On the heels of bad news Tuesday from Fed Chairman Ben Bernanke, who told lawmakers that growth and inflation risks are increasing, comes bad news today from the Los Angeles County Economic Development Corp. in its mid-year 2008-2009 Economic Forecast and Industry Outlook for California and Southern California. The report, released today, depicts California in or near a recession, with some areas and some industries withstanding the downturn better than others. “California is tip-toeing along the edge of a recession, while some of its larger metropolitan areas have been in one since mid-2007,” the report states. It shows the balance of 2008 and much of 2009 seeing a mixture of good and bad news for California, “with the outcome looking more and more precarious."
Since the Downtown Los Angeles-based LAEDC’s last report in February, the Southern California region, the state and the nation have undergone myriad changes, namely skyrocketing costs of energy and commodities. And “don’t forget, you have the intensification of the financial sector problems,” says Jack Kyser, one of the authors of the report and chief economist for the LAEDC.
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Amidst headlines of doom and gloom in the economy, the multifamily industry is holding relatively strong. “Vacancy rates in the apartment sector have been stable in the last three quarters and apartment rent growth in the second quarter of 2008 has seen the strongest gain as compared to all other types of commercial real estate,” Dr. Sam Chandan, chief economist and senior vice resident for research at Reis Inc. said today in a virtual conference hosted by Reis.
“Overwhelmingly and in all parts of the country, buyers are preferring to rent now as a result of which effective rent growth is expected to keep going up. The overall slowdown and situation in the slowing labor market will negatively affect apartments and in some markets, the condo shadow market will compete with the apartment sector with more units coming online,” he said. As a result, asset prices for apartment units have been falling from their peak period to the first quarter of 2008, by 13.3 percent.
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Affordable housing has become one of the silent victims in the ongoing housing crisis. While multifamily industry experts have largely been optimistic about apartments, this is not the case with low-income housing.
“The Low Income Housing Tax Credit program (LIHTC) has suffered greatly because banks have faced great losses recently and this has diminished their appetite for LIHTC funding,” Mary Jo George, an attorney in the real estate department at Ballard Spahr Andrews & Ingersoll, tells MHN. George represents lenders in regards to multifamily housing, senior facility housing, and manufactured housing communities. “Among the deals that are happening, I have seen several of them fall apart at the last minute,” she adds.
Deals involving a long relationship between the developer and LIHTC investor are being closed, according to George. In any case, many affordable housing developers are forced to find multiple sources of funding for a single project, which is making deals complicated. In this climate, the pressure to close a deal is also very high. “LIHTC investors were used to a lot of delays, but that has changed now. The turnaround time is very short,” says George.
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Delivering comments at the FDIC's Minority Depository Institutions National Conference in Chicago, Fed Governor Randall Kroszner said the Fed's new rules on mortgages would alleviate pressures in nearly the entire subprime sector and some other alternative mortgage markets.
"At the core of our program, we have implemented a series of web-based modules designed to assist banks in addressing three distinctive development stages: (1) starting a bank, (2) managing its transition from a start-up to an established bank, and (3) building shareholder value once a bank has been established on a sound footing," Kroszner said.
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The Bush administration on Sunday asked Congress to approve a rescue package that would give officials the power to inject billions of federal dollars into the troubled Fannie Mae and Freddie Mac through investments and loans.
“We continue to hold more than adequate capital reserves and maintain access to liquidity from the capital markets,” Daniel H. Mudd, president and CEO of Fannie Mae said in a statement. “Given the market turmoil, having options to access provisional sources of liquidity if needed will help to strengthen overall confidence in the market. We will continue to do our part to provide liquidity, stability and affordability to the housing market now and in the future.”
The Federal Reserve has also said that it would make one of its short-term lending programs available to the two companies, Fannie Mae and Freddie Mac. The Fed said that it had made its decision “to promote the availability of home mortgage credit during a period of stress in financial markets.”
Kieran P. Quinn, CMB, chairman of the Mortgage Bankers Association (MBA) applauded the actions outlined by the United States Department of Treasury and the Federal Reserve Board regarding Fannie Mae and Freddie Mac (the GSEs).
"Fannie Mae and Freddie Mac play a critical role in the U.S. housing market. We commend both the Treasury Department and the Federal Reserve on this move as it will help ensure that the two companies can continue to play central roles in stabilizing the mortgage markets.”
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Another iconic New York skyscraper has been snapped up by a Middle Eastern sovereign wealth fund.
The Chrysler building was acquired by the Abu Dhabi Investment Council for an undisclosed price yesterday, only one month after Dubai-based Meraas Capital L.L.C. acquired the General Motors Building for $2.8 billion in a joint venture with Boston Properties Inc. and Goldman Sachs Group.
Abu Dhabi Investment Council was set to pay $800 million for the 1.2 million-square-foot building at 405 Lexington Ave., a source told Bloomberg News, which broke the story. The New York Post also reported that the fund would take a 75 percent stake in the asset, with Tishman Speyer Properties holding on to the other 25 percent and remaining on as the building's operator.
The seller was Prudential Real Estate Investors, who has been managing its interest on behalf of a fund of German investors. In 2002, Prudential acquired TMW Real Estate Group, which purchased a $390 million stake in the Chrysler Building from Tishman Speyer in June 2001.
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Facing increasing losses and regulatory pressure, IndyMac Bancorp Inc. on Monday said it would close its forward mortgage business, and cut more than half of its 7,200-person work force.
Both its retail and wholesale businesses will stop taking new loans effective immediately. The bank will honor existing rate-locked loans, bank chairman Michael Perry wrote in a letter to stakeholders.
The Pasadena-based company will concentrate on Financial Freedom, its reverse mortgage operations, as well as its 33-branch Southern California bank and its loan servicing business.
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A constant stream of headlines about rising foreclosures and falling home prices in many U.S. markets might lead bargain hunters to believe that there are some incredible deals to be had out there.
And indeed, there are. But are there really more than 100 homes available in tony Miami Beach, Fla., for less than $100,000? A search for foreclosure properties with an upper price range of $100,000 turns up 126 properties at Yahoo Real Estate.
Is the housing downturn so bad that you can now swoop in and buy a house in Hermosa Beach, Calif., for less than $100,000? A search for foreclosure properties on Trulia -- which puts the average sale price of a home in the coastal city at $1.67 million -- might lead you to believe that the answer is yes.
The problem is that most, if not all, of these properties aren't officially on the market. They are "pre-foreclosures," meaning that their owners have defaulted on a loan, prompting a lender to begin the foreclosure process.
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New York - Despite dismal national trends, the real estate market in Manhattan remains strong, with the average condo price rising 36 percent from a year ago to $1,663,533, according to a second quarter market report recently released by Halstead Property. Even the median price, which is not impacted by the high-end sales, hit a new record of $979,000 during the second quarter of this year, reflecting an increase of 23 percent from a year ago.
“The tightening of credit markets does not affect the luxury market much, and that is what most of the New York condo market comprises of,” John Wollberg, director of sales, Eastside at Halstead Property, tells MHN.
While the sales figures of two high-end developments, The Plaza and 15 Central Park West, pushed up the average condo prices for Manhattan, even without, the average condo price would be $1,656,210, a figure that is 16 percent higher than a year ago.
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