US commercial property market thawing
* Credible buyers just starting to enter market
* Prices expected to be off 40 percent to 50 percent
* Leveraged buyer expected to be wiped out
June 24 (Reuters) - The gap between U.S. commercial property buyers and sellers is narrowing, indicating the shattered market is closer to beginning the painful path to recovery, the head of Prudential Real Estate Investors said on Wednesday.
Prudential Real Estate Investors, or PREI, invests in commercial real estate-related debt and equity on behalf of pension funds and other institutional investors. The alternative investment arm of Prudential Financial Inc (PRU - news) had $42 billion of assets under management, including $26 billion in the United States, at the end of the first quarter.
"Just recently -- and by recently I would measure this in weeks not months -- we've seen the transaction market begin to show some strengthening," Allen Smith, chief executive officer, said at the Reuters Global Real Estate Summit in New York. "Credible players are appearing and bidding on assets.
"We'd seen that earlier, but the people who were showing up to bid frankly weren't terribly credible and often were really not prepared to close," Smith said. "We are now seeing people show up who fall into the institutional category and are clearly ready to close. We're more prepared to act on that as a seller than we might have been in the past."
The bad news is that the bidding prices for the properties are mirroring the speculation of the past few months: values have fallen 40 percent to 50 percent from their peak prices reached in 2007.
Other sellers also are getting closer but have not yet embraced the new price reality, and sales are being discussed but not done at a level that can clearly indicate market prices.
"Intellectually people understand that's where the market is headed, and yet transaction additivity remains extraordinarily low," Smith said.
Commercial real estate sales worldwide in the second quarter are expected to be off 67 percent from a year earlier, according to research firm Real Capital Analytics, with U.S. volume down 83 percent.
With the value declines, PREI's $42 billion in asset value is also likely to be less, Smith said.
The correction in the U.S. commercial real estate market, and even for some of the global markets, is going to be painful for a lot of people, particularly those who bought their properties using liberal amounts of debt financing.
"For a lot of people, particularly those who pursued highly leveraged strategies and entered this downturn 70 percent levered, this is a depression, because you're wiped out," Smith said. "It's going to be pretty bad and it's going to be pretty bad for a couple of years."
Blackstone raises $4.3 bln for Europe property fund
U.S. private equity firm Blackstone Group (BX - news) said on Monday it had raised 3.1 billion euros ($4.3 billion) for a fund to invest in property throughout Europe, as it anticipates the sector's recovery.
The Blackstone Real Estate Partners Europe III fund, which has reached its final close, had initially sought to raise 2.5 billion euros, the company said in a statement.
"(The fund) is well positioned to take advantage of the inevitable recapitalisation of the property sector," Chad Pike, co-head of Blackstone Real Estate, said.
"Given the continued deterioration in the global economy and the lagging nature of the real estate market, we will remain disciplined and cautious in deploying this capital over the coming years," he said.
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Speakers at the Reuters Global Real Estate Summit last week were at odds as to which markets would be quickest to rebound in the hard-hit commercial real estate sector. Generally, they saw any sustained recovery to be far off.
(See www.reutersrealestate.com for the global service for real estate professionals from Reuters)
U.S. housing misery poised to enter new phase
Signs that home prices may have bottomed have stirred hope on Wall Street that the economy is on the mend, yet tight credit and a new foreclosure wave cast doubt on any looming housing revival.
Sales of previously owned U.S. homes rose for a second straight month in May, realty data on Tuesday showed, while the U.S. government and Federal Reserve have designed a number of programs to alleviate a battered housing market.
However, the chief economist of the National Association of Realtors warned of the danger of a "delayed" recovery in housing, with prices down 32 percent nationwide from their peak three years ago.
Big risk factors that could spur more foreclosures include expectations of rising unemployment and the forecast resetting of interest rates on 2.8 million subprime and Alt-A mortgages in the next two years.
Delinquency rates on mortgage payments typically rise in tandem with unemployment, which is expected to top 10 percent after hitting a 25-year high of 9.4 percent in May. And when mortgages interest rates reset, they are typically at higher rates that can cause monthly payments to balloon.
"I'm worried that the investment community is a little too sanguine about how much of the housing pain is behind us and that we might be in the all-clear," said Ronald Temple, co-director of research at Lazard Asset Management in New York.
Against this backdrop comes continuing tightness in housing credit. According to Amherst Securities Group LP, a severe lack of credit outside of government-sponsored mortgages has reduced loans, especially for the purchase of new homes, and is putting further downward pressure on prices.
Authorities are aware of the hurdles housing poses to economic recovery. The U.S. government is trying to stabilize housing by offering incentives for lenders to favorably modify the terms of delinquent mortgages. And the Federal Reserve has pledged to buy as much as $1.25 trillion in mortgage-backed securities to free up funding for new home loans.
FORECLOSURES HITTING THE MORE CREDIT-WORTHY
One in eight U.S. households at the end of March had entered foreclosure or was delinquent on payments, the Mortgage Bankers Association (MBA) said last month.
The number of homes in foreclosure in the first quarter jumped to a record 3.85 percent of outstanding U.S. mortgages, MBA said.
The bulk of recent foreclosures was on prime, fixed-rate loans, extended to the most credit-worthy borrowers and the bedrock of home ownership in America.
The first wave of foreclosures had been mostly on subprime loans offered to the riskiest borrowers.
The foreclosure rate is getting worse and will likely rise to about 4.5 percent, said Patrick Newport, an economist at IHS in Lexington, Massachusetts who closely follows housing.
"What's driving people to leave their homes is a combination of having their house under water and then losing their job," Newport said. "Under water," or negative equity, refers to when the market value of a home is less than the mortgage.
"We're in this vicious cycle and there are no signs that we're getting out of it," Newport said.
Another wave of defaults, this one associated with Alt-A loans, is building.
While Alt-A borrowers in general were more credit-worthy, they included self-documented income histories, which may be problematic, and loans that need to be recast or redone, said Mark Fleming, chief economist at First American CoreLogic.
About 812,000 adjustable-rate mortgages, or 11 percent, have already had their interest rates reset, according to Loan Performance, a unit of First American CoreLogic Inc, a leading provider of real estate and property information.
Compounding the problem for loans facing rate resets is that the potential for negative equity has increased as home prices have fallen more.
"These homeowners are having this issue of resets in an environment where the economic stress is higher, and the cumulative effect of house price declines is higher," Fleming said.
LIMITED CREDIT SQUEEZING HOUSING MARKET
In addition, while analysts and the press have focused on foreclosures and unemployment, the lack of mortgage credit has "received significantly less attention than it deserves" and instead of being addressed, continues to deteriorate, according to Amherst.
Government-sponsored lending, known as agency debt, soared to account for more than 98 percent of U.S. residential loans in the first quarter. That is a dramatic surge from 2005 and 2006 -- the height of the housing boom -- when it was less than 50 percent, according to data that Amherst compiled from Inside MBS & ABS, Loan Performance and its own information.
Mortgage debt held in bank portfolios has dropped, while issuance of subprime and Alt-A loans, the latter accounting for $1 trillion in mortgage issuance in both 2005 and 2006, has plunged. Only $64 billion was issued in that space last year.
While agency activity has picked up considerably, most of that has been for refinancing existing loans, leaving very little credit for new home loans, Amherst said.
New lending has been minimal and one reason for declining home prices is that mortgage credit is very tight, Amherst said.
And declining prices could spell more trouble in the future.
The average U.S. household at the end of March held only 8 percent equity in their home, Temple said. A 20 percent slide in home prices could lead in two years to more than 30 million people who owe more than their homes are worth, he said.
Key data in new U.S. loans, mortgage resets
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Tight credit and a new wave of foreclosures are casting a long shadow over hopes for a vibrant recovery in the U.S. housing market.
Following are key data about adjustable-rate mortgages -- so-called subprime and Alt-A loans -- whose terms will be reset in coming years.
Of 50.4 million mortgages outstanding in the United States, some 812,00 ARMs have already been reset, according to data from Loan Performance, a California-based provider of mortgage data.
Another 6.79 million ARMs are still due to reset, the data show with about 2.8 subprime and Alt-A loans to reset within 24 months. Meanwhile, almost 4 million ARMs will rest after that two-year period, Loan Performance said.
The availability of credit is another key ingredient in the housing market.
Government-sponsored loans soared to account for more than 98 percent of U.S. residential mortgages in the first quarter, a dramatic surge from 2005-06, the peak of the U.S. housing boom, when agency debt totaled less than 50 percent, data show.
