Distressed sales drive RE market

CNBC Real Estate Reporter Diana Olick wrote that the number of homes sold to investors more than doubled last year, as rising rents and low-priced distressed properties fueled demand. Investors, half of them using no mortgage, bought 1.23 million homes in 2011, a 65 percent jump from 2010, according to the National Association of Realtors. Half of the homes purchased were distressed properties, that is, foreclosures or short sales (when the bank allows the home to be sold for less than the value of the mortgage).

“Rising rental income easily beat cash sitting in banks as an added inducement,” says NAR’s chief economist Lawrence Yun. “In addition, 41 percent of investment buyers purchased more than one property.” Half of investment buyers said they purchased primarily to generate rental income, according to the Realtors’ report. 34 percent wanted to diversify their investments, as 2011 saw a volatile stock market due to the debt crisis at home and overseas. While nearly half of investment buyers said they were likely to purchase another property within two years, housing and mortgage analyst Mark Hanson calls them a “thin cohort” and worries that they add ever more volatility to the current housing recovery. “They are fickle and volatile. They will go away on the slightest of conditions changes. They also won’t chase prices higher or buy new homes from builders. Lastly, without the heavy flow of distressed supply, there is no U.S. housing market recovery. Distressed sales ARE the market,” says Hanson.

“Investment-home buyers in 2011 had a median age of 50, earned $86,100 and bought a home that was relatively close to their primary residence – a median distance of 25 miles, although 30 percent were more than 100 miles away.” 

Foreclosure supply is still running high, with 65,000 completed foreclosures in February of this year, according to a just-released report from CoreLogic. 862,000 foreclosures were completed in the twelve months ending in February. While there are still 1.4 million homes in the foreclosures process, all of these numbers are coming down, albeit very slowly, and sales of bank-owned properties (REO) are speeding up.

Even the Realtors are concerned, like Hanson, that new programs by the government and banks to sell foreclosed properties in bulk discounts to large-scale investors, will cut off a robust individual sales market for smaller investors.

“Small-time investors are helping the market heal, since REO inventory is not lingering for an extended period,” says Yun, clearly looking out for his Realtor constituents. “Any government program to sell REO inventory in bulk to large institutional companies should be limited to small geographic areas.”

RECOVERY OR RELAPSE?

A slew of new housing data last week disappointed the analysts and the stock market, and all of a sudden you started to hear concern that maybe housing wasn’t exactly in a robust recovery. From home builder sentiment to housing starts, to home builder earnings right through to sales of newly built homes, there was not one hopeful headline in any of it (except perhaps if you invest in rentals, as multi-family housing starts made more gains, but that is a contrary indicator to housing recovery).

Mortgage analyst Mark Hanson runs some disturbing numbers to back up his contention that Q2 will disappoint: “Investor sales volume up 37 percent  year over year for a whopper 69 percent of all year over year existing home sales gains. First-timers are starting to look weak in Feb. The gains in first-timer and repeat sales can easily be explained by historic rates and weather and can easily reverse in a single month.”

That may be why the home builders, who had been on a streak of gains in confidence, suddenly stopped moving this month. KB Home [KBH  9.01    -0.28 (-3.01%)   ], which builds lower-priced homes, also came in with wildly disappointing earnings and an 8 percent drop in new orders. Sales of new homes also disappointed, which one analyst called, “puzzling.”

“If new homes are not selling, then why are builder confidence and single-family housing permits moving up, and why is the S.& P. home builder index up 80 percent since last October?” asks Patrick Newport at IHS Global Insight. “Time will tell if builders and investors have gone out on a limb.”

Several other analysts started to question the strength of the recovery as well, with some just hoping that perhaps a warm winter had pulled some demand forward from spring. Despite a miss on existing home sales in February, the headline pointed to, again, big gains from a year ago.

Yes, we are ahead of where we were, but as we’ve noted so many times here on this page, rising foreclosures will put added pressure on this market, and we may not be out of the woods yet.

US Government Debt and who holds it

Biggest Holders of US Gov’t Debt from a report recently posted on CNBC.com

As the U.S. government spends an unprecedented amount of money to fix the economy, there is an equally great need to raise the cash to pay for it. This is accomplished through borrowing, whereby Uncle Sam sells Treasury securities of varying maturity.  For investors, government bills, notes and bonds are considered safe because they have a guaranteed rate of return, based on faith in future U.S. tax revenues. The government has been partially funding operations via Treasury securities for decades.

This borrowing adds to the national debt, which has recently surpassed $15 trillion and is rising every second. The amount of debt is quickly approaching the federal debt ceiling, a legal limit to borrowing that currently stands at  $ 16.4 trillion.  Much of that debt is held by private sector, but about 40 percent is held by public entities, including parts of the government. Here’s who owns the most. Foreign countries listed include private and public investors, according to monthly U.S. Treasury data.

