Real Estate Information

The President signed off on the bill Friday, November 6^th, to extend unemployment benefits.  As part of the bill, the tax credit for first time home buyers was also extended and expanded.  First time homebuyers or homebuyers that have not owned a home in at least 3 years, have until April 30^th, 2010 to go under contract on a new property, close by June 30^th, 2010, to be eligible for the $8000 tax credit.  The income limits have been raised as well, from $75,000 for an individual to $125,000 annual income, with couple’s income being raised from $150,000 to $225,000.  If homebuyers exceed the income limit, they may still be eligible for a tax credit at a decreased amount.

The expansion of the tax credit extends to homeowners who owned for 5 of the last 8 years.  These homeowners who are under the income limits, with a purchase of a new home, priced under $800,000 would be eligible for the $6500 tax credit.

With interest rates at historic lows, but predicted to rise into the 7’s and 8’s over the next year or two, this could be the optimal time to buy. 

On Friday, the Commerce Department reported that consumer spending declined 0.5% in September.  This sent the Dow down almost 250 points as worries about the recovery came back to the fore in the minds of investors.  The US economy relies heavily on consumer spending & until this most recent report, consumer confidence has been low in recent months but consumers on the whole continued to increase spending.  The decrease in consumer spending clearly demonstrates that government programs, such as “Cash for Clunkers”, have enticed consumers to make purchases that they would not have made otherwise.  The government will need to continue many such programs in order to maintain consumer spending.  There will be no recovery if consumers reign in spending.

Businesses recently surveyed by Kiplinger say they will borrow less, save more & remain vigilant on spending.  This is certainly good advice for most households & should be expected whenever incentives to purchase are curtailed; however, saving may be difficult as many are surviving reduced income impositions with supplementing from savings.  As defaults continue to rise, this puts great strain on banks.  Nine banks were seized on Friday, bringing the total to 115 for the year & more are expected.  CIT declared bankruptcy on November 1^st, further evidencing the hardships of commercial lenders.  The risk of commercial loan defaults initiating a new collapse to the markets remains high, with hospitality & retail sectors at great risk.  Consumer spending will be critical.

The big economic items to watch this week are the Fed Meeting wrap up on Wednesday & the Employment Report on Friday.  The Fed will have to leave rates where they are.  Falling consumer spending will give rise to discussions of potential Deflation.  The GDP Price Index released with the GDP on Thursday last week, indicated that prices for all goods & services within the GDP increased only 0.8% when 1.4% was expected.  The previous quarter GDP Price Index came in at 0% increase.  The 0.8% increase in Q3 may indicate the government programs designed to stimulate consumer spending are having a direct affect on consumers but are not generating much residual momentum.  Volatility

This Week:  Fed Meeting adjourns on Wednesday, Unemployment Claims on Thursday & the Employment Report will be released Friday morning.

This Economic Commentary is NOT AN INVESTMENT RECOMMENDATION.

Richard Stephenson

Residential Mortgage Division

Bank of America

Are you behind in your mortgage payments or know someone who is?  Many people do not know there are other options and that they can avoid foreclosure.  From mortgage modifications to short sales, most families can find alternatives and save their home, or at the very least, save their credit from total destruction. Try working with your lender, explain your situation, and see if you qualify to refinance or if they are willing to do a loan modification.  Can you rent the property for enough to allow you to catch up and make your payments, waiting until your property value is more than you owe?

One of the other options that most people do not know about is a Short Sale.  A Short Sale means that the bank agrees to take less than they are owed.  This can create a situation where everyone wins.  Your credit will be dinged for missed payments, but not a foreclosure which can drop it 300+ points and stay on your credit for 10 years.  This can make it difficult to rent a property, buy a car, get a credit card, etc.  People who sell there property as a short sale, have the opportunity to buy a new home in a couple of years when they are back on their feet.  There are 17 different hardships that are considered by the bank as reasons to accept the short sale.  It is important that the real estate broker do a thorough consultation to make sure that you qualify.  Then the broker prices the home at market value and once under contract, presents your hardship letter, financial packet, and negotiates with the bank to accept market value for the home.

If you qualify for a short sale, the bank will pay the commission at closing.  It is no cost to you for this service. If you or someone you know is facing foreclosure, please have them contact us today so we can help them find a better way out.

