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10 Jul, 2011

Rents up, Vacancies Down

The Miami Real Estate Club discovered in an article this weekend that average effective rent, the amount paid after discounting, was $997 in the second quarter of the year, up from $974 a year earlier, according to a report scheduled for release Thursday by Reis Inc., which tracks leasing data for 82 markets. Second-quarter rents rose in all but two markets.

Rent levels rose fastest in San Jose, Calif., to $1,501 in the second quarter. The average effective rent in San Francisco was $1,806; Wichita, Kan., $495, and New York, $2,826.

Vacancies, meanwhile, fell in 72 of the 82 markets during the second-quarter vacancy rate to 6%, the lowest since 2008 and compared with 7.8% a year earlier, according to Reis. Vacancies declined fastest in Charleston, W.Va., Greensboro/Winston-Salem, N.C., and Richmond, Va.

"Rising rents and falling vacancies are the perfect situation for landlords," said Rich Anderson, an analyst for BMO Capital Markets. "It's like drinking without the hangover."

But there were some cautious signs in the data. Landlords filled a net 33,000 units in the second quarter, a slowdown from the 45,000 units they filled in the first quarter. That was somewhat surprising because typically, the net "absorption" rate falls faster during the summer as college graduates leave campus and descend on cities in search of jobs. Some analysts said the slower absorption rate could be linked to slower job growth, although it is too soon to know for sure. The peak apartment renting season runs from May to September.

"When you're going from big numbers and getting gradually smaller it's tough to determine if things are in fact cooling," says Haendel St. Juste, an analyst at Keefe, Bruyette & Woods.

Meanwhile, supply remains constrained. Roughly 8,700 new apartment units opened during the second quarter, the second-lowest quarterly tally for new completions since Reis began collecting data in 1999.

But there is new construction in the pipeline. The CoStar Group, a Washington, D.C.-based real-estate research firm, expects about 22,500 units to be added this year, followed by 94,600 in 2012 and more than 109,000 in 2013.

But as long as employers keep adding jobs to the economy, analysts say, they expect vacancy rates to keep falling and rents to keep rising. "Barring some unexpected shock from the global economy, we expect the recovery to continue through 2011," Reis wrote in the report. "Vacancies should continue to decline while rents rise at an even faster pace than we observed in the first half of the year."

03 Jul, 2011

Freddie Mac sees inprovements in the 2nd half

Miami Real Estate Club discovered in a recent article that Freddie Mac's Chief Economist Frank Nothaft said the overall economy should begin to accelerate in the second half of 2011 with an improved housing market close behind.

Nothaft said with the continued support of the Federal Reserve, monthly job gains will continue, bringing the unemployment rate toward 8.6% by the fourth quarter, according to his blog post Monday. Mortgage rates, he said, should remain between 4.5% and 5% over the rest of the year and recent price drops pushed affordability even higher.

Economic indicators sagged this spring. Unemployment inched up to 9.1% in May. Consumer confidence hit a six-month low and existing home sales plummeted 15.3% that same month. Confidence among small businesses and homebuilders lingers at historically low levels.

Nothaft said consumers uncertain about the overall economy are holding back on purchasing "big-ticket items" such as homes.

"Some potential buyers who have the means to buy are awaiting clearer signs that home values have firmed," Nothaft said.

When that occurs remains in question. The Standard & Poor's/Case-Shiller Home Price Index officially double-dipped this spring. Research from Altos Research said values should bounce up and down for an extended period of time. And Capital Economics analysts said a lack of demand should keep prices from a consistent rise until 2014.

But Nothaft said the rental sector is a lone bright sign in today's housing market. The National Multi Housing Council reported new debt and equity financing became more available. Vacancy rates on buildings with at least five apartments dropped over the past year and monthly rents rose.

"Even though near-term concerns over income and sales growth are restraining consumer spending, business hiring, and new building, a number of positive signs in the economy indicate that growth will continue and is likely to accelerate in the second half of this year," Nothaft said.

Anthony Sanders, a professor of real estate finance at George Mason University, said with tumultuous changes coming to the housing market such as tightened purchasing standards and heightened guarantee fees at Fannie Mae and Freddie Mac, the future for housing remains cloudy.

"Mortgage rates are very low. House price declines are slowing in many areas of the country and level if not increasing in others. Mortgage delinquencies have slowed down," Sanders said. "But the economy is in a 'soft patch' and it is unclear how long that will last."