15. Switzerland = U.S. debt holdings: $113.9 billion 

Switzerland’s holdings of U.S. debt reached a high of $147.5 billion — or about 28% of the country’s GDP — in August 2011, but has dropped in recent months to $113.9 billion. The country’s holdings have surpassed those of Hong Kong, Russia and Canada in the past several years.

14. Taiwan = U.S. debt holdings: $149.6 billion 

Taiwan’s holdings of U.S. debt have remained relatively steady over the last year, but in the past two years it has surpassed both Russia and Hong Kong in total holdings. To date, Taiwan holds $149.6 billion in Treasury securities, compared with  Russia’s $89.7 billion. Russia’s holdings have been rapidly shrinking as the country diversifies.

13. Caribbean Banking Centers = U.S. debt holdings: $185.3 billion 

The U.S. Treasury identifies this group as institutions in the Bahamas, Bermuda, the Cayman Islands, Netherlands Antilles, Panama and the British Virgin Islands. Holdings are currently listed at $185.3 billion, up from $106.6 billion in June 2008, but it remains off the group’s high of $213.6 billion in March 2009.

12. Brazil = U.S. debt holdings: $206.4 billion 

The South American economic giant has $206.4 billion in holdings, according to the Treasury. Brazil’s investment into U.S. debt has been fluctuating slightly in the past two years, with current holdings under the high of $211.4 billion in May 2011.

11. Oil Exporters = U.S. debt holdings: $232 billion 

Big oil means big money … and big investment into U.S. debt. Included in the group of oil exporters are Ecuador, Venezuela, Indonesia, Bahrain, Iran, Iraq, Kuwait, Oman, Qatar, Saudi Arabia, United Arab Emirates, Algeria, Gabon, Libya and Nigeria. The group holds a total of $232 billion in U.S. debt, within the range of the $204 billion to $236 billion it has maintained during the past year. Is it any wonder the US allows the oil companies such huge tax breaks?

10. Insurance Companies = U.S. debt holdings: $250.1 billion 

According to the Federal Reserve Board of Governors, insurance companies hold $250.1 billion in Treasury securities. This group includes property-casualty and life insurance firms.

9. Depository Institutions = U.S. debt holdings: $284.5 billion 

As of June 2011 (the most recent numbers available), the Federal Reserve Board of Governors lists depository institutions as holding about $284.5 billion in U.S. debt.  This group includes commercial banks, savings banks and credit unions. In 2011, its holdings more than tripled from the 2008 low of $105 billion. Between June and September 2011, holdings for depository institutions fell by nearly $44 billion.

8. The United Kingdom = U.S. debt holdings: $429.4 billion 

The U.K. currently holds $429.4 billion in U.S. debt, but the country’s investment has fluctuated dramatically during the past two years. Now at its all-time high (and rapidly increasing), British holdings were as low as $55 billion in June 2008.

7. State and Local Governments = U.S. debt holdings: $484.4 billion 

U.S. state and local governments have nearly a half-trillion dollars invested in American debt, according to the Federal Reserve. The level of investment has remained stable since 2006, moving within the range of $484 billion and $576 billion. The current debt holdings, however, represent the lowest aggregate level for state and local governments since December 2005, when they stood at $481.4 billion.

6. Mutual Funds = U.S. debt holdings: $653.5 billion 

According to the Federal Reserve, mutual funds hold the sixth-largest amount of U.S. debt compared to any other group, although mutual fund holdings have diminished by more than $105 billion since December 2008. Including money market funds, mutual funds and closed-end funds, this group of investments managed about $653.5 billion in U.S. Treasury securities as of June 2011, which are the most recent numbers available. Wanna buy another Mutual fund now???

5. Pension Funds = U.S. debt holdings: $842.2 billion 

Pension funds control large amounts of money, reserved for personal retirements, and thus are obligated to make relatively safe investments. This group, which includes private and local government pension funds, holds $842.2 billion in U.S. debt. The private pension fund category also includes U.S. Treasury securities held by the Federal Employees Retirement System Thrift Savings Plan G Fund.

4. Japan = U.S. debt holdings: $1.038 trillion

One of the U.S.’s largest trade partners, Japan is also one of the U.S.’s largest debt holders, currently owning $1.038 trillion in Treasury securities.

3. Other Investors/Savings Bonds = U.S. debt holdings $1.107 trillion 

With the most recent numbers from June 2011, this extremely diverse group includes individuals, government-sponsored enterprises, brokers and dealers, bank personal trusts, estates, savings bonds, corporate and noncorporate businesses for a total of $1.107 trillion.

