“Flip This House”: Investor Speculation and the Housing Bubble – Liberty Street Economics

I found this article interesting in that it quantified what I have said before relative to how much of an impact residential investors had on the market. I suggest that you read the article on the site to see all the charts.

From: http://libertystreeteconomics.newyorkfed.org/2011/12/flip-this-house-investor-speculation-and-the-housing-bubble.html

The charts reveal some astonishing facts. At the peak of the boom in 2006, over a third of all U.S. home purchase lending was made to people who already owned at least one house. In the four states with the most pronounced housing cycles, the investor share was nearly half—45 percent. Investor shares roughly doubled between 2000 and 2006. While some of these loans went to borrowers with “just” two homes, the increase in percentage terms is largest among those owning three or more properties. In 2006, Arizona, California, Florida, and Nevada investors owning three or more properties were responsible for nearly 20 percent of originations, almost triple their share in 2000.

via “Flip This House”: Investor Speculation and the Housing Bubble – Liberty Street Economics.

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Alabama Real Estate Professionals Optimistic About Spring Market

The survey projects expectations for the 2nd quarter of 2011. The scale ranges from 0-100 with 0 being much worse, 100 being much better, and 50 indicating no change expected.

Spring is on the way and the Alabama real estate community is optimistic about sales. The sales index is at it highest level since we started the survey a bit over a year ago. While much of this is seasonal, sales expectations for the upcoming 2^nd quarter was 60 compared to last years’ at 56. It is a welcome sign of a market showing improvement. The “overall” index (which includes National expectations) remains below the 50 mark at 49, which indicates slightly unfavorable expectations, the State score at 57 and local sales score of 60 were both improved from last quarter so a real trend seems to have begun. Inventory and prices are still expected to be troubled but the expectation there is also improving, every level is better than last year at this time. The only index to show modest decline on a quarter to quarter basis is the availability of credit at 41 this quarter vs. 42 last quarter.

Overall Scores Expectations for 2nd Quarter 2011

Expectations for Alabama (green in the above chart) are up from 55 last quarter to 57 this quarter. This score indicates favorable expectations for the overall Alabama Real Estate market. The overall (residential & commercial combined) confidence level was improved from the survey results for the last quarter. The statewide overall score improved modestly from 47 to 49 (see red line above), in short, while sales are expected to improve, the inventory, price and credit indications are still below the 50 mark. Sales will be up, but sellers are likely to be frustrated by competition and pricing and some buyers will continue to have problems getting financing.

Regional Results:

The coastal areas continued on an upward trend (see blue line below). The coastal overall score jumped from 48 to 49 which indicates a neutral market view. Sales expectations however were up to 61 while Alabama economic conditions are scored at 57, a level indicating improvement.

Regional Expectations for Sales 2nd quarter 2011

The expectations for the state (total (red) in the chart above) are ranked at 49 up from 47 last quarter, indicating that respondents expect real estate conditions statewide to remain about the same as in the prior quarter. This reflects the tension between buyers and sellers.

Perhaps more important than the absolute number is the fairly dramatic change in direction expressed across each of the measured questions with all measures showing improvement for two quarters now, and a reversal of the downtrend in evidence from when the survey began in the 1^st quarter of 2010. All of the point values can be seen in the table at the end of this report.

Commercial market participants were slightly more positive in their outlook this quarter than last at 51 this quarter vs. 50 last for overall and up to 58 for sales expectations. Price expectations remain weak, at 44 indicating continued pricing pressure in all markets. The rating for credit availability remains poor, at 47 down 3 points from last quarter, a level which indicates expected contraction in credit availability.

North Region

North Alabama continues to have strong scores relative to the rest of the state. This quarter the expectations improved quite a bit. The total score of 53 indicates a consensus for national improvement in coming quarter. The outlook for the Alabama market is comparatively high at 64. Market participants are more positive on the sales outlook for the 2nd quarter than they were for the 1st at 64 this quarter vs. 55 last. Inventory is expected to remain with a score of 51. The price score is approaching neutral at 47.

North Central Region

The North Central Region along with the South Central Region showed the least change of the states’ four geographic areas. The sales score improved 2 points to 58. Inventory, pricing and credit are all still below the 50 mark at 45, 39 and 41 respectively.

