KeNo's Housing and Economic Portal: Friday August 6 Housing and Economic stories

KeNosHousingPortal.blogspot.com

TOP STORIES:

Watch out, great $50bn commercial property unload about to begin - (www.telegraph.co.uk) Banks are ready to purge unwanted commercial property from their balance sheets as part of the normal boom and bust cycle - only this time around the world has changed. Bankers never seem to learn their lesson about the commercial property market. As the good times roll, they become ever more careless in their real estate lending, only then to lose their shirts in the subsequent bust. This time around has been little different. It is not so much "asset backed securities" which sunk the UK banking system, still less the domestic housing market – where default rates have remained remarkably tame. Rather, it was the same as last time – good old fashioned commercial property lending. According to a recent De Montfort University study, there is approximately £300bn of banking loans outstanding to the British commercial property market, of which approximately £50bn is in breach of covenant. Yet despite the fastest and deepest commercial property slump since records began – a peak to trough fall of approximately 44pc – there has so far been only limited impairment applied to these assets. That may be about to change.

Federal Reserve printed $1T in cash to buy worthless mortgages. Now what? - (www.nytimes.com) The Federal Reserve provided most of the money for new mortgages in the United States last year, effectively lending more than $1 trillion to American homeowners. Now the legacy of that extraordinary intervention is hanging over the central bank as it faces growing demands for an encore to help revive the flagging economy. While officials and economists generally regard the program as successful in supporting the housing market, it has left the Fed holding a vast pile of mortgage securities — basically i.o.u.’s from homeowners — that it does not want and cannot sell. Holding the securities could cost the Fed a lot of money and hamper its ability to fight inflation, while selling the securities could drain needed money from the still-weak economy. Fed officials have expressed confidence that they can finesse the dilemma by gradually selling the securities as the economy starts to recover. But they are not eager to expand the challenge they face by beginning a new round of asset-buying, one tool the Fed could use to try to stimulate growth. “In my view, any judgment to expand the balance sheet further should be subject to strict scrutiny,” Kevin M. Warsh, a Fed governor, said in a speech last month in Atlanta. He warned that new purchases could undermine the Fed’s “most valuable asset”: its credibility.

Sharks Are Back, Working Inside Deals With Banks - (www.newsjunkiepost.com) It seems that the few big banks still in the business of lending money for real estate purchases are just eager to cash out to clean up their portfolio from “toxic loans”, and by doing so they are putting a drag on property value preventing a real recovery. Once again the big banks such as Bank Of America, Morgan Chase and Wells Fargo are only concern with very short term strategies making their respective quarterly earning reports look good for the share holders. Of course by doing so they are not serving the public interest and even their own in the medium to long term. I am currently in the process of selling my house in California, which give me a first hand experience of the negative impact from banks and real estate investors on the housing market. It is a regular sale, and I have quite a bit of equity on the property. However, I am still competing with countless short sales and foreclosures which stubbornly push the market down. My goal is to own a property free and clear, and to be out of the borrowing business for good. This also means that I am currently looking for some properties to buy. Unfortunately, the properties which I could afford to buy cash in Los Angeles county are snagged up in no time by investors who have an inside track with banks or REO, the shady real estate agent representing the banks. This is how the scheme works in a nutshell. The new “shark flippers” of real estate are typically looking for distressed properties in the range of $200,000 to $250,000 ( In LA county the medium price for a single family house is $313,000). They pay cash for it, then do some work on the property, and within three to six months put the property back on the market for $400,000. In Nevada and Florida, two other states which like California can be call Ground Zero of the real estate collapse, the investors in conjunction with the banks are applying the same type of business model. For example, in Las Vegas, buyers can pick up decent properties as cheap as $120,000 or $150,000. At the pick of the market, the very same properties sold for about three to four times this amount.

Boomers retire, and California trembles - (www.firsttuesdayjournal.com) The Baby Boomer generation will soon begin retiring en masse, bringing about a radical change in California real estate transactions. This article explores the repercussions of that great demographic shift. The two charts above track, respectively, homeownership by age in the western census region and California’s population of citizens aged 65 and over. In combination, these two charts tell us about the future direction of real estate ownership and sales transactions among the rapidly growing population of California’s senior citizens. Retirees move real estate: At about the age of 65, the California work force begins to capitalize on the benefits of social security, Medicare and years of saving, and the vast majority stop working full time. The decision to retire is often swiftly followed by a series of lifestyle changes, as the retiree takes advantage of his newly increased liberty and accumulated financial power. One of the most significant of these changes is very frequently the sale of the retiree’s current home and the corresponding move to a new, more compact and centralized residence in a location with a better year-round climate or one that is closer to the family. As California’s population continues to age, the population of senior citizens will grow dramatically, and will exert increasing influence over both the housing market and every other aspect of the California economy.

Commercial real estate: Offices at the top are going empty - (www.latimes.com) Penthouse floors are vacant in some of the best office buildings in Los Angeles County, a sign of the troubled economic times and the gulf between asking prices and what tenants are willing to pay. The chief executives at Atlantic Richfield Co., the oil company once based in Los Angeles, ran their international empire from some of the most regal corporate offices ever created in Southern California. With Arco's 20-foot ceilings, dark wood paneling and private rooftop helipad, "this was corporate America as people thought of it," said Kent Handleman of Thomas Properties Group Inc., the building's landlord. That was then. Nowadays, the landlord can't find a renter for the space's 1970s-era sumptuousness. There are also plenty of other catbird seats for choosy chief executives to pick from. Penthouse office floors with drop-dead views are vacant in some of the best office buildings in Los Angeles County, a sign of the troubled economic times and the gulf between what landlords think their top-shelf product is worth and what tenants are willing to pay. Some of these standoffs between prospective landlords and would-be tenants have been going on for years, with no sign of abating. In the most extreme case, the top two floors of a premier Westwood high-rise have been empty since the building was completed in 1989.