Nothaft remains optimistic, pointing to the encouraging signs in the rental market and noting home sales remain above last year's pace when tax credits first began to dry up.

"Look for a gradual improvement in housing activity in the coming year," Nothaft said.

27 Jun, 2011

Tighter lending crimps housing

  The Miami Real Estate Club has found that the percentage of mortgage applications rejected by the nation's largest lenders increased last year, spotlighting how banks' cautious lending practices are hampering the nascent housing market recovery.

In all, the nation's 10 largest mortgage lenders denied 26.8% of loan applications in 2010, an increase from 23.5% in 2009, according to an analysis by The Wall Street Journal of mortgage data filed with banking regulators.

Although lenders were expected to pull back from the freewheeling conditions that helped inflate the housing bubble, some economists argue they are now too conservative, and say that with the U.S. economy still wobbly, mortgages need to be easier to obtain for qualified borrowers, not harder.

  "As the noose on credit availability tightens, credit is being choked off at a time when the housing market is extremely fragile," says Laurie Goodman, senior managing director at Amherst Securities Group LP.

Christopher Thornberg, a housing economist at Beacon Economics in Los Angeles, counters that "banks are doing what they need to do" to change lending standards in the wake of a "crazy bubble. "

He adds, "You had decades where credit standards were tougher than they are even now."

Among the would-be borrowers having a harder time are those who have seen their incomes fall or interrupted by a period of unemployment, scenarios that have become increasingly common in recent years. Some self-employed applicants are also hitting barriers to loans—hurdles they didn't face in the past.

Lending standards are still tight in part because government entities Fannie Mae, Freddie Mac, and the Federal Housing Administration, which collectively account for more than nine in 10 loans being made today, are under heavy pressure to avoid any losses.

Those firms don't make loans directly but instead purchase or guarantee mortgages that meet their standards, and so have significant influence over which loans banks are willing to approve.

Lou Barnes, a third-generation mortgage banker in Boulder, Colo., says lenders have grown too cautious.

Fannie and Freddie, in particular, "are behaving like a hurricane insurance company that won't write any policies within 200 miles of an ocean."

Fannie Mae, for its part, says tighter loan restrictions, while painful for the housing market, are necessary to correct past excesses.

"Clearly we got too loose. This is a return to historical standards," says Doug Duncan, Fannie's chief economist. "When markets were stable and these standards were applied, you didn't hear the same complaints."

On Tuesday, Mr. Barnes told Amy Menell that his bank wouldn't be able to approve her for a loan even though she has a credit score above 800, no debt and is willing to put down more than 50% on a $400,000 house in Boulder, Colo. Ms. Menell, a mother of three who is finalizing a divorce and receiving a cash settlement of $400,000, wants to take advantage of low interest rates and the depressed housing market to buy a home.

But Ms. Menell works as a real estate agent and had little income in 2009, when the housing market slowed.

That has left her without the two years of documented income the bank wants for her loan application, even though she says business has picked up over the last year.

"I know the housing market inside and out here, and believed that with a significant enough down payment and more assets behind you, that you could get a loan," she says.

Mr. Barnes says that in ordinary times, Ms. Menell would have had no difficulty getting a loan. "Going back as far as there has been banking, if somebody walked in the door with a 50% down payment, good credit, cash in reserve, they'd walk out with a loan," he says.

To be sure, the rejection rates have been higher than they are now, and reached 32.5% at the height of the housing bubble in 2007. That was driven, in part, by brokers and loan officers testing the limits to see just how loose banks were willing to go.

The mortgage data analyzed by The Wall Street Journal included loan applications filed by consumers who wanted to refinance existing mortgages as well as those planning to buy a home. Among home-purchase applications, lenders denied 19.9% of applications, up from 18.2% in the previous year, while 27.2% of refinance applications were denied, up from 24.4%.

Recent surveys by regulators show no sign of credit easing so far this year. Nearly four in 10 banks reported tighter mortgage lending conditions for the 12-months ended in February, according to a survey published this week by the government's Office of the Comptroller of the Currency. Just 8% said that standards had loosened.

The Journal obtained the data from individual lenders in accordance with the Home Mortgage Disclosure Act, which requires lenders to report such figures. The top 10 lenders accounted for more than 70% of loan originations last year, though a substantial percentage of those loans were obtained by the lenders immediately after smaller firms had approved the loans.