Why is now a good time to buy real estate?  Although we are in the midst of a recession and there seems to be bad news 24/7 on the cable networks, for many buyers this has been one of the best times to buy in recent memory.  Most of my buyers at this time are first time home buyers and investors.  First time home buyers have many factors pushing them into the market at this time, with home values at their lowest in years, historically low interest rates, and the $8000 tax credit, there is real incentive at this time.  Their money goes farther with the low purchase prices and interest rates at a 40 year low, many are looking at this being the right time to stop paying rent, and moving into a home that they can ride this economy out with a good property for the next 5-10 years. 

Investors are scooping up bank owned properties for sometimes ½ of the neighboring comps, to fix and flip, or to create a good rental property, again with the goal of selling years down the road.  Many investors feel there are tremendous opportunities at this time, although when they actually get into the market, they find that they are in great competition with fellow investors.  Many of these bank owned properties are receiving multiple offers within hours of hitting the market and selling for substantially over list.   Last week I encountered a bank owned, 4 bedroom home for $168,000, in an area where I know the comps to be $250,000 and up.  Within a few hours I was touring the property, 5 different real estate agents were there during my 20 minute tour, and I was informed by the listing broker there were already 5 offers submitted.  The property was listed at 9am, this was noontime the same day.  I will be very curious to see what it ultimately closes at.  Why tell this story?  There are great opportunities, but be prepared for great competition.  Know the market, have your finances in order, and be prepared to act quickly.

All in all, this is an exciting time to be a buyer in the real estate market.  With the tax credit set to expire November 30^th, it will be interesting to see if it is extended, and how that impacts buyer’s motivation.

Our weekly commentary from our local lender:

Equity traders sent the Dow rocketing over 10K last week although there was a little pull back at the close of the week, while bond prices fell for the most part.  No evidence has been acquired that would confirm or deny the rationale for running up the stocks; however, PE ratios are high compared to forecasts.  Perhaps the world has finally come to believe that stocks are the best investments over the long term & as such PE ratios can be higher than generally accepted prior to this plausible social perception change. 

Retail sales came in better than expected with a 0.5% gain, excluding auto sales, while consumer confidence fell.  This could be a sign that consumers will continue to say they are hurting while returning to their normal spending habits so long as there is cash available.  It appears that the equity markets are quite comfortable with this combined with the prospects of roughly 10% unemployment, so long as consumers will go shopping this holiday season.  Still the debate between socks & bonds continues this morning with gains in both camps. 

The commercial property market could still be the next cause for panic, as 60 day delinquencies on commercial loans continues to rise.  Although many regression model analysts are predicting increases without correction in the stock market, they may be failing to give adequate consideration to this aspect of the financial sector as well as overlooking global issues such as the likely housing bubbles in Spain & China.

While jobless claims dropped to 514K & expectations for net job losses in October to fall below 200K, as opposed to a loss of 263K in September, this may be representative of a point of equilibrium being reached in the private sector.  Anecdotal evidence from many states seems to indicate that their shortfalls resulting from the recession will not be as easily countered by cost cutting measures enacted by the private sector.  Just as market bottoms wait for capitulation before they can begin to recover, the run up in equities & bonds will likely see one of them capitulate at a high & subsequently decline.

This Week:  Housing Starts, Building Permits, Beige Book, Existing Home Sales, could possibly move markets if they are off from expectations. 

This Economic Commentary is NOT AN INVESTMENT RECOMMENDATION.

Richard Stephenson

Residential Mortgage Division

Bank of America

Economic Commentary: October 12, 2009

As suspected last week, the government appears to continue its financial policies & programs for now.  Announcements of reinstating expiring programs abound & as the dollar weakens there is an interesting amount of gain in both the stock & bond markets.  Typically good news for the economy will drive investors toward stocks & bad news will drive them toward the safe haven of bonds, but the falling dollar is driving up prices of both.  As the Fed continues its course of stimulating the economy it will have to notice the affect of asset stimulation that has resulted.  The interest in low yield assets, like treasuries, looks even more like a hedge against the possible correction in the stock market.

The placement of funds indicated above is very much a sign of trepidation.  A potential slide into an inflationary cycle marked by a sell-off in fixed income securities seems just as plausible as a slide into a stock market correction marked by a flight to quality in fixed income investments.  So investors are trying to play it safe by pumping money into both.  The decision as to which side is the safe side, will likely play out soon.  The end equation may boil down to a battle between a continued trend of good earnings vs. the anticipated affects of unemployment on the American consumer society.

The financial sector is still shaky with the potential write downs from commercial loan defaults, as well as home mortgage payers who have exhausted all resources & are now ready to succumb to a state of insolvency, created by their unemployment or underemployment.  Earnings reports from banks may come out this week using less than accurate valuation models for mortgages.  Those who believe in a “V” shaped recovery run no risk by overlooking this accounting valuation practice.  We will have to wait & see to what extent the current Price to Earnings ratios in stocks can stomach the prospects of unemployment & spending for this winter.