Loan originations have tumbled from a surge earlier this decade when estimated new loans averaged more than $3 trillion a year in the five years ending 2006, according to data published by Amherst Securities Group LP of Austin, Texas.
While total loan originations fell to $1.49 trillion in 2008 as the credit crisis deepened, new loans that were not government sponsored plunged more, the data show.
Since July 2008 through April 2009, issuance for subprime and Alt-A loans was nil, Amherst said, citing Loan Performance, Inside MBS & ABA and its own data.
Issuance in the jumbo loan space during that 10-month period was $3.8 billion, down from an annual $9.3 billion over the previous 10 years, data show.
Tight credit and a new wave of foreclosures are casting a long shadow over hopes for a vibrant recovery in the U.S. housing market.
Following are key data about adjustable-rate mortgages -- so-called subprime and Alt-A loans -- whose terms will be reset in coming years.
Of 50.4 million mortgages outstanding in the United States, some 812,00 ARMs have already been reset, according to data from Loan Performance, a California-based provider of mortgage data.
Another 6.79 million ARMs are still due to reset, the data show with about 2.8 subprime and Alt-A loans to reset within 24 months. Meanwhile, almost 4 million ARMs will rest after that two-year period, Loan Performance said.
The availability of credit is another key ingredient in the housing market.
Government-sponsored loans soared to account for more than 98 percent of U.S. residential mortgages in the first quarter, a dramatic surge from 2005-06, the peak of the U.S. housing boom, when agency debt totaled less than 50 percent, data show.
Loan originations have tumbled from a surge earlier this decade when estimated new loans averaged more than $3 trillion a year in the five years ending 2006, according to data published by Amherst Securities Group LP of Austin, Texas.
While total loan originations fell to $1.49 trillion in 2008 as the credit crisis deepened, new loans that were not government sponsored plunged more, the data show.
Since July 2008 through April 2009, issuance for subprime and Alt-A loans was nil, Amherst said, citing Loan Performance, Inside MBS & ABA and its own data.
Issuance in the jumbo loan space during that 10-month period was $3.8 billion, down from an annual $9.3 billion over the previous 10 years, data show.
Burned U.S. banks may stay shy on real estate
The end of the decline in real estate is nowhere near, and yet U.S. banks may feel it shrewd to hold onto troubled loans in the sector rather than sell them or take losses.
"Many of them are remembering that the 'sit on the loan, wait it out, work it out' strategy did pay off for those with the capability and patience to do that back in the early '90s," according to Jacques Gordon, global strategist at LaSalle Investment Management.
Industry experts who spoke at the Reuters Global Real Estate Summit this week were wary about the outlook for banks.
They projected that the commercial real estate downturn is nowhere near bottoming, while demand for home purchases may stay sober until the economy is more clearly in recovery mode and consumer credit conditions improve.
Commercial banks "are going to have to see a few better indicators before the balance of funds begins to flow a little bit," said Richard Dugas, chief executive of Pulte Homes Inc (PHM - news), which will become the nation's largest homebuilder when it finishes buying Centex Corp (CTX - news). "They've simply taken huge hits on their portfolio, and they're not done yet."
That may dissuade banks from making more loans, regardless of whether they plan to keep them or sell them to investors, further dampening activity and economic recovery prospects.
Lender caution "wasn't just a byproduct of real estate activity gone amok, but was a byproduct of the financial system going way overboard," said Allen Smith, chief executive of Prudential Real Estate Advisors. "Real estate was one piece."
REAL PROPERTY, UNREAL PRICES
Commercial property prices have plummeted as sellers essentially capitulate to a lingering recession and still-tight credit. Moody's Investors Service this week said prices in April were down 29.5 percent over the prior year-and-a-half.
Barclays Capital analyst Jason Goldberg this month said commercial real estate "will bear the brunt of future deterioration among the various loan categories" for banks.
He said BB&T Corp (BBT - news), Comerica Inc (CMA - news), Marshall & Ilsley Corp (MI - news), M&T Bank Corp (MTB - news), Regions Financial Corp (RF - news) and Zions Bancorp (ZION - news) are among lenders with more than one-third of their loan portfolios in commercial real estate or construction loans.
"Construction loans are an absolute disaster," said Richard Parkus, head of commercial mortgage-backed securities research at Deutsche Bank Securities Inc.
It is nonetheless difficult to paint heavily exposed banks with a broad brush. BB&T, for example, this month repaid $3.1 billion of federal bailout money it took last year, while many analysts believe Regions may struggle to repay its $3.5 billion without further diluting shareholders' stakes or selling key assets.
Residential real estate is not out of the woods either. Prices of U.S. single-family homes fell 19.1 percent in the first quarter, according to the S&P Case-Shiller Home Price Indices. Economists on average expect April data scheduled for release on Tuesday to show an 18.9 percent drop.
TOO SHY
Many economists believe the decline in home prices is closer to the end than the beginning.
Foresight Analytics LLC, a California-based real estate consultant, this month identified what it called "the beginnings of a recovery" following double-digit peak-to-trough declines in dozens of major markets, including a punishing 60.7 percent drop in the Stockton, California area.
But it also noted that delinquency rates for construction and land loans have tripled since the fourth quarter of 2007, despite an accelerating decline in outstanding construction loans. The rate for condominium construction loans was 32.3 percent in the first quarter, and will head higher, it said.
Parkus said bad market conditions can be a good time for lenders to ramp up activity.
"You can get interest rates that are much, much, much better than what we could in the past," he said. "You can underwrite to extremely low, conservative, stabilized assumptions and produce great loans. It's in the beginning of the cycle that the best loans are always originated."
"Many of them are remembering that the 'sit on the loan, wait it out, work it out' strategy did pay off for those with the capability and patience to do that back in the early '90s," according to Jacques Gordon, global strategist at LaSalle Investment Management.
Industry experts who spoke at the Reuters Global Real Estate Summit this week were wary about the outlook for banks.
They projected that the commercial real estate downturn is nowhere near bottoming, while demand for home purchases may stay sober until the economy is more clearly in recovery mode and consumer credit conditions improve.
Commercial banks "are going to have to see a few better indicators before the balance of funds begins to flow a little bit," said Richard Dugas, chief executive of Pulte Homes Inc (PHM - news), which will become the nation's largest homebuilder when it finishes buying Centex Corp (CTX - news). "They've simply taken huge hits on their portfolio, and they're not done yet."
That may dissuade banks from making more loans, regardless of whether they plan to keep them or sell them to investors, further dampening activity and economic recovery prospects.
Lender caution "wasn't just a byproduct of real estate activity gone amok, but was a byproduct of the financial system going way overboard," said Allen Smith, chief executive of Prudential Real Estate Advisors. "Real estate was one piece."
REAL PROPERTY, UNREAL PRICES
Commercial property prices have plummeted as sellers essentially capitulate to a lingering recession and still-tight credit. Moody's Investors Service this week said prices in April were down 29.5 percent over the prior year-and-a-half.
Barclays Capital analyst Jason Goldberg this month said commercial real estate "will bear the brunt of future deterioration among the various loan categories" for banks.
He said BB&T Corp (BBT - news), Comerica Inc (CMA - news), Marshall & Ilsley Corp (MI - news), M&T Bank Corp (MTB - news), Regions Financial Corp (RF - news) and Zions Bancorp (ZION - news) are among lenders with more than one-third of their loan portfolios in commercial real estate or construction loans.
"Construction loans are an absolute disaster," said Richard Parkus, head of commercial mortgage-backed securities research at Deutsche Bank Securities Inc.
It is nonetheless difficult to paint heavily exposed banks with a broad brush. BB&T, for example, this month repaid $3.1 billion of federal bailout money it took last year, while many analysts believe Regions may struggle to repay its $3.5 billion without further diluting shareholders' stakes or selling key assets.
Residential real estate is not out of the woods either. Prices of U.S. single-family homes fell 19.1 percent in the first quarter, according to the S&P Case-Shiller Home Price Indices. Economists on average expect April data scheduled for release on Tuesday to show an 18.9 percent drop.
TOO SHY
Many economists believe the decline in home prices is closer to the end than the beginning.
Foresight Analytics LLC, a California-based real estate consultant, this month identified what it called "the beginnings of a recovery" following double-digit peak-to-trough declines in dozens of major markets, including a punishing 60.7 percent drop in the Stockton, California area.