South Central Region

The South Central Region participants outlook for sales improved 3 points to 58.

South Region

The Southern Region continues to improve in its sales score up 5 points to 61 close to the Northern region as the most optimistic sales area.

About the Alabama Real Estate Confidence Index and Survey:

Close to 700 professionals responded to the 2nd quarter 2011 survey which was conducted during the month of March 2011. The survey, conducted by the Alabama Center For Real Estate now has the largest participation of any Real Estate Survey it provides important market insights.

The ACRE Leadership Council determined the need for a statewide industry confidence index and this was adopted as the Council’s first initiative. Tom Brander, Council Member, was selected by the Council and Grayson Glaze, ACRE Executive Director, to spearhead and work with the Center to conduct and produce its Alabama Real Estate Confidence Index (ARECI). The Council appreciates everyone who participated.

For further information contact Tom Brander at Tombrander@tombrander.com or Grayson Glaze at gglaze@cba.ua.edu

Nightly Business Report on the Gulf Coast Market 6/22/10

We were happy to help Jeff Yastine of NPR on this report. Our contribution begins at the 11:13 mark. Unfortunately I cannot embed the report so if you want to see it click on the link below. I just wish I could get this kind of Pr with good news…

Watch the full episode.

Brookings – Quality. Independence. Impact.

Brookings – Quality. Independence. Impact..(click for article)

This Brookings study/map shows Birmingham as one of the 20 strongest housing price markets in the US!

Brookings chart

Calculated Risk: Housing Activity Forecast, New Vs. Existing

The single biggest question on most our readers’ minds is: Where is the housing market headed? I have  attempted to put thoughts to paper only to be overtaken by the constantly shifting market. One of my favorite fellow blog sites has come out with a very compete analysis. I’ve included the 1st part here so click over to Calculated Risk and take a read, you will be way better informed for doing so. It will also help to understand some of the stats I produce and how to interpret them, particularly the tension between the new and used housing sectors and their relationship.

Housing Activity Forecast
by CalculatedRisk on 4/19/2009 02:17:00 PM
Reuters is quoting Freddie Mac chief economist Frank Nothaft as saying that he believes U.S. housing sales are near a bottom. Nothaft also said about one-third of all sales were foreclosure resales.
I disagree with Nothaft’s forecast.
My view is:
# New home sales are at or near a bottom.
# Existing home sales will fall further.
Since there are far more existing home sales than new home sales, I expect that total sales activity will decline further.

Note: Please do not confuse a bottom in new home sales activity with a bottom in existing home prices. Please see: Housing: Two Bottoms

via Calculated Risk: Housing Activity Forecast.

AIG and Inequality : The Frontal Cortex

I don’t often time republish stuff but this was too good, and I wanted my regular readers to have a look at it!

Click the link for the whole paper, it is worth it.

AIG and Inequality Posted on: March 18, 2009 1:51 PM, by Jonah Lehrer

I know, I know: everybody is sick of hearing about those AIG bonuses. But bear with me for one more blog post, because I think the swell of populist anger can actually illuminate something interesting about the human response to inequality.

Consider the ultimatum game, that simple economic task where one person (the proposer) is given ten dollars and told to share it with another person (the responder). The proposer can divide the money however they like, but if the responder rejects the offer then both players end up with nothing.

via AIG and Inequality : The Frontal Cortex.

Bank Failures and Aquisition, C&D Loans

From Our Friends at Caculated risk, Click to get the whole article and charts. I know many of our clients have C&D loans so I felt you should take a look at this.

 Best, Tom

by CalculatedRisk on 3/11/2009 12:45:00 PM

From James Saft at Reuters: Builder loans are the forgotten land mine in U.S. credit crisis (ht Michael)

Banks in the United States face a new source of write-downs and failures in the coming year, as loans made to developers to finance residential and commercial property development rapidly go bad.
…
Called acquisition, construction and development, or ADC, loans, they total 8.4 percent of all bank loans, just below a 30-year peak, and are used by developers to buy land, put in infrastructure and construct housing or commercial space.

…..Of particular concern is that ADC loans are concentrated in smaller banks, which tend to have deep ties to local developers. ADC loans account for 47 percent of nonperforming loans at small banks, compared with 14 percent at larger banks.