This Week:  Consumer Confidence, Jobless Claims, Consumer Price Index, Industrial Production & Capacity Utilization, Fed Minutes. 

This Economic Commentary is NOT AN INVESTMENT RECOMMENDATION.

Richard Stephenson

Residential Mortgage Division

Bank of America

Our weekly economic commentary from our local lender:

The bulls received a slight threat warning last Wednesday when the Chicago Purchasing Managers’ index fell to 46.1.  Then employment & manufacturing reports came in weaker than expected.  263,000 jobs were lost in September, when the anticipated number was around 180,000 to 200,000.  On top of that 571,000 individuals gave up looking for work & the unemployment rate climbed to 9.8%.  Job losses continue to be problematic in the construction, manufacturing & financial sectors.  If those who have discontinued looking for work, those who have taken part time work in lieu of full time employment & those who want a job but haven’t looked recently, were all added to the equation, the Unemployment rate would be around 17%.

Although the Institute for Supply Management indicated this morning that the August report on the service sector has actually grown for the first time in 13 months, the gain will not likely be sustained going forward.  Almost one third of the gain was a direct result of the Cash for Clunkers program.  Continued job losses are certainly expected.  The magnitude of those job losses will be influential to consumers & as such are very worrisome.

In addition to the potential weakening of consumer confidence due to the employment situation, the projected foreclosure estimates have been raised by many economic estimating institutions.  This situation will likely sustain pressure on a housing recovery & contribute to delaying any meaningful recovery overall.  Combining this with Friday’s dire report on the employment situation does not support the promotions of “V” shaped recovery.  The government will be expected to continue policies & programs that promote home ownership & avoid foreclosures whenever possible, because an abandonment at present would be sufficient to drive the economy back into recession for a double dip.  A good turn out for the treasury auctions this weak will be further support of this belief, & a double dip will still be a considerable risk.

Going forward, it will be interesting to watch how policy makers & analysts change their positions on employment from that of a lagging indicator to one of leading indicator.  The Fed has publicly considered a pull back in their policies & programs, but their statements were likely promoted by markets concerned about the possibility of inflationary pressures.  Those fears of inflation & the Fed’s exit strategy will be put on hold for sometime.  Expect the government to remain aggressive in seeking a meaningful recovery. 

This Week:  Consumer Confidence, Jobless Claims & Mortgage Applications, should all be given some consideration as Leading Indicators.

This Economic Commentary is NOT AN INVESTMENT RECOMMENDATION.

Richard Stephenson

Residential Mortgage Division

Bank of America

Our weekly commentary from our local lender:

Fed Chairman Ben Bernanke has declared the recession is “very likely” over.  This week we may see what some of the other Fed members think about the current economic situation.  The Fed is anticipated to leave rates where they are, but their press statement at the conclusion of their meeting may give some clue as to whether they are preparing to raise rates anytime soon.  Any hints of raising rates soon may give the stock market a reason for a correction.  An eerie sense of calm & no recovery indicative rate raising action should be expected on Wednesday afternoon.  The Fed would typically raise rates in anticipation of a recovery, but this “recovery” is a little weak, so the Fed will be holding off until the recovery is more apparent.

The signs of true recovery should logically be improvements in the areas of housing, banking & employment.  While a slowing decline in these areas as of late is good news, it is not necessarily a confirmation of recovery.  An actual stabilization in all three areas would be a reliable indication that the recession is over, but the combined areas aren’t forecast to stabilize until the end of the year or early 2010.  Housing & Employment have shown some signs of a potential approach to stabilization, but the comments last week about the banking sector describe an environment for real trouble in the banking sector.  Stabilization in this area will not likely be apparent until the near end of October.  The banking sector will remain a considerable risk to the recovery.

Fixed income securities held up well last week until Friday’s sell off.  Until the equities markets suffer a correction, the rate markets will likely continue to loose ground with rates rising a little at a time.  The treasury auctions on Tuesday could confirm one of likely two possible market beliefs.  If treasury sales are good, this could be a confirmation that a stock market correction is still widely anticipated &/or that the world economic recovery is still being hedged.  If treasury sales are not so good, this could mean that the time to start raising interest rates is coming sooner than the end of the year.  Ironically, the latter might be more likely to precipitate a correction in equities & if the sell off were to be significant, a flight to quality might ensue.  Watch the Treasury auction sales closely this week.  Equity investors, especially fund managers, may start to believe they have run up the prices a little too much.