But it also noted that delinquency rates for construction and land loans have tripled since the fourth quarter of 2007, despite an accelerating decline in outstanding construction loans. The rate for condominium construction loans was 32.3 percent in the first quarter, and will head higher, it said.
Parkus said bad market conditions can be a good time for lenders to ramp up activity.
"You can get interest rates that are much, much, much better than what we could in the past," he said. "You can underwrite to extremely low, conservative, stabilized assumptions and produce great loans. It's in the beginning of the cycle that the best loans are always originated."
Downsized Americans downsize their homes
Not only is the brutal recession driving more Americans into McDonald's for a cheap meal, but it has also dulled their appetite for McMansions.
Home buyers have lost their enthusiasm for the sprawling houses that cropped up across U.S. suburbs over the past decade. Having learned that property values can go down as well as up, they are flocking to smaller homes that are cheaper to buy, furnish and heat.
Homebuilders -- one of the first sectors to feel the bite of the downturn -- are rushing to accommodate this new frugality among first-time buyers.
Meritage, which gets most of its business from first-time buyers, is going along with the trend. For example, it is selling a three-bedroom, 1,100-square-foot (102-square-meter) home in Phoenix for $95,000.
Those cheaper houses are also easier for buyers to finance in an environment of stricter loan terms. A dearth of credit for all but the best-qualified applicants is also forcing many customers to choose smaller homes.
Energy-efficiency helps make smaller houses appealing, said Meritage Chief Financial Officer Larry Seay, although -- so far -- many buyers balk at the additional $35,000 or so to equip a house with solar panels or equipment to send excess power back to a utility.
Small homes are also cheaper to build. They use fewer raw materials, less labor, and require a smaller lot, while inside the home, customers are cutting out luxuries. Marble countertops are out; Formica is in.
Median new home sizes grew for much of the post-World War Two period, from less than 1,000 square feet (93 square meters) in the 1950s to 1,400 square feet (130 square meters) in 1970, then more than 2,400 square feet (223 square meters) in 2004.
According to U.S. Census data, the median size dipped in 2008 to 2,200 square feet (204 square meters), its first annual decline in 13 years, and has fallen further in 2009.
The reversal reflects Americans' nervousness about the economy and about the stability of their jobs, as well as restrictions lenders have imposed as a result of the ongoing financial crisis.
Homebuilders say they watch unemployment figures for a clue to the direction of their business.
The national jobless rate, at 9.4 percent, is the highest in a quarter-century. Next week's report is expected to show a further rise, bringing the rate closer to double-digits, as another 368,000 people lose their jobs.
U.S. jobs and home sales have headed in the same direction in recent months -- down -- while mortgage rates have risen as bond market investors fret about future inflation and the long-term cost of stimulus spending.
"The far bigger issue is the national economy and, frankly, how we all feel about our individual jobs," Dugas told the summit. "If consumer confidence is better, if we are feeling better about our job prospects, we're going to buy housing."
Right now, few are buying. A bottom for the housing market remains elusive.
Wednesday's weaker-than-expected report on May new home sales underscored the fragility of the market. Sales slipped 0.6 percent from April to an annual rate of 342,000 homes, far below the pace of a year ago.
Buyers remain price-sensitive and often find what they want in an expanding array of foreclosed properties.
"Despite price reductions and value-add upgrades, newly constructed homes simply cannot compete with the values found in the existing homes market," said Bob Walters, chief economist of Quicken Loans.
In terms of home size, a new survey from the American Institute of Architects supports the housing executives' comments. The poll of designers about their clients' tastes found that Americans increasingly prefer smaller homes and lower ceilings, in part because of energy costs.
According to the trade group, 50 percent of architecture firms find clients are choosing homes with smaller square footage, compared with 13 percent who said so in 2005.
Rather than making a home look better for an eventual sale, home owners want to make their space more livable, by fixing up their yards or basements. Almost two-thirds of architects reported demand for better access within the home, reflecting the aging population.
"Home sizes have been trending down recently," AIA chief economist Kermit Baker said. "The era of the 'McMansion' could well be over."
Home buyers have lost their enthusiasm for the sprawling houses that cropped up across U.S. suburbs over the past decade. Having learned that property values can go down as well as up, they are flocking to smaller homes that are cheaper to buy, furnish and heat.
Homebuilders -- one of the first sectors to feel the bite of the downturn -- are rushing to accommodate this new frugality among first-time buyers.
Meritage, which gets most of its business from first-time buyers, is going along with the trend. For example, it is selling a three-bedroom, 1,100-square-foot (102-square-meter) home in Phoenix for $95,000.
Those cheaper houses are also easier for buyers to finance in an environment of stricter loan terms. A dearth of credit for all but the best-qualified applicants is also forcing many customers to choose smaller homes.
Energy-efficiency helps make smaller houses appealing, said Meritage Chief Financial Officer Larry Seay, although -- so far -- many buyers balk at the additional $35,000 or so to equip a house with solar panels or equipment to send excess power back to a utility.
Small homes are also cheaper to build. They use fewer raw materials, less labor, and require a smaller lot, while inside the home, customers are cutting out luxuries. Marble countertops are out; Formica is in.
Median new home sizes grew for much of the post-World War Two period, from less than 1,000 square feet (93 square meters) in the 1950s to 1,400 square feet (130 square meters) in 1970, then more than 2,400 square feet (223 square meters) in 2004.
According to U.S. Census data, the median size dipped in 2008 to 2,200 square feet (204 square meters), its first annual decline in 13 years, and has fallen further in 2009.
The reversal reflects Americans' nervousness about the economy and about the stability of their jobs, as well as restrictions lenders have imposed as a result of the ongoing financial crisis.
Homebuilders say they watch unemployment figures for a clue to the direction of their business.
The national jobless rate, at 9.4 percent, is the highest in a quarter-century. Next week's report is expected to show a further rise, bringing the rate closer to double-digits, as another 368,000 people lose their jobs.
U.S. jobs and home sales have headed in the same direction in recent months -- down -- while mortgage rates have risen as bond market investors fret about future inflation and the long-term cost of stimulus spending.
"The far bigger issue is the national economy and, frankly, how we all feel about our individual jobs," Dugas told the summit. "If consumer confidence is better, if we are feeling better about our job prospects, we're going to buy housing."
Right now, few are buying. A bottom for the housing market remains elusive.
Wednesday's weaker-than-expected report on May new home sales underscored the fragility of the market. Sales slipped 0.6 percent from April to an annual rate of 342,000 homes, far below the pace of a year ago.
Buyers remain price-sensitive and often find what they want in an expanding array of foreclosed properties.
"Despite price reductions and value-add upgrades, newly constructed homes simply cannot compete with the values found in the existing homes market," said Bob Walters, chief economist of Quicken Loans.
In terms of home size, a new survey from the American Institute of Architects supports the housing executives' comments. The poll of designers about their clients' tastes found that Americans increasingly prefer smaller homes and lower ceilings, in part because of energy costs.
According to the trade group, 50 percent of architecture firms find clients are choosing homes with smaller square footage, compared with 13 percent who said so in 2005.
Rather than making a home look better for an eventual sale, home owners want to make their space more livable, by fixing up their yards or basements. Almost two-thirds of architects reported demand for better access within the home, reflecting the aging population.
"Home sizes have been trending down recently," AIA chief economist Kermit Baker said. "The era of the 'McMansion' could well be over."
POLL-U.S. May existing home sales expected to rise
Sales of existing U.S. homes likely rose for a second straight month in May as plentiful supplies and low mortgage rates have opened the resale market to a wider range of buyers, according to a Reuters poll.
Existing homes probably rose to a 4.81 million annual rate in May, which would be the highest level since October, according to a median forecast of 64 economists polled by Reuters. Sales notched a 4.68 million annual pace in April.
This would also be the first back-to-back rise since August and September 2005, according to the National Association of Realtors.
"While sales may not have yet reached an absolute bottom, clearly a bottoming process is underway," Wachovia said in a research note.
Aiding the likely upswing is the rise in pending home sales for three straight months. The data for April released earlier this month showed the biggest monthly gain since October 2001 for pending home sales.
The National Association of Realtors will release U.S. existing-home sales data on Tuesday at 10 a.m. (1400 GMT).
Existing homes probably rose to a 4.81 million annual rate in May, which would be the highest level since October, according to a median forecast of 64 economists polled by Reuters. Sales notched a 4.68 million annual pace in April.
