Monday, March 28, 2011

Orlando and Las Vegas Top List of Emptiest US Cities

The Spaceship Earth Ride At EPCOT in Walt Disn...Image via Wikipedia
A few years back developers in Orlando, Fla., thought they had it all figured out. With apartments rapidly being converted to condominiums, they started building new apartment complexes to absorb all the renters who didn't want to buy.

Then the economy went into recession, vacationers stopped going to Disney World, and financing evaporated for developers and buyers alike. Result: More than one-fifth of Orlando's rental units are vacant, landing it the top spot on Forbes' list of America's Emptiest Cities.

"There was supposed to be a need for new rental product to replace what was being taken out of the market," said Ken Delvillar, director of apartment brokerage services at Cushman & Wakefield in Orlando. Developers "were trying to look ahead of the curve."

That mistaken prediction pushed Orlando's rental vacancy rate to 23.6 percent in the fourth quarter of 2010, second only to Dayton, Ohio, among the nation's 75 largest metropolitan areas surveyed by the U.S. Census Department. Orlando's high vacancy rate for single-family homes — 8 percent at the beginning of 2010 — pushed it to No. 1 overall.

To construct our list, we ranked cities over all four quarters of last year by single-family and rental vacancy rates, then averaged the ranks to determine the top 10.

Las Vegas comes in second, with its bloated inventory of homes left over from the housing bubble. Sin City's single-family vacancy rate of 5.5 percent at the end of last year — more than 7,000 empty homes in the city proper, according to Census estimates — was among the highest in the country. Rental properties were a little closer to the national average at 13.5 percent. Nationwide the single-family vacancy rate ended the year at 2.7 percent while rentals were at 9.4 percent.

At No. 3 is Memphis, Tenn. The city's 9.4 percent unemployment rate isn't particularly high, but there are thousands of units of deteriorating rental property near the city's center, helping to push the rental vacancy rate to 16 percent in the fourth quarter of 2010, according to the Census Department, down from 21 percent at mid-year.

"There are several pockets of blight around the city, and as a result, absentee property owners have responded by boarding up their properties," said Mark Fogelman of Fogelman Management Group, a closely held property firm with 5,000 units in Memphis. Those blighted areas exaggerate the Memphis vacancy rate, Fogelman says, which has been stable at 7 percent to 8 percent in most of the city's other submarkets.

In Orlando, like many cities on the list, the apartment market is split in half. At the top end, so-called Class A complexes have occupancy rates around 90 percent, and owners are beginning to raise rents. Class B complexes are also full, said Delvillar of Cushman & Wakefield. Dragging down the market are Class C properties, many of them built in the 1970s and 1980s, where occupancy rates are in the 60 percent range and landlords have difficulty collecting rent.

Delvillar cited one fixer-upper apartment complex on the market for $2.5 million, down from its last purchase price of $7.5 million. At 60 percent occupancy this complex doesn't have a return on investment right now; rents don't even cover operating expenses. But Orlando's unemployment rate is coming down, and the sun always eventually shines on Florida property markets. At least until the next bubble bursts.

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Monday, March 21, 2011

Banks Plan to Unload $142B in Mortgage Backed Securities

The Treasury Department’s move to start unloading its portfolio of mortgage debt likely will add one more point of pressure—albeit a small one—to a housing market hardly in a position for additional stress.Later this month the government plans to shed about $10 billion in its $142 billion portfolio of mortgage-backed securities that were guaranteed by government-sponsored enterprises Fannie Mae and Freddie Mac. The sales then will happen incrementally over the next year or so.

In the broader scope of things, the new supply is a brief shower inside a typhoon of debt that the Treasury and, to a far greater extent, the Federal Reserve—which owns $1.25 billion in MBS—took off the GSE balance sheets during the worst of the credit crisis.

Treasurys’ timing couldn’t have been much worse, considering housing numbers Monday that showed a sharp drop both in price and sales. In its statement announcing the sale, Treasury contends that the purchases were done to stabilize the market. Critics argue, though, that the prolonged intervention only hampered the housing market recovery while bailing out too-big-to-fail institutions that caused the problem.
“To the extent that there’s a market for anything, there is” a market for the MBS about to be sold, says bond trader Kevin Ferry, president of Cronus Futures Management in Chicago. “What you’re seeing is a series of very incremental, very Geithneresque steps towards what is the exit strategy.”

Ferry also questioned why the Fed is maintaining its zero-interest-rate policy on the funds rate even as it is allowing banks to increase dividends and recapitalize while also unloading the MBS. “It just shows that banks still have an inordinate amount of power in the process of how things are going down,” he said.

Still, he expects the Fed do have a fairly efficient go of it when selling the MBS. “There are going to be days when I think it will be a little sketchy,” he said. “I think they’ll get it done, no problem.”

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Sunday, March 13, 2011

Major Changes Ahead for Mortgage Industry

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Fundamental changes are probably ahead for the American mortgage system as the federal government pushes to unwind its unprecedented involvement in the housing market. These changes could significantly raise the down payments demanded by lenders, curtail the availability of long-term mortgages with fixed interest rates, and increase the cost of borrowing in general. The government’s effort to scale back its role in housing could show up in small ways soon. In April, the Federal Housing Administration plans to raise the annual premium it charges borrowers by a quarter of a percentage point. In October, the maximum size of loans that the federal government backs is scheduled to drop to $625,500 from $729,750. The most dramatic proposal — eliminating mortgage financiers Fannie Mae and Freddie Mac — could take five to seven years.