GE Forecloses on 2,284 Apartments in Alabama

This article is short on details but of interest to our local market. More details here.

Risky GE Apartment Loan – WSJ.com.

GE Real Estate, a unit of GE Finance, foreclosed Jan. 6 on a portfolio of 2,284 apartments in Alabama. Brooklyn, N.Y.-based Collins Group LLC with backing from New Jersey-based Lightstone Group bought the apartments in late 2006 for $155 million. GE lent Collins $148 million in a two-year bridge loan, according to several people familiar with the matter. That would put the original loan-to-value ratio at 95%, not very conservative.

GE Real Estate spokesman John Oliver confirmed that GE has taken over the property after the loan matured and Collins Group was unable to refinance. GE has installed new management and is funding renovations.

Why such a high loan-to-value? “It was an extremely competitive marketplace two years ago and obviously the world has changed,” Mr. Oliver said.

Economists say housing prices to Drop another 29%

By HUBBLE SMITH
LAS VEGAS REVIEW-JOURNAL

I don’t often send out “national” items but….This will make for some ugly headlines:

David Crowe of the National Association of Home Builders said: ….“We have consumer confidence at or near a historic low,” the economist said Tuesday at the building industry trade show, “and it will probably deteriorate in 2009.”

The S&P/Case-Shiller Home Price Index fell 25.3 percent from March 2006 to October 2008.

Crowe said he expects prices to fall another 29 percent this year and new home sales to decline 14 percent.

Hat tip to Calculated Risk.

OCC Reports Third Quarter Bank Trading Revenue of $6.0 Billion

This press release just out would indicate that things may not be quite as bad as we think? Revenues up, write-off paltry, and net credit exposure actually up?… Could be good signs??? Further the extreme concentration in the large banks would give some optimism that solving those issues via TARP may actually move things back to normalcy. Thoughts?

OCC Reports Third Quarter Bank Trading Revenue of $6.0 Billion

WASHINGTON — Insured U.S. commercial banks reported $6.0 billion in revenues from trading cash and derivative instruments in the third quarter, compared to revenues of $1.6 billion in the second quarter of 2008, the Office of the Comptroller of the Currency reported today in the OCC’s Quarterly Report on Bank Trading and Derivatives Activities.

“Banks generally reported strong client demand and, given poor market liquidity, wider intermediation spreads,” said Deputy Comptroller for Credit and Market Risk Kathryn E. Dick. “However, most of the increase in trading revenue is due to the deterioration in credit spreads during the third quarter and the subsequent decline in the value of trading liabilities for most banks. Since credit spreads have tightened substantially in the fourth quarter, we can expect to see more trading revenue volatility when fourth quarter numbers are released.”

The report shows that the notional amount of derivatives held by insured U.S. commercial banks decreased by $6.3 trillion in the third quarter, or 3 percent, to $176 trillion. Interest rate contracts decreased $7.7 trillion to $137 trillion due to acquisition-related elimination of contracts. Although market participants continue to use methods such as trade compression to reduce economically offsetting credit derivatives trades, credit derivative contracts increased 4 percent, to $16 trillion. Ms. Dick noted that “the uncertain credit environment created demand for credit hedges, particularly for counterparty credit risks.”

The OCC also reported that net current credit exposure, the primary metric the OCC uses to measure credit risk in derivatives activities, increased $30 billion, or 7 percent, during the quarter to $435 billion. Banks charged-off $92 million in derivatives receivables during the quarter, or 0.02 percent of the net current credit exposure, down from $120 million in the second quarter.

The report also noted that:

* Derivatives contracts are concentrated in a small number of institutions. The largest five banks hold 97 percent of the total notional amount of derivatives, while the largest 25 banks hold nearly 100 percent.

* Credit default swaps are the dominant product in the credit derivatives market, representing 99 percent of total credit derivatives.

* The number of commercial banks holding derivatives increased by 2 in the quarter to 977.

A copy of the OCC’s Quarterly Report on Bank Trading and Derivatives Activities: Third Quarter 2008 is available on the OCC’s Web site at: http://www.occ.gov/ftp/release/2008-152a.pdf.

via OCC Reports Third Quarter Bank Trading Revenue of $6.0 Billion.