This would also be the first back-to-back rise since August and September 2005, according to the National Association of Realtors.
"While sales may not have yet reached an absolute bottom, clearly a bottoming process is underway," Wachovia said in a research note.
Aiding the likely upswing is the rise in pending home sales for three straight months. The data for April released earlier this month showed the biggest monthly gain since October 2001 for pending home sales.
The National Association of Realtors will release U.S. existing-home sales data on Tuesday at 10 a.m. (1400 GMT).
Fed: central OTC clearing would curb market risk
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Centralized clearing of over-the-counter derivatives would help to reduce the risk that these instruments pose to the wider financial system, a senior Federal Reserve official said on Monday.
Patricia White, associate director of Research and Statistics at the Federal Reserve, said in testimony prepared for the U.S. Senate that OTC derivatives had amplified shocks during the financial crisis, which resulted in the failure of investment bank Lehman Brothers in September.
"The Board believes that moving toward centralized clearing for most or all standardized OTC products would have significant benefits," she told the Senate Subcommittee on Securities, Insurance and Investment.
Regulators have been working to limit the risks of spillover from problems in one market to the wider system. The spillover made matters much worse during the current financial crisis and the White House has proposed a sweeping overhaul of the regulatory structure.
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Reuters Summit-No recovery for US property markets until 2017
The U.S. urban commercial real estate markets probably will not recover until 2017, the head analyst of commercial mortgages for Deutsche Bank Securities (DBKGn.DE - news) said on Monday.
"The froth is still working itself out," Richard Parkus, Deutsche Bank head of Commercial Mortgage-backed Securities and Asset-Backed Securities Synthetics Research said at the Reuters Global Real Estate Summit in New York. "We are currently in something which is comparable to what we saw in the 1990s and potentially worse."
U.S. commercial real estate values could fall by more than 50 percent from the peak in 2007, he said.
Although asking rents are down about 28 percent in New York, factoring in free rent and other perks by landlords, rents are down about 50 percent, Parkus said.
"Rents will be back to where they were in 2017," Parkus said. Building prices also will take six to eight years to recover, he said.
The U.S. commercial markets are deteriorating at an increasing pace as rent dries up and demand plummets. That is leaving borrowers struggling to make their monthly mortgage payments.
"The number of new loans that are becoming delinquent each month are defaulting at rates between 5 percent and 8 percent per year, with the most loosely underwritten loans of 2007 defaults at 8 percent per year, Parkus said. That puts accumulated losses at about 4 percent this year, and 12 percent over the next four years.
Loans loses ranged between 7 and 11 percent a year during the commercial real estate crash of the early 1990s.
"The froth is still working itself out," Richard Parkus, Deutsche Bank head of Commercial Mortgage-backed Securities and Asset-Backed Securities Synthetics Research said at the Reuters Global Real Estate Summit in New York. "We are currently in something which is comparable to what we saw in the 1990s and potentially worse."
U.S. commercial real estate values could fall by more than 50 percent from the peak in 2007, he said.
Although asking rents are down about 28 percent in New York, factoring in free rent and other perks by landlords, rents are down about 50 percent, Parkus said.
"Rents will be back to where they were in 2017," Parkus said. Building prices also will take six to eight years to recover, he said.
The U.S. commercial markets are deteriorating at an increasing pace as rent dries up and demand plummets. That is leaving borrowers struggling to make their monthly mortgage payments.
"The number of new loans that are becoming delinquent each month are defaulting at rates between 5 percent and 8 percent per year, with the most loosely underwritten loans of 2007 defaults at 8 percent per year, Parkus said. That puts accumulated losses at about 4 percent this year, and 12 percent over the next four years.
Loans loses ranged between 7 and 11 percent a year during the commercial real estate crash of the early 1990s.
Low rates for US hotel rooms may outlast recession
As U.S. hotels try to lure a shrinking number of business and leisure travelers, the industry appears to have adopted a new motto -- "Better cheap than empty."
But as hotels slash rates and offer sweet deals to fill empty rooms during the recession, they may regret their largess if customers get permanently spoiled by cheap lodging.
Average daily rates have dropped 8 percent year over year for the U.S. hotel industry, according to PKF Consulting, and major hotel operators have made it easier for their rewards program members to rack up points and free nights.
Through August, Marriott International (MAR - news) is offering one free night with three paid stays at certain hotels. Starwood Hotels & Resorts (HOT - news) is offering a free weekend night for every two paid nights through September, with no blackout dates.
Offers like these can recalibrate what leisure travelers expect to pay for travel and hotels, some experts say.
Compounding the problem, many companies are -- or soon will be -- negotiating corporate hotel rates for up to three years. As market prices falter, those companies will lock in lower rates by reserving facilities for future conventions and meetings.
The challenges to leisure and business travelers' room rates do not bode well for hotels' revenue per available room (RevPAR). By some estimates, RevPAR, the industry's key metric of profitability, won't reach last year's levels until 2013, well after the point where analysts expect the resumption of economic growth.
IS THE PRICE RIGHT?
Hotels can close off rooms and floors, but they don't have the level of flexibility to cut capacity that airlines and cruise lines enjoy.
One lever they employ to deal with fluctuating demand is raising and cutting room rates on a daily basis. This works well in boom times but can hurt results during recessions and economic slumps. After the 2001 recession, it took hotels three years to return rates to their pre-recession levels, closely followed by a rebound in RevPAR.
But hotels did not see the same plunge in corporate spending then as they are seeing now.
The cutback in corporate travel is particularly painful for hotels; business travelers provide the bulk of hotels' revenue and book about two-thirds of overall room nights.
"The post-9/11 cycle was very isolated and business travel returned much faster because the financial services sector was healthy, or certainly healthier than it is today," said Scott Berman, analyst with PricewaterhouseCoopers.
Now, political criticism of business spending has made corporate executives wary of meeting in "places that are fun," Berman said.
The hotel industry has seen RevPAR fall for nine straight months through April, according to Smith Travel Research. And when May figures are finalized this week, they will likely show a 10th month of declines.
Analysts watching weekly RevPAR data have recently noted some stabilization in transient rooms -- rooms occupied by corporate, government or foreign guests. But demand among group travelers, a segment that typically reserves rooms up to three years out, remains weak.
Some argue erosion in rates will not only have a more lasting impact on hotels' RevPAR, but could also mean a drop in profit.
But as hotels slash rates and offer sweet deals to fill empty rooms during the recession, they may regret their largess if customers get permanently spoiled by cheap lodging.
Average daily rates have dropped 8 percent year over year for the U.S. hotel industry, according to PKF Consulting, and major hotel operators have made it easier for their rewards program members to rack up points and free nights.
Through August, Marriott International (MAR - news) is offering one free night with three paid stays at certain hotels. Starwood Hotels & Resorts (HOT - news) is offering a free weekend night for every two paid nights through September, with no blackout dates.
Offers like these can recalibrate what leisure travelers expect to pay for travel and hotels, some experts say.
Compounding the problem, many companies are -- or soon will be -- negotiating corporate hotel rates for up to three years. As market prices falter, those companies will lock in lower rates by reserving facilities for future conventions and meetings.
The challenges to leisure and business travelers' room rates do not bode well for hotels' revenue per available room (RevPAR). By some estimates, RevPAR, the industry's key metric of profitability, won't reach last year's levels until 2013, well after the point where analysts expect the resumption of economic growth.
IS THE PRICE RIGHT?
Hotels can close off rooms and floors, but they don't have the level of flexibility to cut capacity that airlines and cruise lines enjoy.
One lever they employ to deal with fluctuating demand is raising and cutting room rates on a daily basis. This works well in boom times but can hurt results during recessions and economic slumps. After the 2001 recession, it took hotels three years to return rates to their pre-recession levels, closely followed by a rebound in RevPAR.
But hotels did not see the same plunge in corporate spending then as they are seeing now.
The cutback in corporate travel is particularly painful for hotels; business travelers provide the bulk of hotels' revenue and book about two-thirds of overall room nights.
"The post-9/11 cycle was very isolated and business travel returned much faster because the financial services sector was healthy, or certainly healthier than it is today," said Scott Berman, analyst with PricewaterhouseCoopers.
Now, political criticism of business spending has made corporate executives wary of meeting in "places that are fun," Berman said.
The hotel industry has seen RevPAR fall for nine straight months through April, according to Smith Travel Research. And when May figures are finalized this week, they will likely show a 10th month of declines.