2. China = U.S. debt holdings: $1.132 trillion 

The largest foreign holder of U.S. Treasury securities, China currently has $1.132 trillion in American debt, although it is down from all time highs of $1.173 trillion in July 2011.

1. Federal Reserve and Intragovernmental Holdings = U.S. debt holdings: $6.328 trillion 

That’s right, the biggest single holder of U.S. government debt is inside the United States and includes the Federal Reserve system and other intragovernmental holdings. Of this number, The Fed’s system of banks owns approximately $1.65 trillion  in U.S. Treasury securities (as of January 2012), while other U.S. intragovernmental holdings such as the Medicare Trust Fund and the Social Security Trust Fund – hold the rest.

In the monthly Treasury bulletin, both are combined into one category and the total accounts for a stunning $6.328 trillion in holdings as of September 2011 (the most recent number available). The amount is an all-time high as the Federal Reserve continues to expand its balance sheet, partially to purchase U.S. government debt securities. The Social Security Trust fund is required by law to invest in securities where the principal and interest is guaranteed by the Federal government.

About a decade ago, these total holdings in this category were “only” $2.5 trillion.

Loan Mod Fraud

Owners and the managing attorney of a California-based law firm were arrested Thursday for loan modification fraud, California Attorney General Kamala D. Harris announced in a release. Flahive Law Corporation charged thousands of dollars in up-front modification fees for services that were never performed for homeowners, many of whom ended up losing their homes, the release stated.

Owners of the firm, and the firm’s managing attorney, took fees without performing modification services of up to $2,500 from homeowners in Placer, Sacramento, Butte, and Yuba counties. In California, it is illegal to collect money for foreclosure-related services before performing them. The firm advertised their services on flyers, radio and televised infomercials.

The defendants claimed that through a mortgage violation audit, they could find bank violations in loan documents and use that as leverage to get a loan modified. The investigation revealed that in some cases, the client’s lender had no record of contact with the law firm so basically they had performed no work on the file they had been paid 100% of the fee up front.

COMPLETE STORY CAN BE FOUND HERE

http://www.dsnews.com/articles/index/california-law-firm-owners-and-attorney-arrest-for-modificaiton-fraud-2012-03-08

Basic rules to manage debt

Usually by the time I speak with someone about helping them with their finances, its’ too late. So here are some simple signs that will help you determine if you’re headed for trouble BEFORE it catches up with you.

 

#1. Payment amount to your credit cards is shrinking. If you can only afford to make the minimum payments on your monthly credit cards there’s a problem!  Credit card debt will only make you a slave so it is imperative that you reduce that debt and keep it down forever. Often people need a shift in their personal compass to stop making purchases. Often people are addicted to just buying things, but they have little use for the item. A simple habit  to get into, if you really want financial freedom, would be to ask yourself “will this purchase benefit my life”? The problem is that most people get a “juiced affect” from the purchase, and that’s what they get addicted to. If life is not satisfying, then buying something will help. It’s just not true. Credit card debt is dangerous and accounts for most people’s fiscal disaster. Within a few months a $5,000 credit card tab can climb to $7,500. The solution? Use your card less (ideally, only for emergencies) and pay at least twice your minimum payment. That should keep you out of credit card trouble.

 

#2. You keep overdrawing your checking account. A bank checking account is like the proverbial canary in the coal mine when it comes to your personal financial picture. If you’re constantly overdrawing it — even once in a month is a serious sign if it happens repeatedly — you need to shift your compass and make a change. You’re likely spending too much money and possibly accumulating too much debt, or your income simply does not meet your expenses. Fix the problem by building a monthly budget with savings built in – even just $50 – as long as you don’t go over, and stick to it.

 

#3. Your emergency fund reads “zero.” If you don’t have an emergency fund, or the one you have is on life support, you’re steps away from financial trouble. Experts historically say you should have at least six months’ worth of income stashed away in a savings fund, but it’s better to aim even higher. Build a 12-month cushion in case you lose your job or suffer from a major illness or injury. Most bankruptcies occur after a job loss or a serious health issue, so a proper emergency fund can save the day.

 

#4. You have to choose which bills to pay. If two bills come in the mail and you can’t afford to pay both, you’re overstretched financially. If this happens once, no worries — it’s a tough economy, and most people have problems with a bill at one time or another. But if it’s a monthly occurrence, then you’re in red-flag territory and need to revisit that budget and see where you can cut some meat off the bone (or take a second job to earn more income).

 

360 Group has been helping people mitigate debt since 2006. Contact us if you have questions. We’re happy to help.