This Week:  Treasury Auction begins Tuesday, Unemployment Claims on Thursday, Home Sales & Durable Goods on Friday.

This Economic Commentary is NOT AN INVESTMENT RECOMMENDATION.

Richard Stephenson

Residential Mortgage Division

Bank of America

Our weekly Economic Commentary from our local lender:

The Fed’s Beige Book was touted by many as mildly optimistic with 6 out of 12 districts reporting slight general economic improvements.  The 6 optimistic districts also admitted that the Cash for Clunkers program may have been responsible for the improvements.  It would be logical to consider that the program has likely moved future demand into the time frame of the Government offer & now that it is over we could see a fall off in sales as a result of demand being already satisfied.  The auto sales figures post Cash for Clunkers stimulus will be telling.

A true positive note from last week was the Consumer Sentiment report which showed a substantial improvement for the September survey.  Retail Sales figures on Tuesday could move the markets.  The Sales Ex-Autos figure will be most important as it will remove most of the Cash for Clunkers stimulus affect & give support or reject the sentiment survey results.

The recent rise in Gold prices indicates market sentiment that inflation & devaluation of the dollar is coming.  Actions by the Fed & Non-US global consumers could reverse this trend in the next few months.  This will be a wait & see item.

Financials are up in value but credit quality is still a problem & the banks are not aggressively pursuing lending.  The volume & quality of the loan modifications performed by banks over the last 12 months could be too low in either or both categories & thereby put the financials at risk again once the Fed begins its exit strategy from the mortgage backed securities market & other support.  The Fed has moved up the start of that exit from December to October.  The job losses & resulting defaults are clearly projected to continue & in turn will further erode the portfolios of the banks.  The census of 2010 will likely show a contraction in per capita home ownership & a reciprocal increase in number per household.  This means that banks home loan portfolios have been & continue to shrink at present, at the same time as the risk levels continue to increase.  This is why banks appear less than eager to make loans.

This Week:  Advance Retails Sales figures on Tuesday & Jobless Claims on Thursday

This Economic Commentary is NOT AN INVESTMENT RECOMMENDATION.

Richard Stephenson

Residential Mortgage Division

Bank of America

Our weekly economic commentary from our local lender:

Last week’s forecast for likely weakness in the stock market & a resulting flight to quality was accurate, but the bulls rallied back to just one percent shy of reclaiming all the losses for the week.  The employment report released on Friday contained some underlying support for believing in a positive future for equities.  Productivity rose at 6.6% in the second quarter.  This is due to firms laying off less productive workers over the past year & supposedly the motivational factor the prospect of unemployment has had on those who have managed to keep their jobs.  However, surveys of the employed indicate that retained workers are feeling more resentful for low compensation while being required to fulfill the duties left behind by previous co-workers.  While firms enjoy the recent productivity gains, they may be indifferent to the resulting emotional state of the worker.  Resentment typically cultivates a different path than fear.  If this recession produces a greater number of resentful workers over fearful workers, then the rift between workers & corporations may widen in coming years.

The more immediate question going forward & prevalent on the minds of many is whether the general population will feel lucky enough to have a job & wealth sufficient enough to return to old spending habits.  Retail sales figures out last Thursday gave indication of lackluster back-to-school shopping for August.  Typically the August results will give retailers insight to the likely spending for the holiday season.  As a result, retailers are forecasting a conservative approach to the holiday season & indicate that they will be limiting inventory so as to avoid the profit perils in deep discounting of excess inventory, such as last year’s holiday season brought them.  Lackluster holiday spending for retailers would seem to be the most likely outcome at this time.

For the moment at least, it seems that Americans will go forward with much more frugality than the post WWII era.  This recession is being coined the “Great Recession” & is likely to have a similar affect on the population as did the Great Depression.  The population is likely to be much more cautious & fearful about spending.  The economy will recover, but the summer run up in equity prices amid low volume trading is not based on a solid foundation to move forward.  Although the stock market recovered somewhat on Friday, an expectation for further declines still seems prudent.  One big indication of anticipated overall subdued growth is that many Federal Reserve officials are forecasting no significant inflationary risks finishing out 2009 or moving into Q1 2010, but the key component is whether the consumer comes back to the market or not.

This Week:  Fed Beige Book on Wednesday, Jobless Claims on Thursday & Consumer Sentiment on Friday

This Economic Commentary is NOT AN INVESTMENT RECOMMENDATION.

Richard Stephenson

Residential Mortgage Division

Bank of America