fund investors fear loan breach-study
Almost 9 out of 10 investors in non-listed real estate funds fear a breach of loan covenants by those funds as Europe's credit crisis lingers, a study by trade body INREV showed on Wednesday.
The study showed 88 percent of investors and 85 percent of fund of funds managers were worried about potential breaches in funds which have suffered hefty falls in asset values following a deep global property slump.
"The results clearly show high levels of concerns among investors, but fund managers have identified problems and are tackling them," said Lisette van Doorn, chief executive of the European Association for Investors in Non-listed Real Estate vehicles (INREV).
Van Doorn said the issue highlighted the importance of transparent relationships between investors and bankers and the need for greater vigilance and dialogue on possible solutions before problems arise.
The study also uncovered investor reluctance to commit fresh equity to existing non-listed real estate funds against a backdrop of uncertain credit market conditions.
A third of investors and half of fund of funds managers who had been asked to commit fresh equity to soothe under-pressure loan covenants had rejected requests, INREV said.
"One of the main issues surrounding capital calls, such as those for additional commitments, is the high level of reporting requirements from investors," said Van Doorn.
"Investors want to ensure they have a good understanding of what the money will be used for and in these market conditions such a decision cannot be made lightly," she said.
INREV said investors are most concerned about debt problems for non-listed real estate funds launched in 2006 and 2007, the phase immediately before the crest of the European property boom when capital flows into the sector were at their peak.
In 2006 and 2007, 14.5 billion euros ($20.7 billion) was invested in European non-listed real estate according to the INREV Capital Raising Survey, raising pressure on funds to invest capital at top-of-the-market prices.
The study showed 88 percent of investors and 85 percent of fund of funds managers were worried about potential breaches in funds which have suffered hefty falls in asset values following a deep global property slump.
"The results clearly show high levels of concerns among investors, but fund managers have identified problems and are tackling them," said Lisette van Doorn, chief executive of the European Association for Investors in Non-listed Real Estate vehicles (INREV).
Van Doorn said the issue highlighted the importance of transparent relationships between investors and bankers and the need for greater vigilance and dialogue on possible solutions before problems arise.
The study also uncovered investor reluctance to commit fresh equity to existing non-listed real estate funds against a backdrop of uncertain credit market conditions.
A third of investors and half of fund of funds managers who had been asked to commit fresh equity to soothe under-pressure loan covenants had rejected requests, INREV said.
"One of the main issues surrounding capital calls, such as those for additional commitments, is the high level of reporting requirements from investors," said Van Doorn.
"Investors want to ensure they have a good understanding of what the money will be used for and in these market conditions such a decision cannot be made lightly," she said.
INREV said investors are most concerned about debt problems for non-listed real estate funds launched in 2006 and 2007, the phase immediately before the crest of the European property boom when capital flows into the sector were at their peak.
In 2006 and 2007, 14.5 billion euros ($20.7 billion) was invested in European non-listed real estate according to the INREV Capital Raising Survey, raising pressure on funds to invest capital at top-of-the-market prices.
Foreclosures, unemployment sap Florida economy
Florida's economy is shrinking in another crippling blow to the housing market of the state, which leads the United States in foreclosures and is grappling with record levels of unemployment.
For decades, Florida's ability to attract outsiders has been a driving force behind its economy, making it the fourth-largest U.S. state with about 18.75 million people.
But the recession and joblessness have slammed the brakes on growth, causing the population to drop by 58,000 from April 2008 to April 2009, according to the University of Florida's Bureau of Economic and Business Research.
The first such decline since 1946 raises troubling questions about an economy built on newcomers, who used to pour into the state at a rate of about 1,000 people a day.
Sean Snaith, an economic forecaster at the University of Central Florida, calls it "Florida's population Ponzi scheme."
It's the idea that new Floridians would always be an asset for earlier arrivals, especially the state's disproportionate number of construction workers, real estate brokers and mortgage bankers.
Construction and real estate accounted for nearly a third of all jobs in Florida at the height of its housing boom in 2005, far above the national average.
"There are a couple of places where their economies were basically just feeding themselves off the housing sector, and as that grew and the construction numbers grew so did those economies," said Snaith, referring not just to Florida but to other Sun Belt hot spots still reeling from the U.S. housing meltdown.
"When the housing boom went bust there was very little for some of those regions to fall back on in terms of a diversified economic base, and those are the places that are suffering most profoundly now." said Snaith.
The suffering has been felt across Florida. Chris Lafakis, an economist with Moody's Economy.com, says "nearly one of every four mortgages in Miami is either delinquent or in default and Fort Lauderdale is not far behind."
But few places have been harder hit than Lehigh Acres, a once-booming suburb of Fort Myers in southwest Florida whose cookie-cutter side streets are now pockmarked by vacant lots and empty, foreclosed homes.