The analysis showed that denials increased in every state except Delaware and in all but nine of the top 100 metropolitan areas. Denial rates were highest in Miami, Detroit, and New Orleans, and lowest in Raleigh, N.C.; Bethesda, Md.; and San Jose, Calif.

Miami Real Estate Club has found that In Miami, where home prices are down by 50% from their 2006 peak, nearly 44% of loan applications were rejected last year.

The market relies heavily on buyers with cash: In April, nearly 63% of home sales were all-cash deals, according to the Miami Association of Realtors.

There are some limits to what the data can show. Loan officers say that many borrowers are being dissuaded from even applying in the first place, out of fear they won't meet stringent guidelines.

In past economic cycles, lending standards tended to ease within the first year of an economic recovery, and the OCC survey showed that banks have eased underwriting standards for commercial loans over the 12-month period ended in February.

But in the current cycle, lenders have kept standards tight for home loans even though the economy is growing. "There's no question that accessible credit is a problem," says David Stevens, chief executive of the Mortgage Bankers Association, an industry group.

Mr. Stevens, who headed the Federal Housing Administration for two years until March, says a key factor in banks' reluctance to lend more freely is the aggressive effort by Fannie and Freddie to force banks to repurchase loans if they go bad.

10 Jun, 2011

Do you believe it ARM's are on the rise again!

The Miami Real Estate Club has found that new loan inquiries climbed 15 percent this week as adjustable-rate activity shot up 30 percent. Borrowers seeking shorter-term loans got a big boost.

At 243, the U.S. Mortgage Market Index from Mortech Inc. and for the week ended June 10 improved from last week's index of 212.

Helping drive the improvement in new business was adjustable-rate mortgage activity, which was up 30 percent from last Friday's report. The share of new activity that was for ARMs climbed to 10.52 percent this week from 9.47 percent seven days earlier.

Refinance inquiries rose 17 percent, while refinance share climbed to 54 percent from last week's 53 percent. The share reflected a rate-term refinance share of 41 percent and a 13 percent cashout refinance share.

Conventional business was up 16 percent, purchase activity climbed 12 percent and FHA inquiries were 7 percent higher.

Compared to a year earlier, overall business was off 11 percent.

Behind this week's surge were slightly lower mortgage rates and the prior week's holiday lull.

The average 30-year conforming fixed-rate mortgage was 4.645 percent this week, lower than 4.651 percent last week.

The improvement in conforming activity was matched by jumbo rate, with the jumbo 30-year easing to 5.160 percent from 5.170 percent. The spread between the conforming and jumbo 30-year mortgage was unchanged at 52 basis points.

The Mortgage Market Index report indicated that the 15-year fixed-rate mortgage was 3.820 percent, falling from 3.880 percent last week. The 15-year became a more attractive option this week, with the spread between the 15-year and 30-year mortgage widening to 83 BPS from the previous week's 77 BPS.

10 Jun, 2011

Mortgage rates set new low for 2011

The Miami Real Estate Club has found that home mortgage rates fell again to a fresh 2011 low as a week of downbeat jobs data fueled concerns over a possible economic slowdown this year, according to the latest survey from Freddie Mac.

The decline in fixed rates represented the eighth-straight weekly fall and comes after the Bureau of Labor Statistics this week said employers added far fewer private-sector jobs than expected.

"The housing market continues to be fragile across the nation as well," Freddie chief economist Frank Nothaft said, with Federal Reserve data released Wednesday showing weak sales and prices in most districts.

The 30-year fixed-rate mortgage averaged 4.49% in the week ended Thursday, down from 4.55% the prior week and last year's 4.72% average. Rates on 15-year fixed-rate mortgages fell to 3.68% from 3.74% the previous week and 4.17% a year earlier.

Five-year Treasury-indexed hybrid adjustable-rate mortgages fell to 3.28%, from 3.41% last week and 3.91% a year earlier. One-year Treasury-indexed ARM rates decreased to 2.95%, from 3.13% the prior week and 3.91% a year earlier.

To obtain the rates, fixed-rate borrowers required an average payment of 0.7 point, while the adjustable-rate mortgages required a 0.5 point payment. A point is 1% of the mortgage amount, charged as prepaid interest.

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