Analysts watching weekly RevPAR data have recently noted some stabilization in transient rooms -- rooms occupied by corporate, government or foreign guests. But demand among group travelers, a segment that typically reserves rooms up to three years out, remains weak.
Some argue erosion in rates will not only have a more lasting impact on hotels' RevPAR, but could also mean a drop in profit.
US mortgage rates fall from recent high-Freddie Mac
Interest rates on U.S. 30-year fixed-rate mortgages dropped 0.21 percentage point in the latest week, retreating sharply from a seven-month high.
Freddie Mac, the home funding company, said on Thursday its survey showed interest rates on the 30-year fixed-rate mortgage averaged 5.38 percent, with an average 0.7 point, for the week ending June 18.
That was down from the previous week's 5.59 percent, which was the highest level since the week of Nov. 26, 2008.
Seven weeks earlier, the 30-year fixed-rate mortgage equaled the record low of 4.78 percent that was set the week ending April 2, which was the lowest since Freddie Mac started the Primary Mortgage Market Survey in 1971.
Reuters news, © 2009 Reuters Limited.
Freddie Mac, the home funding company, said on Thursday its survey showed interest rates on the 30-year fixed-rate mortgage averaged 5.38 percent, with an average 0.7 point, for the week ending June 18.
That was down from the previous week's 5.59 percent, which was the highest level since the week of Nov. 26, 2008.
Seven weeks earlier, the 30-year fixed-rate mortgage equaled the record low of 4.78 percent that was set the week ending April 2, which was the lowest since Freddie Mac started the Primary Mortgage Market Survey in 1971.
Reuters news, © 2009 Reuters Limited.
Overview Of Obama Plan For Tightening US Financial Regulation
Below are the main provisions as outlined by administration officials and as detailed in a document obtained by Reuters.
ELIMINATE THRIFT CHARTER, CREATE NATIONAL BANK SUPERVISOR
Bank regulation would be streamlined with a new National Bank Supervisor assuming the functions of both the Office of Thrift Supervision and the Office of the Comptroller of the Currency. The plan would eliminate the charter for thrifts that underlies that U.S. savings and loan industry.
CREATE SYSTEMIC RISK REGULATOR
The plan would make the Federal Reserve the consolidated supervisor of large, systemically important and interconnected firms.
CREATE FINANCIAL SERVICES OVERSIGHT COUNCIL
Chaired by the Treasury Department, the council would fill regulatory gaps in the system. It would replace the President's Working Group on Financial Markets and would play a role in identifying systematically important firms to be regulated by the Fed. In addition to the Treasury secretary, the council would consist of the chairman of the Federal Reserve, the director of the new National Bank Supervisor, the director of the new Consumer Financial Protection Agency, the chairman of the Securities and Exchange Commission, the chairman of the Federal Deposit Insurance Corp and the director of the Federal Housing Finance Agency.
MORE STRINGENT CAPITAL AND LIQUIDITY STANDARDS
Financial institutions would have to strengthen their capital cushions to absorb losses when times are tough, and make themselves more liquid, or be able to move quickly in and out of various holdings, "with more stringent requirements for the largest and most interconnected firms
SECURITIZATION
Asset-backed securities issuers would face new reporting requirements, including loan-level data and compensation information on brokers, originators and sponsors. This information would be available to investors and credit-rating agencies throughout the life of a securitization.
Securitization originators, sponsors or brokers would have to keep at least 5 percent of the performance risk in them. Loan originators would be barred from transferring that risk.
Legal documentation for transactions would be more standardized to improve valuations. The SEC and the Financial Industry Regulatory Authority would expand the TRACE electronic trade reporting database now used for corporate bonds to include asset-backed securities.
Compensation of securitization brokers, originators, underwriters, sponsors and others would link to long-term performance and the interests of borrowers and investors.
Generally Accepted Accounting Principles would be changed to eliminate immediate recognition of "gain on sale" by originators in a securitization, requiring instead that originators reflect income over the life of the assets.
Fees and commissions received by loan brokers and loan officers would spread out over time and decline if a loan runs into trouble due to poor underwriting.
Sponsors of securitizations would have to stand behind securitized products sold to investors with warranties.
CREDIT RATING AGENCIES
Reliance by regulators on credit-rating agencies would be reduced by changing some federal legal requirements covering debt issuance that encourage the use of credit ratings.
CONSUMER, INVESTOR PROTECTION
An independent Consumer Financial Protection Agency would be formed, with the power to write and enforce rules for financial firms dealing with fair lending.
The agency would have the authority to require loan originators to retain 5 percent of credit risk. It would define standards for "plain vanilla" products such as mortgages with straightforward terms; restrict or ban prepayment penalties; and ensure that banks, nonbanks, and independent mortgage brokers follow the same rules.
It would also enforce the Community Reinvestment Act, which encourages banks to make loans in disadvantaged communities.
ELIMINATE THRIFT CHARTER, CREATE NATIONAL BANK SUPERVISOR
Bank regulation would be streamlined with a new National Bank Supervisor assuming the functions of both the Office of Thrift Supervision and the Office of the Comptroller of the Currency. The plan would eliminate the charter for thrifts that underlies that U.S. savings and loan industry.
CREATE SYSTEMIC RISK REGULATOR
The plan would make the Federal Reserve the consolidated supervisor of large, systemically important and interconnected firms.
CREATE FINANCIAL SERVICES OVERSIGHT COUNCIL
Chaired by the Treasury Department, the council would fill regulatory gaps in the system. It would replace the President's Working Group on Financial Markets and would play a role in identifying systematically important firms to be regulated by the Fed. In addition to the Treasury secretary, the council would consist of the chairman of the Federal Reserve, the director of the new National Bank Supervisor, the director of the new Consumer Financial Protection Agency, the chairman of the Securities and Exchange Commission, the chairman of the Federal Deposit Insurance Corp and the director of the Federal Housing Finance Agency.
MORE STRINGENT CAPITAL AND LIQUIDITY STANDARDS
Financial institutions would have to strengthen their capital cushions to absorb losses when times are tough, and make themselves more liquid, or be able to move quickly in and out of various holdings, "with more stringent requirements for the largest and most interconnected firms
SECURITIZATION
Asset-backed securities issuers would face new reporting requirements, including loan-level data and compensation information on brokers, originators and sponsors. This information would be available to investors and credit-rating agencies throughout the life of a securitization.
Securitization originators, sponsors or brokers would have to keep at least 5 percent of the performance risk in them. Loan originators would be barred from transferring that risk.
Legal documentation for transactions would be more standardized to improve valuations. The SEC and the Financial Industry Regulatory Authority would expand the TRACE electronic trade reporting database now used for corporate bonds to include asset-backed securities.
Compensation of securitization brokers, originators, underwriters, sponsors and others would link to long-term performance and the interests of borrowers and investors.
Generally Accepted Accounting Principles would be changed to eliminate immediate recognition of "gain on sale" by originators in a securitization, requiring instead that originators reflect income over the life of the assets.
Fees and commissions received by loan brokers and loan officers would spread out over time and decline if a loan runs into trouble due to poor underwriting.
Sponsors of securitizations would have to stand behind securitized products sold to investors with warranties.
CREDIT RATING AGENCIES
Reliance by regulators on credit-rating agencies would be reduced by changing some federal legal requirements covering debt issuance that encourage the use of credit ratings.
CONSUMER, INVESTOR PROTECTION
An independent Consumer Financial Protection Agency would be formed, with the power to write and enforce rules for financial firms dealing with fair lending.
The agency would have the authority to require loan originators to retain 5 percent of credit risk. It would define standards for "plain vanilla" products such as mortgages with straightforward terms; restrict or ban prepayment penalties; and ensure that banks, nonbanks, and independent mortgage brokers follow the same rules.
It would also enforce the Community Reinvestment Act, which encourages banks to make loans in disadvantaged communities.
May US foreclosures 3rd highest on month on record
U.S. foreclosure activity for May, while not as bad as Aprils record setting number, still failed at a staggering pace.
Foreclosure filings dipped 6 percent in the month but increased 18 percent from May 2008, marking the third highest month on record.
Temporary freezes on foreclosure activity ended in March. Failures of many seriously delinquent loans that were put on hold during those moratoria have been thrust back into the foreclosure cycle.
One in every 398 households with loans got a foreclosure filing in May. Filings, which include notices of default and auctions, were reported on 321,480 properties last month.