Lehigh saw a wild run-up in property values during the boom, but it was decimated when the bubble burst.
Together with nearby Cape Coral on the Gulf Coast, it has become an unwilling poster-child for the national housing disaster as foreclosures continue to erase hundreds of million of dollars in property value.
"AMERICAN DREAM"
Eugen Borosch, a former German auto executive who is invested heavily in Lehigh real estate and owns a local finance company, insists that the free fall in its economy and housing market are only temporary setbacks. It will turn around, he says, as smart buyers realize they can now pick up a $200,000 home for $50,000 to $60,000.
"It's a chance of a lifetime for somebody to fulfill his American dream," said Borosch.
But the dream seems to be over for many residents of Lehigh. Charlotte Rae Nicely, head of Lehigh Community Services, says she has seen a dramatic spike in demand for food and cash handouts from the social agency she runs.
"The first few people that came in here this morning, it's so depressing. They're desperate. They don't know what they're going to do. They're crying when they come in here," said Nicely.
"You see the blue-collar workers coming in here to get help. When I first came to work here it was your typical poor people ... Now it's construction workers who have lost their jobs and they're unable to get another job," she said.
Fort Myers Mayor Jim Humphrey spoke with guarded optimism about the outlook for recovery in the area's housing market.
But Humphrey said the real estate debacle would hopefully serve as a wake-up call about the need to build a more stable economy in Florida and cut its dependence on population inflows and growth for growth's sake.
"We are too much of a service-oriented, retirement-oriented, tourist-oriented area," Humphrey said in an interview on Monday.
"The days of 3 and 4 percent population growth in Florida are gone, and that's going to bring with it a host of challenges in terms of financing government and also in terms of what are going to be the engines of growth for Florida's economy in the decades to come," said Snaith
"We've got to diversify and we've got to do that fast," he added. "It's going to be a shift away from the pure construction driver, the tourism and leisure. Those things are going to be there but we need to develop some other economic muscles," he said.
"Florida relies tremendously on domestic and international immigration to fuel expansion in its service sector and to fuel demand for housing," said Lafakis, who predicts a slow comeback in the state's housing market.
"When one of its biggest assets turns into a weakness, it's going to weigh on growth even more," he said.
For decades, Florida's ability to attract outsiders has been a driving force behind its economy, making it the fourth-largest U.S. state with about 18.75 million people.
But the recession and joblessness have slammed the brakes on growth, causing the population to drop by 58,000 from April 2008 to April 2009, according to the University of Florida's Bureau of Economic and Business Research.
The first such decline since 1946 raises troubling questions about an economy built on newcomers, who used to pour into the state at a rate of about 1,000 people a day.
Sean Snaith, an economic forecaster at the University of Central Florida, calls it "Florida's population Ponzi scheme."
It's the idea that new Floridians would always be an asset for earlier arrivals, especially the state's disproportionate number of construction workers, real estate brokers and mortgage bankers.
Construction and real estate accounted for nearly a third of all jobs in Florida at the height of its housing boom in 2005, far above the national average.
"There are a couple of places where their economies were basically just feeding themselves off the housing sector, and as that grew and the construction numbers grew so did those economies," said Snaith, referring not just to Florida but to other Sun Belt hot spots still reeling from the U.S. housing meltdown.
"When the housing boom went bust there was very little for some of those regions to fall back on in terms of a diversified economic base, and those are the places that are suffering most profoundly now." said Snaith.
The suffering has been felt across Florida. Chris Lafakis, an economist with Moody's Economy.com, says "nearly one of every four mortgages in Miami is either delinquent or in default and Fort Lauderdale is not far behind."
But few places have been harder hit than Lehigh Acres, a once-booming suburb of Fort Myers in southwest Florida whose cookie-cutter side streets are now pockmarked by vacant lots and empty, foreclosed homes.
Lehigh saw a wild run-up in property values during the boom, but it was decimated when the bubble burst.
Together with nearby Cape Coral on the Gulf Coast, it has become an unwilling poster-child for the national housing disaster as foreclosures continue to erase hundreds of million of dollars in property value.
"AMERICAN DREAM"
Eugen Borosch, a former German auto executive who is invested heavily in Lehigh real estate and owns a local finance company, insists that the free fall in its economy and housing market are only temporary setbacks. It will turn around, he says, as smart buyers realize they can now pick up a $200,000 home for $50,000 to $60,000.
"It's a chance of a lifetime for somebody to fulfill his American dream," said Borosch.
But the dream seems to be over for many residents of Lehigh. Charlotte Rae Nicely, head of Lehigh Community Services, says she has seen a dramatic spike in demand for food and cash handouts from the social agency she runs.
"The first few people that came in here this morning, it's so depressing. They're desperate. They don't know what they're going to do. They're crying when they come in here," said Nicely.