The thinking is that the government cannot sustain its role in the housing finance system. Federally backed loans make up an outsize share of home purchases — about 90 percent — through Fannie, Freddie and the FHA. Taxpayers have kicked in more than $130 billion to cover Fannie and Freddie losses during the housing crisis, and they could be on the hook for more if the FHA depletes its cash reserves , which are already lower than the level required by law. All three institutions guarantee that payments will be made to mortgage investors, even when loans go bad. Those guarantees helped keep the housing market from coming to a standstill during the darkest days of the economic crisis.

“But the government is taking on a lot of credit risk,” said Mark Zandi, chief economist at Moody’s Analytics. “So if loans go bad, it’s on the taxpayer. Everyone would find it preferable if the private sector were to take more of the risk.”

Loan Limits to Decrease
To that end, the federal government is eager to tackle the “jumbo” loan limits. In the District and most of its neighboring counties, a temporary federal policy allows the government to back mortgages up to $729,750. Such loans typically carry a lower interest rate than those without government backing, in part because the federal guarantee makes them a safer bet for investors.

“Investors are willing to accept a lower return if their investment is less risky,” said Keith Gumbinger, a vice president at HSH Associates. The Obama administration has supported allowing the maximum loan limit to drop to $625,500 starting Oct. 1 , and Congress is expected to back that move. ( Loan limits may be lowered even further for FHA-insured loans, federal officials said, though no details are available.)

Down Payments and Loan Fees to Increase
Standards are not likely to ease on the down payment front. Borrowers looking to take out FHA loans — the mortgage of choice in recent years for cash-strapped borrowers — could see the minimum down payment requirements rise from 3.5 percent, the administration said in a report to Congress last month. Fannie Mae and Freddie Mac should gradually raise their minimum to 10 percent down, the administration suggested.

Elimination of the 30-Year Fixed-Rate Mortgage
Much further down the line, if Fannie and Freddie are dismantled, the future of the popular 30-year fixed-rate mortgage comes into play. The United State is one of the few countries where most of the mortgages are prepayable, 30-year fixed-rate loans. That means that lenders bear the risk of financing a mortgage that borrowers can then refinance without penalty if rates go down.

With Fannie and Freddie buying the loans, lenders are off the hook if the loans default. They also do not have to worry about a sharp rise in rates during the life of the loan. “The interest rate risk is phenomenal,” Cecala said. “If [lenders] charge 5 percent interest and then the rates shoot up to 10 percent for a 30-year [loan], they are losing money on every one of the loans that they held at 5 percent.”

Other moves are also geared toward raising down payments for certain types of loans. A financial regulatory overhaul enacted last year requires lenders to retain at least a 5 percent stake in the loans they sell to investors. The law carved out an exception for FHA-backed mortgages — considered relatively safe — and it directed regulators to decide by late April if other types of mortgages also should be exempt.

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Tuesday, March 1, 2011

The US Housing Market: 5 Signs That Say "Buy"

U.S. Census Bureau Regions, Partnership and Da...Image via Wikipedia
The national housing market still seems shaky, but what about your area? The following yardsticks can help you gauge whether your neighborhood is poised for a comeback:

1. Jobs
Some parts of the country were less affected by the recession than others. Prospective buyers should review job-growth data from the U.S. Bureau of Labor Statistics, at Unlike many backward-looking economic statistics, jobs data are only about a month old and can "clearly show the direction of the local economy," says Carolyn Beggs, chief operating officer of real-estate data provider Local Market Monitor Inc. The National Association of Home Builders also posts state and local employment data, at

You also want to see a brightening personal-income picture for the previous six-month period. Those numbers are available via the U.S. Dept. of Commerce's Bureau of Economic Analysis, at

2. Recent sales activity
Three factors should be taken together: housing inventory, sales volume and prices.

A large inventory of homes with few actual transactions are negative indicators, according to Jeffrey Jackson, chairman of Mitchell, Maxwell & Jackson Inc., an appraisal company in New York. On the other hand, if inventory is falling and transactions are picking up, that is a good sign.

State and local boards of realtors often publish monthly inventory statistics. Inventory breakdown by metro area also can be found at the U.S. Census Bureau's website, in the American Community Survey ( Be sure to compare current inventories with long-term averages.

Also, check out the rental vacancy rates in your area, and judge them against historical rates, which you can find at the Census Bureau's website ( or via local real-estate professionals.

3. Construction
While not as reliable as jobs or sales-trend data for getting a read on a local housing market, the number of permits recently issued for local builders is useful for gauging builder sentiment and, by extension, future housing activity. You can get recent permit information from your county or municipal building department, or via the National Association of Home Builders (

4. Mortgage availability
 If you live in an area where most people use mortgages, it is especially important now to gauge local lending patterns. In the aftermath of the financial crisis, most national banks tightened lending standards. But some local banks haven't been hit as hard by the housing crash and are more willing to lend, even for higher-priced homes.

For instance, some smaller lenders in the New York and New Jersey area, such as Lake Success, N.Y.-based Astoria Federal Savings, are actively courting new "jumbo"-mortgage customers. Astoria Federal says it believes jumbo-loan borrowers pose less risk than other borrowers because they can demonstrate ample income and often opt for hefty down-payments.

5. Anecdotal evidence
It might sound old-fashioned in an era of electronic data, but driving around neighborhoods, checking out open houses and talking to local agents still are good ways to gather local-market intelligence.

The key is to do this kind of research only after you have gathered hard data, so that you don't misread the signs. For example, foreclosed homes can generate multiple bids and quick sales, often in all-cash deals—but that doesn't mean the market is healthy.

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