Stemming foreclosures is seen critical to bolstering home prices, consumer confidence and the recessionary U.S. economy.
Bank repossessions, known as real-estate owned or REOs, rose in May and should spike in coming months because the moratoria ended, RealtyTrac said.
The administration's plans to ease loan modifications and refinancing were detailed in early March and haven't been implemented long enough to derail foreclosures.
The hurdles are high. Unemployment reached a nearly 26-year peak in May and mortgage rates have leaped a percentage point from their spring lows to more than 5-1/2 percent.
"One of the cures to this problem is enough buying activity to eat up the inventory of distressed properties," Sharga said. "If mortgage rates go up to where people decide to wait out the market again, that's just going to add to the inventory numbers and put more downward pricing pressure on all homes."
RealtyTrac forecasts about 4 million foreclosure filings will be made this year on about 3.1 million households with loans. Last year, there was a record 3.1 million filings on about 2.4 million households.
States where sales and prices soared most in the five-year housing boom earlier this decade remained the hardest hit.
Nevada stayed at the top of the foreclosure rate rankings by state, with one in every 64 housing units getting a foreclosure filing. California, Florida and Arizona, Michigan, Georgia, Colorado, Idaho and Ohio were the other states with the highest foreclosure rates.
Ten states, led by California, accounted for almost 77 percent of total number of foreclosure actions in May.
Foreclosure filings dipped 6 percent in the month but increased 18 percent from May 2008, marking the third highest month on record.
Temporary freezes on foreclosure activity ended in March. Failures of many seriously delinquent loans that were put on hold during those moratoria have been thrust back into the foreclosure cycle.
One in every 398 households with loans got a foreclosure filing in May. Filings, which include notices of default and auctions, were reported on 321,480 properties last month.
Stemming foreclosures is seen critical to bolstering home prices, consumer confidence and the recessionary U.S. economy.
Bank repossessions, known as real-estate owned or REOs, rose in May and should spike in coming months because the moratoria ended, RealtyTrac said.
The administration's plans to ease loan modifications and refinancing were detailed in early March and haven't been implemented long enough to derail foreclosures.
The hurdles are high. Unemployment reached a nearly 26-year peak in May and mortgage rates have leaped a percentage point from their spring lows to more than 5-1/2 percent.
"One of the cures to this problem is enough buying activity to eat up the inventory of distressed properties," Sharga said. "If mortgage rates go up to where people decide to wait out the market again, that's just going to add to the inventory numbers and put more downward pricing pressure on all homes."
RealtyTrac forecasts about 4 million foreclosure filings will be made this year on about 3.1 million households with loans. Last year, there was a record 3.1 million filings on about 2.4 million households.
States where sales and prices soared most in the five-year housing boom earlier this decade remained the hardest hit.
Nevada stayed at the top of the foreclosure rate rankings by state, with one in every 64 housing units getting a foreclosure filing. California, Florida and Arizona, Michigan, Georgia, Colorado, Idaho and Ohio were the other states with the highest foreclosure rates.
Ten states, led by California, accounted for almost 77 percent of total number of foreclosure actions in May.
Rise in Mortgage Rates Threatens Housing Recovery - 30 Year Fixed Rate Up To 5.5%
A dizzying rise in U.S. mortgage rates this week has left homeowners worried about the government's ability to revive the housing market as a means to economic recovery.
Higher mortgage rates could hinder a rebound in housing this year, where cheaper loans and lower prices have enticed buyers to cut into the inventories of unsold homes.
Loan refinancings to take advantage of lower rates have also been key supports of the housing market in 2009, providing a rare bright spot for a market buffeted by rising defaults, foreclosures, and falling prices.
The level of interest rates is central to President Barack Obama's efforts to break the decline in housing, where prices which have fallen more than 30 percent since the 2006 peak are causing a vicious cycle of foreclosures. Housing is also seen as a driver of a recovery in the U.S. economy which is hanging in a delicate balance between growth and a deeper recession.
The surge in 30-year mortgage rates to as high as 5.5 percent this week from 4.875 percent a week ago doused refinancing activity by homeowners who had been making applications at their fastest pace since 2003, brokers said.
A bond market rally on Friday softened the blow, but the magnitude of the mortgage rate spike this week could mean record low rates near 4.5 percent seen earlier this year will not be seen again.
The rise in rates to 5.5 percent leaves half of U.S. mortgages with at least a 0.4 percentage point incentive to refinance, down from about 90 percent when rates were at 5.0 percent, said Scott Buchta, a strategist at Guggenheim Capital Markets in Chicago.
Rates on 30-year fixed home loans soared this week as concerns of rising U.S. government debt yields increased investors' risks of owning mortgage-backed securities.
The worry offset a so far successful program by the Federal Reserve to lower mortgage costs through weekly purchases of more than $20 billion in mortgage backed securities (MBS) since mid-March.
The Fed has spent more than $500 billion of its pledge to buy up to $1.25 trillion of the securities in total.
Analysts now assert the Fed will have to get more more aggressive to hold rates down, perhaps by boosting purchases of U.S. Treasury securities in an effort to reduce those yields which are a benchmark for home mortgage calculations.
Such a further move by the Fed could have a counterproductive effect on mortgage rates though.
Investors this week worried that Fed MBS and Treasury purchases will expand the money supply and fuel faster inflation and so they have demanded higher yields. Accelerated Fed buying may only feed that cycle, said Thomas Lawler, founder of Lawler Economic & Housing Consulting in Leesburg, Virginia.
"The Fed can't really control long-term interest rates," Lawler said. "It can have short-term effects, but if it is buying Treasuries by creating money, they are going to be the only buyer."
The stakes are high for the housing market, which in fits and starts is trying to extricate itself from a downturn not seen since the Great Depression. One industry report this week illustrated a mixed market, showing sales of existing homes rising but inventories also up and home prices falling.
Interest rate reductions had reduced likely house price declines for the remainder of 2009 to around 20 percent, from 39 percent, according to a Lazard Asset Management estimate before this week's Treasury and mortgage bond routs.
Home prices fell 7.0 percent in the first three months of 2009, per Standard & Poor's/Case-Shiller Home Price Indexes.
Fed purchases of mortgage bonds have helped reduce rates between 1.6 and 2.2 percentage points, cutting monthly payments to the typical borrower by 16 percent to 22 percent, Lazard's Temple said in a research note earlier this week. That savings has since been reduced significantly.
Lower mortgage rates not only increased housing demand but also freed cash for consumer debt reduction or spending.
Higher mortgage rates could hinder a rebound in housing this year, where cheaper loans and lower prices have enticed buyers to cut into the inventories of unsold homes.
Loan refinancings to take advantage of lower rates have also been key supports of the housing market in 2009, providing a rare bright spot for a market buffeted by rising defaults, foreclosures, and falling prices.
The level of interest rates is central to President Barack Obama's efforts to break the decline in housing, where prices which have fallen more than 30 percent since the 2006 peak are causing a vicious cycle of foreclosures. Housing is also seen as a driver of a recovery in the U.S. economy which is hanging in a delicate balance between growth and a deeper recession.
The surge in 30-year mortgage rates to as high as 5.5 percent this week from 4.875 percent a week ago doused refinancing activity by homeowners who had been making applications at their fastest pace since 2003, brokers said.
A bond market rally on Friday softened the blow, but the magnitude of the mortgage rate spike this week could mean record low rates near 4.5 percent seen earlier this year will not be seen again.
The rise in rates to 5.5 percent leaves half of U.S. mortgages with at least a 0.4 percentage point incentive to refinance, down from about 90 percent when rates were at 5.0 percent, said Scott Buchta, a strategist at Guggenheim Capital Markets in Chicago.
Rates on 30-year fixed home loans soared this week as concerns of rising U.S. government debt yields increased investors' risks of owning mortgage-backed securities.
The worry offset a so far successful program by the Federal Reserve to lower mortgage costs through weekly purchases of more than $20 billion in mortgage backed securities (MBS) since mid-March.
The Fed has spent more than $500 billion of its pledge to buy up to $1.25 trillion of the securities in total.
Analysts now assert the Fed will have to get more more aggressive to hold rates down, perhaps by boosting purchases of U.S. Treasury securities in an effort to reduce those yields which are a benchmark for home mortgage calculations.
Such a further move by the Fed could have a counterproductive effect on mortgage rates though.