"You see the blue-collar workers coming in here to get help. When I first came to work here it was your typical poor people ... Now it's construction workers who have lost their jobs and they're unable to get another job," she said.
Fort Myers Mayor Jim Humphrey spoke with guarded optimism about the outlook for recovery in the area's housing market.
But Humphrey said the real estate debacle would hopefully serve as a wake-up call about the need to build a more stable economy in Florida and cut its dependence on population inflows and growth for growth's sake.
"We are too much of a service-oriented, retirement-oriented, tourist-oriented area," Humphrey said in an interview on Monday.
"The days of 3 and 4 percent population growth in Florida are gone, and that's going to bring with it a host of challenges in terms of financing government and also in terms of what are going to be the engines of growth for Florida's economy in the decades to come," said Snaith
"We've got to diversify and we've got to do that fast," he added. "It's going to be a shift away from the pure construction driver, the tourism and leisure. Those things are going to be there but we need to develop some other economic muscles," he said.
"Florida relies tremendously on domestic and international immigration to fuel expansion in its service sector and to fuel demand for housing," said Lafakis, who predicts a slow comeback in the state's housing market.
"When one of its biggest assets turns into a weakness, it's going to weigh on growth even more," he said.
Property bank-loan defaults at 6-year high--report
Defaults of multifamily and commercial real estate loans from banks climbed to their highest rate since at least 2003, as lenders gave up hope of being repaid in full, according to a report by research firm Real Estate Econometrics.
The default rate of bank loans for shopping centers, office buildings, warehouses and hotels rose to 2.88 percent in the second quarter, up 0.63 percentage points from the prior quarter, according to the report released on Monday.
The default rate for apartment buildings rose 0.68 percentage points in the second quarter to 3.13 percent.
The research firm breaks out multifamily homes separately because of their residential use. The report was based on 8,195 institutions.
Real Estate Econometrics defines the default rate as the percentage of the dollar value of loans that are past due 90 days or more or that are in nonaccrual status -- that is the lender does not expect to receive full payment of interest or principal.
Although commercial loans that were 30 to 90 days delinquent fell $1.97 billion to $12.77 billion in the second quarter and those for multifamily fell $287.1 million to $2.59 billion, the picture did not get brighter. The amount of loans considered nonaccrual dwarfed the amount of payments late 30 to 90 days.
"It tells me that they've got some loans that were delinquent," Sam Chandan, Real Estate Econometrics President and Chief Economist, said. "They followed up on them, and they essentially made the decision that they know they're not going to recover on them."
Loans in nonaccrual status rose by $6.53 billion to $27.76 billion for commercial real estate. Multifamily nonaccrual rose by $1.33 billion to $6.04 billion.
The research firm expects the commercial real estate default rate to climb to 4.1 percent by the end of the year, 5.2 percent by the end of next year and peak at 5.3 percent in the fourth quarter of 2011.
For apartment buildings, Real Estate Econometrics sees the default rate reaching 4.5 percent in the fourth quarter of 2009 and peaking at 5.5 percent at the end of next year. The default rates are not expected to be below 4 percent through 2013, the report said.
The default rate of bank loans for shopping centers, office buildings, warehouses and hotels rose to 2.88 percent in the second quarter, up 0.63 percentage points from the prior quarter, according to the report released on Monday.
The default rate for apartment buildings rose 0.68 percentage points in the second quarter to 3.13 percent.
The research firm breaks out multifamily homes separately because of their residential use. The report was based on 8,195 institutions.
Real Estate Econometrics defines the default rate as the percentage of the dollar value of loans that are past due 90 days or more or that are in nonaccrual status -- that is the lender does not expect to receive full payment of interest or principal.
Although commercial loans that were 30 to 90 days delinquent fell $1.97 billion to $12.77 billion in the second quarter and those for multifamily fell $287.1 million to $2.59 billion, the picture did not get brighter. The amount of loans considered nonaccrual dwarfed the amount of payments late 30 to 90 days.
"It tells me that they've got some loans that were delinquent," Sam Chandan, Real Estate Econometrics President and Chief Economist, said. "They followed up on them, and they essentially made the decision that they know they're not going to recover on them."
Loans in nonaccrual status rose by $6.53 billion to $27.76 billion for commercial real estate. Multifamily nonaccrual rose by $1.33 billion to $6.04 billion.
The research firm expects the commercial real estate default rate to climb to 4.1 percent by the end of the year, 5.2 percent by the end of next year and peak at 5.3 percent in the fourth quarter of 2011.
For apartment buildings, Real Estate Econometrics sees the default rate reaching 4.5 percent in the fourth quarter of 2009 and peaking at 5.5 percent at the end of next year. The default rates are not expected to be below 4 percent through 2013, the report said.
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