Posts Tagged with "economy"

Home Sales Rise in May 2009

Tuesday, June 23, 2009 - By Gate Arty

The National Association of Realtors announced that existing home sales rose to 4.77 million units in May 2009. This represents a rise of 2.4% over from April. This is promising because it’s the second straight month that sales have risen, undoubtedly spurred by attractive mortgage interest rates. The NAR announced that this is the first month-on-month increase since August/September 2005. The total hosing inventory stood at 3.80 million units, which represents nearly a 9.6 month supply, down from 10.1 in April.  

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Market Activity Affected by Economy

Wednesday, May 27, 2009 - By Gate Arty

As the unemployment rate hovers around 9%, most economists expect that the rate of foreclosures will account for approximately 60% of mortgage defaults this year alone. The next wave of foreclosures is expected to include not only the “sub-prime” mortgages, but also those who have been traditionally financially healthy, but have been affected by job-loss.  As a result of these foreclosures, housing prices are expected to decline overall. Do not expect to see price declines at ALL price points however. Many realtors have expressed that in some of the moderate price ranges, prices have become so attractive that buyers are jumping back into the fray in waves. In many instances buyers & sellers are once again involved in “multiple offer negotiations.” This has been scarce since the real estate boom of 2006. The home price decline that has resulted from the increasing number of foreclosures, tighter lending standards, & large supply of unsold inventory will eventually spur activity. With mortgage interest rates still at all-time lows, many buyers are viewing NOW as the time to act upon golden buying opportunities. According to Standard & Poor's/Case-Shiller Home Price Indices, home prices in the U.S. fell by 18.7% in March from a year earlier.

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Chase acquires Washington Mutual

Friday, September 26, 2008 - By Gate Arty

After months of speculation, Washington Mutual became the largest U.S. bank to collapse to date. Although WaMu shareholders have no reason to celebrate, those at JP Morgan Chase seized an opportunity. Chase bought WaMu’s $307 billion in assets and $188 billion in deposits for a mere $1.9 billion, which actually goes to the FDIC.  The bank will also re-capitalize by selling some of its stock to raise $8 billion. JP Morgan Chase will now have 5,400 branches in 23 states. Wall Street’s reaction was positive on news of the acquisition, while shares advanced 10%. Investors believe the company continues to scoop up assets cheaply that will eventually provide substantial shareholder return. Once again, proving that those properly positioned in this market will succeed & seize investment opportunities. Top-to-bottom, investors large & small will buy assets that will eventually increase in value.

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Market Turmoil

Wednesday, September 17, 2008 - By Gate Arty

The recent turmoil in the financial markets has been nothing but staggering.  Storied institutions such as Bear Stearns and Lehman Brothers are essentially gone. Merrill Lynch was scooped up by Bank of America for a song. The US government has come into rescue Fannie Mae and Freddie Mac, but it figured at some point there is a risk of doing too much bailout.

What does all this mean for the real estate industry?

Get ready for more wild rides.  Now that equity markets have proven an unsafe and risky investment, more and more real estate investors will be coming out to play.  And now that financial institutions are filing for bankruptcy, this will setup even greater liquidation among those real estate assets.  

Which means that more wealth will be created for some individuals now than ever before, and frankly this type of wealth creating wasn't even possible when things were considered "good."  Sure things are plain awful out there for some investors, but for others this is the opportunity that comes around only once a decade, or perhaps a century.  The only thing that resembles this is the S&L crisis in the 1980s, where 747 savings and loan associations failed.  

Will there be more government subsidized bailouts? Many are asking why Lehman Brothers was not rescued. Well, enter the economic concept of moral hazard.  

Let me ask you a question.  Have you ever bought rental car insurance?  You know, after you pay for it you feel a little free when your driving someone else's car, right?  I know with rental cars I love to take the corners sharper, gun the engine, and basically get “my monies worth,” knowing full well that if I bang up the car, I've got nothing to lose (other than my health if I bang it up too much!).  Now please don't forward this e-mail to Avis and get me on their blacklist!

Same concept for the government.  They bailed out Bear Stearns.  They bailed out Fannie Mae and Freddie Mac.  But if they were to bail out yet another financial institution, particularly one that we can all live without, there would be a sense of carelessness that would encourage future speculators.

So what's the story here?  In this case, the government wants them not to intentionally cut off their toes, but rather if they see gangrene they go to the hospital rather than awaiting their financial windfall.  Lehman Brothers financial woes, due in large part to bad bets on real estate and its related securities, means that the economy is frankly in worse shape than many think.  There will be more collateral damage.  Lehman's unwinding will cause damage to other financial institutions as inevitably the interest rate swaps (which the Wall Street Journal reported may run into the millions) and other financial instruments affect other institutions, too.

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Housing Stimulis Tax Credit

Wednesday, August 06, 2008 - By Gate Arty

A major component of the recent housing stimulis legislation was the temporary first-time home buyer tax credit. According to Census data, first-time home buyers constitute about 40 percent of all buyers. It is thought that the tax credit will stimulate home buying & selling, reduce the amount of inventory in the housing market, and as a result bolster the economy. This incentive is temporary, however. The temporary tax credit is good for a home purchased on or after April 9, 2008 and before July 1, 2009. Buyers can take the tax credit in their 2008 or 2009 tax return. If you purchased the home in 2008, the tax credit is taken on your 2008 tax return. If you buy in 2009, you have the option of taking the credit on your 2008 or 2009 tax returns.

For details, click HERE.

Here's how it works:

• The new law authorizes a temporary $7,500 tax credit for qualified first-time home buyers for the purchase of any home.
• A first-time home buyer is defined as a buyer who has not owned a home during the past three years.
• Single taxpayers with modified adjusted gross incomes of up to $75,000 are eligible to take the full credit. For married couples filing a joint return, the income limit doubles to $150,000.
• Single taxpayers earning between $75,000 and $95,000 can claim a partial credit of less than $7,500 while the phase-out for married couples ends for those earning above $170,000.
• Since the tax credit is refundable, it means that the home buyer can claim the credit even if they owe little or no federal income taxes. In other words, the government would write you a check. For example, if a home buyer owes the federal government $2,500 in federal taxes and qualifies for the $7,500 home buyer tax credit, the taxpayer would receive a $5,000 refund check from the IRS ($7,500 minus the $2,500 owed).
• To reduce the cost to the federal Treasury, Congress has mandated that the tax credit essentially serves as an interest-free loan to be repaid over 15 years. For example, a home buyer claiming a $7,500 credit would repay the credit at $500 per year. If the home owner sold the home, then the remaining credit amount would be due from the profit on the home sale. If there was insufficient profit, then the remaining credit payback would be forgiven.

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Housing and Economic Recovery Act of 2008

Friday, August 01, 2008 - By Gate Arty

On July 30th, President Bush signed the Housing and Economic Recovery Act of 2008. All provision details are not yet available, but the major components included broad authority for the Treasury Department to safeguard the nation’s two largest mortgage finance giants (Fannie Mae and Freddie Mac) and a plan to help hundreds of thousands of troubled homeowners avoid foreclosure.

As anticipated, all seller-funded DPA programs will be abolished October 1st, 2008. Meaning the minimum cash investment requirement will increase to 3.5% of the purchase price.

More news to come on this as it becomes available!

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