Investors this week worried that Fed MBS and Treasury purchases will expand the money supply and fuel faster inflation and so they have demanded higher yields. Accelerated Fed buying may only feed that cycle, said Thomas Lawler, founder of Lawler Economic & Housing Consulting in Leesburg, Virginia.
"The Fed can't really control long-term interest rates," Lawler said. "It can have short-term effects, but if it is buying Treasuries by creating money, they are going to be the only buyer."
The stakes are high for the housing market, which in fits and starts is trying to extricate itself from a downturn not seen since the Great Depression. One industry report this week illustrated a mixed market, showing sales of existing homes rising but inventories also up and home prices falling.
Interest rate reductions had reduced likely house price declines for the remainder of 2009 to around 20 percent, from 39 percent, according to a Lazard Asset Management estimate before this week's Treasury and mortgage bond routs.
Home prices fell 7.0 percent in the first three months of 2009, per Standard & Poor's/Case-Shiller Home Price Indexes.
Fed purchases of mortgage bonds have helped reduce rates between 1.6 and 2.2 percentage points, cutting monthly payments to the typical borrower by 16 percent to 22 percent, Lazard's Temple said in a research note earlier this week. That savings has since been reduced significantly.
Lower mortgage rates not only increased housing demand but also freed cash for consumer debt reduction or spending.
US Congress sets many hearings on financial reform
Congressional committees have tentatively scheduled more than a dozen hearings between now and mid-July to examine proposals to overhaul U.S. financial regulation, said congressional aides on Monday.
Hearings not previously announced include one on Monday, June 22, at the Senate securities subcommittee focused on regulating over-the-counter derivatives, a Senate aide said.
Witnesses at that hearing are expected to include Securities and Exchange Commission Chairman Mary Schapiro, Commodity Futures Trading Commission Chairman Gary Gensler and bank executives, the aide said.
The House Financial Services Committee and the House Agriculture Committee have tentatively scheduled a joint hearing on the same topic for June 23, said a House aide.
The House Financial Services Committee and subcommittees have tentatively set hearings on regulatory restructuring for June 24, 25 and 26, and July 15, 16 and 17, the aide said.
U.S. Treasury Secretary Timothy Geithner is scheduled to testify on Thursday before the Senate Banking Committee and the House Financial Services Committee on regulatory reform.
The House capital markets subcommittee will hold a hearing on Tuesday on insurance industry oversight.
Reuters news, © 2009 Reuters Limited.
Hearings not previously announced include one on Monday, June 22, at the Senate securities subcommittee focused on regulating over-the-counter derivatives, a Senate aide said.
Witnesses at that hearing are expected to include Securities and Exchange Commission Chairman Mary Schapiro, Commodity Futures Trading Commission Chairman Gary Gensler and bank executives, the aide said.
The House Financial Services Committee and the House Agriculture Committee have tentatively scheduled a joint hearing on the same topic for June 23, said a House aide.
The House Financial Services Committee and subcommittees have tentatively set hearings on regulatory restructuring for June 24, 25 and 26, and July 15, 16 and 17, the aide said.
U.S. Treasury Secretary Timothy Geithner is scheduled to testify on Thursday before the Senate Banking Committee and the House Financial Services Committee on regulatory reform.
The House capital markets subcommittee will hold a hearing on Tuesday on insurance industry oversight.
Reuters news, © 2009 Reuters Limited.
US housing starts jump in May, inflation muted
New U.S. housing starts and permits surged in May from record lows, while producer prices rose at a slower pace despite higher gasoline prices, boosting prospects for the economy's recovery from recession.
The Commerce Department said on Tuesday housing starts jumped 17.2 percent to a seasonally adjusted annual rate of 532,000 units, as ground-breaking for multifamily units surged 61.7 percent after falling 49.4 percent in April.
Housing market data, including new and existing home sales have shown signs of bottoming in the slide, but the surge in mortgages rates following a spike in Treasury debt yields could hamper the sector's recovery.
Benchmark government bond yields jumped to an eight-month high last week on concerns the government's effort to pull the economy out of a 18-month old recession would push the country budget deficit to unsustainable levels and undermine the value of its assets.
The housing market's collapse is the main trigger of the longest U.S. decline in output since the Great Depression. A survey on Monday showed U.S. home builder sentiment eased in June as builders and buyers fretted over rising mortgage costs.
Compared to the same period last year, housing starts dived 45.2 percent. New building permits, which give a sense of future home construction, rose 4.0 percent, the biggest advance since June last year, to 518,000 units in May.
Building completions fell 3.3 percent to 811,000 units, dragged down by single family homes which fell 9.4 percent to a record low 491,000 units. Completions for multifamily units rose 7.7 percent in May.
The slower pace of increase in May producer prices was a relief for investors who of late have been preoccupied with inflation in the wake of the surge in government bond yields.
Compared with the same period last year, producer prices fell 5.0 percent for the largest decline since August 1949, the Labor Department said.
The Commerce Department said on Tuesday housing starts jumped 17.2 percent to a seasonally adjusted annual rate of 532,000 units, as ground-breaking for multifamily units surged 61.7 percent after falling 49.4 percent in April.
Housing market data, including new and existing home sales have shown signs of bottoming in the slide, but the surge in mortgages rates following a spike in Treasury debt yields could hamper the sector's recovery.
Benchmark government bond yields jumped to an eight-month high last week on concerns the government's effort to pull the economy out of a 18-month old recession would push the country budget deficit to unsustainable levels and undermine the value of its assets.
The housing market's collapse is the main trigger of the longest U.S. decline in output since the Great Depression. A survey on Monday showed U.S. home builder sentiment eased in June as builders and buyers fretted over rising mortgage costs.
Compared to the same period last year, housing starts dived 45.2 percent. New building permits, which give a sense of future home construction, rose 4.0 percent, the biggest advance since June last year, to 518,000 units in May.
Building completions fell 3.3 percent to 811,000 units, dragged down by single family homes which fell 9.4 percent to a record low 491,000 units. Completions for multifamily units rose 7.7 percent in May.
The slower pace of increase in May producer prices was a relief for investors who of late have been preoccupied with inflation in the wake of the surge in government bond yields.
Compared with the same period last year, producer prices fell 5.0 percent for the largest decline since August 1949, the Labor Department said.
Obama to step up regulation of asset-backed securities
According to a Treasury spokesman on Monday,The Obama administration plans to give the SEC additional powers to enforce issuers of asset-backed securities to disclose loan level data. This is a big difference from the previous rules, which allowed all data to not be made public, thereby creating a market with virtually no transparency to the investor. The plan which should be unveiled on Wednesday by Treasury Secretary Timothy Geithner, would also require credit rating agencies to differentiate between structured products and corporate bonds.
Venture capitalists optimistic about China-survey
Venture capitalists are optimistic about the future -- but many believe that future is in China, a survey by their national group showed.
The survey of 725 venture capitalists around the world found that 42 percent expected more investment in China, with the United States likely to lose steam.
The National Venture Capital Association, working with Deloitte Touche Tohmatsu, found they thought China had the most to gain in terms of overall economic stature in the coming three years, compared to only 24 percent for the United States.
"That means 42 percent expect more startup investment in China," a Deloitte spokeswoman said.
By contrast, a majority -- 57 percent -- said that the United States had the most to lose over the next three years. Only 12 percent said that about China.
The survey of 725 venture capitalists around the world found that 42 percent expected more investment in China, with the United States likely to lose steam.
The National Venture Capital Association, working with Deloitte Touche Tohmatsu, found they thought China had the most to gain in terms of overall economic stature in the coming three years, compared to only 24 percent for the United States.
"That means 42 percent expect more startup investment in China," a Deloitte spokeswoman said.
By contrast, a majority -- 57 percent -- said that the United States had the most to lose over the next three years. Only 12 percent said that about China.
US 30-year mortgage rate dropped on Monday-Zillow
Interest rates on U.S. 30-year fixed-rate mortgages fell to 5.52 percent late Monday after hovering at 5.67 percent on Friday, according to real estate Website Zillow.com.
That is down sharply from a week earlier when the mortgage rate was around 5.72 percent, according to Zillow Mortgage Marketplace.
The lower rates reflect a fall in yields on U.S. government bonds, which are linked to the mortgage market.
The rate, however, is sharply higher than the roughly 5.00 percent level seen at the end of May and at the beginning of this year, Zillow said.
The move higher in mortgage rates recently collapsed home loan refinancing activity.
The worst of the U.S. housing market's meltdown, however, may be over.
Builders have slashed construction, so that inventory of new single-family homes is falling at a record pace, with starts at or close to the bottom, she said in research published Friday.
The last element to bottom probably will be home prices, with national home prices expected to fall a cumulative 40 percent from the peak through the second half of 2010, she said.
The battered U.S. housing market, which is in the midst of its worst downturn since the Great Depression, is both the source of and a major casualty of the credit crisis.
A setback for the market could hamper a turnaround of the U.S. economy.
That is down sharply from a week earlier when the mortgage rate was around 5.72 percent, according to Zillow Mortgage Marketplace.
The lower rates reflect a fall in yields on U.S. government bonds, which are linked to the mortgage market.
The rate, however, is sharply higher than the roughly 5.00 percent level seen at the end of May and at the beginning of this year, Zillow said.
The move higher in mortgage rates recently collapsed home loan refinancing activity.
The worst of the U.S. housing market's meltdown, however, may be over.
Builders have slashed construction, so that inventory of new single-family homes is falling at a record pace, with starts at or close to the bottom, she said in research published Friday.
The last element to bottom probably will be home prices, with national home prices expected to fall a cumulative 40 percent from the peak through the second half of 2010, she said.
The battered U.S. housing market, which is in the midst of its worst downturn since the Great Depression, is both the source of and a major casualty of the credit crisis.
A setback for the market could hamper a turnaround of the U.S. economy.
Banker`s Social Media Ebook Tops Internet Most Viewed List
The Center for Financial Executive Education ("CFEE") and banker Jesse Torres (@jstorres) today announced that his recently released ebook, "Community Banker`s Guide to Social Network Marketing," has assumed the top spot as the most viewed "social media" document on Docstoc.com. Docstoc is the premier online community and document repository to find and share professional documents. The 70-page Community Banker`s Guide to Social Network Marketing is a primer for bankers and other professionals seeking to learn about social media social networks. In the Community Banker`s Guide to Social Network Marketing, Mr. Torres addresses social networks, user demographics and the role of social networks within the greater sphere of social media. Also addressed at length is the development of viral marketing programs, consumer advocacy, conversational marketing, metrics and common pitfalls. A free copy of the Guide is available at www.tinyurl.com/cbgsnm. "This ebook is intended to provide a roadmap to establishing a loyal and trustworthy reputation within the Web 2.0 world. As the influence of traditional marketing continues to fade and as peer-to-peer networks increasingly determine buying preferences, community bankers must understand the importance of incorporating social networks into the overall marketing plan of their organizations in order maximize their inherent advantage over larger regional and national competitors," said Mr. Torres. "Social network marketing is about creating and nurturing conversations with consumers in order to determine how to best serve their needs while developing trust and respect. Community bankers` competitive advantage is based upon their ability to understand and meet the needs of their local communities. As such, community bankers are better positioned to take advantage of social networks than their larger peers." Social media is no longer strictly a Gen Y phenomenon. Every day more and more professionals, stay at home moms and retirees are participating in conversations sparked by social media. Social media is not about age, it is about taking part in a global conversation that gives and takes through honest and transparent participation. It is about taking part in a communal experience that relies on participants to fuel conversations. Jesse Torres is a banker and the author of the Community Banker`s Guide to Social Network Marketing (www.tinyurl.com/cbgsnm). Mr. Torres is a frequent speaker and contributor to banking industry journal. Jesse can be reached by e-mail at MrJesseTorres@gmail.com. He can also be found on Twitter at www.twitter.com/jstorres and on LinkedIn at www.linkedin.com/in/jessetorres.
U.S. homebuilder sentiment lower in June
U.S. homebuilder sentiment slipped in June, a private survey showed on Monday, as higher mortgage rates and an ongoing credit crunch damped expectations for the sector.
The National Association of Home Builders/Wells Fargo Housing Index slipped to 15 from 16 in May. Analysts had expected the index to climb by one point.
The deep slump in the U.S. housing market has shown some signs of abating. However, the NAHB said consumer anxiety over jobs and the economy's health has created an uncertain picture for the sector's recovery.
"Home builders are facing a few headwinds, including expiration of the tax credit at the end of November; a recent upturn in interest rates; and especially the continuing lack of credit for housing production loans," Joe Robson, the chairman of the trade association, said in a statement.
Earlier this year, Congress authorized an $8,000 tax credit for first-time home buyers and home builders have called for that credit to be expanded beyond this year.
While rates on 30-year mortgages touched record lows in April, they have climbed since then on hints the U.S. recession, now in its 18th month, may be drawing to a close.
Rates on 30-year mortgages rates, which touched a low of 4.78 percent in April, reached 5.59 percent last week, the highest level since November, according to mortgage finance company Freddie Mac.
On a bright note, the swollen stock of new homes has been shrinking. In April, the inventory of homes available for sale fell 4.2 percent to 297,000, or the lowest level since May 2001. New data will be available on Tuesday.
The overall housing market has been crippled since a five-year boom turned into a record number of defaults in 2006.
Many homeowners have rushed to refinance, and potential buyers have been nudged off the fence by the low mortgage rates of recent months but that spree is coming to an end.
An index of mortgage activity fell to a four-month low in early June as climbing rates turned consumers away, the Mortgage Bankers Association said.
The National Association of Home Builders/Wells Fargo Housing Index slipped to 15 from 16 in May. Analysts had expected the index to climb by one point.
The deep slump in the U.S. housing market has shown some signs of abating. However, the NAHB said consumer anxiety over jobs and the economy's health has created an uncertain picture for the sector's recovery.
"Home builders are facing a few headwinds, including expiration of the tax credit at the end of November; a recent upturn in interest rates; and especially the continuing lack of credit for housing production loans," Joe Robson, the chairman of the trade association, said in a statement.
Earlier this year, Congress authorized an $8,000 tax credit for first-time home buyers and home builders have called for that credit to be expanded beyond this year.
While rates on 30-year mortgages touched record lows in April, they have climbed since then on hints the U.S. recession, now in its 18th month, may be drawing to a close.
Rates on 30-year mortgages rates, which touched a low of 4.78 percent in April, reached 5.59 percent last week, the highest level since November, according to mortgage finance company Freddie Mac.
On a bright note, the swollen stock of new homes has been shrinking. In April, the inventory of homes available for sale fell 4.2 percent to 297,000, or the lowest level since May 2001. New data will be available on Tuesday.
The overall housing market has been crippled since a five-year boom turned into a record number of defaults in 2006.
Many homeowners have rushed to refinance, and potential buyers have been nudged off the fence by the low mortgage rates of recent months but that spree is coming to an end.
An index of mortgage activity fell to a four-month low in early June as climbing rates turned consumers away, the Mortgage Bankers Association said.
Roubini, Shiller see more pain for U.S. economy
A rebound in key US economic indicators masks an underlying malaise that will likely hamstring growth for many years and keep housing and banks in a rut, several top economists said on Monday.
Nouriel Roubini, president of RGE Monitor, said a recovery in risk assets like stocks and emerging markets would not last, since it had been based on unrealistic expectations for a global economic rebound.
"I see subpar, anemic, below-trend growth for the next couple of years," Roubini said.
Housing expert and MIT Professor Robert Shiller, equally pessimistic, said about the four-year housing downturn, "This thing is not over yet."
Nouriel Roubini, president of RGE Monitor, said a recovery in risk assets like stocks and emerging markets would not last, since it had been based on unrealistic expectations for a global economic rebound.
"I see subpar, anemic, below-trend growth for the next couple of years," Roubini said.
Housing expert and MIT Professor Robert Shiller, equally pessimistic, said about the four-year housing downturn, "This thing is not over yet."
Wachovia upgrades industrial REITs sector
Wachovia on Friday upgraded the industrial REIT (Real Estate Investment Trust) sector, raising it to market weight from underweight on "generally improved balance sheet strength, a solid long-term fundamental outlook via little stock currently under construction, and reasonable valuations."
"Our underweight stance was predicated on a sharp fundamental decline, which when coupled with the little capital availability and poor sheet strength, we expected valuations to move sharply lower," the firm added. "Our thesis didn't play out as expected, and with liquidity risks now largely mitigated, a neutral stance appears appropriate."
"Our underweight stance was predicated on a sharp fundamental decline, which when coupled with the little capital availability and poor sheet strength, we expected valuations to move sharply lower," the firm added. "Our thesis didn't play out as expected, and with liquidity risks now largely mitigated, a neutral stance appears appropriate."
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