NorthMarq Capital’s Chicago regional office has arranged first mortgage financing of $8.1 million for Edenbridge Apartments, a 309-unit mid-rise, garden and townhouse multifamily property, located in Tinley Park, Ill.
Financing was based on a 10-year term with a 30-year amortization schedule and was arranged for the borrower, Edenbridge LLC, by NorthMarq through its affiliate AmeriSphere Multifamily Finance, a Fannie Mae DUS lender.
According to NorthMarq, the borrower chose to prepay existing mortgage to lower the interest rate and secure long-term fixed-rate debt at very attractive interest rate of approximately 5.5 percent.
Alliant Arranges $7M for Acquisition of 186-Unit Manufactured Housing Community
Enumclaw, Wash.--Alliant Capital LLC has arranged the $7 million acquisition of Mountain Meadows, a 186-unit manufactured housing community in Enumclaw, Wash.
The deal, closed on behalf of The Desimone Family Irrevocable Trust, includes a 10-year term with three years interest-only, yield maintenance of nine and a half years and a 30-year amortization.
The manufactured housing market of the Enumclaw area exhibits strong occupancy levels and shows an upward trend in rental rates. Absorption remains favorable and long-term projections show continued growth and effective rental increases.
Monday, May 25, 2009
NYC Multifamily Sales Volume Plummets 95% from Mid-2007
The bank stress tests are in and have provided some relief to Wall Street, the stock market has picked up a little—relative to early this year—and the constant barrage of bad news has given way to some good news. And even though every economic indicator for New York City was negative in the first quarter, the rate of decline slowed considerably from the fourth quarter of 2008.
Schreiber However, nothing suggests that the overall climate is starting to improve: job losses have been steady and property sales volume declined for the seventh straight quarter. The commercial sales market in New York remained on life support in the first quarter of 2009 and volume of multifamily sales declined nearly 40 percent since the fourth quarter of 2008, which was already a five-year low, according to a recent New York market report conducted by Eastern Consolidated, CoStar and Property Shark.
“The economy is likely riding the bottom of a “U”-shaped recovery, but the extent to which we remain in this position is not clear,” says Barbara Byrne Denham, chief economist, at Eastern Consolidated, who heads the company’s research operations.
With just less than $200 million in multifamily transactions, the volume has plummeted 95 percent from its peak in mid 2007. The largest sale was the mixed-use Garment District building at 488 Seventh Avenue that sold for $45.3 million, which worked out to $510 per square foot. Only four other transactions greater than $10 million were traded in the quarter.
“Confidence in general economic conditions has improved in recent weeks as the banks have conveyed an overall sense that the worst is behind them. Many have confused this positive development as a sign of improvement when it really is not,” says Denham.
The downward momentum in the economy may be slowing but it is still negative: job losses will continue and the volume of property sales will not likely pick up in the next quarter or two, the report finds. The securities industry lost 18,100 jobs, all based in New York City, since November 2007. “If the securities industry losses are any indication, this recession may not be as bleak as many had foretold,” Denham concludes.
Schreiber However, nothing suggests that the overall climate is starting to improve: job losses have been steady and property sales volume declined for the seventh straight quarter. The commercial sales market in New York remained on life support in the first quarter of 2009 and volume of multifamily sales declined nearly 40 percent since the fourth quarter of 2008, which was already a five-year low, according to a recent New York market report conducted by Eastern Consolidated, CoStar and Property Shark.
“The economy is likely riding the bottom of a “U”-shaped recovery, but the extent to which we remain in this position is not clear,” says Barbara Byrne Denham, chief economist, at Eastern Consolidated, who heads the company’s research operations.
With just less than $200 million in multifamily transactions, the volume has plummeted 95 percent from its peak in mid 2007. The largest sale was the mixed-use Garment District building at 488 Seventh Avenue that sold for $45.3 million, which worked out to $510 per square foot. Only four other transactions greater than $10 million were traded in the quarter.
“Confidence in general economic conditions has improved in recent weeks as the banks have conveyed an overall sense that the worst is behind them. Many have confused this positive development as a sign of improvement when it really is not,” says Denham.
The downward momentum in the economy may be slowing but it is still negative: job losses will continue and the volume of property sales will not likely pick up in the next quarter or two, the report finds. The securities industry lost 18,100 jobs, all based in New York City, since November 2007. “If the securities industry losses are any indication, this recession may not be as bleak as many had foretold,” Denham concludes.
In Dispute Between Developer and Lender, Arbitrator Finds in Favor of Former
In today’s trying economic conditions, developers nationwide are finding it more and more difficult to sell their recently completed condominiums to interested parties. With the credit markets frozen, even those who use these units as investment opportunities are often unable to purchase them. While some developers have turned to a rental exit strategy, others have found that their contracts with their lenders make this rather complicated, if not impossible.
In a recent ruling that found in favor of the developer, Gateway and 4th, an arbitrator banned the sale of Blu, an 82-unit, mixed-use condominium development, citing the "impossibility of selling the units" under current economic conditions.
“The second lien lenders (Pacific CityHome) tried to foreclosure and sell the interest,” explains Daniel S. Miller of law firm Miller Barondess LLP in Los Angeles, who represented Gatway and 4th. “The loan agreement allowed them to foreclose if units weren’t sold. We filed for a preliminary injunction to block the foreclosure.”
According to the proceedings, Pacific CityHome LLC agreed to loan $10.4 million to Gateway and 4th LLC—whose parent company is Intracorp—for the development of Blu, as stated in a loan agreement dated September 28, 2007. The agreement provides for minimum purchase prices ranging from $431,300 to $635,700.
Also according to the proceedings, Gateway took every step possible to sell units, but found that, given the state of the market, they were unable to close any sales.
Because Gateway and 4th had not defaulted on their loan payments, Miller argued that “under equitable doctrine, we should be skewed from performance and [the lender] should be blocked from foreclosing. We argued that this credit tsunami created an impossibility, and people can’t get credit to buy condos and, especially on these multi-unit buildings, it’s even more difficult because unless you have 50 percent under contract, you can’t get financing.”
JAMS (Judicial Arbitration and Mediation Service) arbitrator Robert Thomas enjoined the foreclosure sale of the development, which had been scheduled to take effect April 27.
“I think this could impact developers facing technical defaults and an inability to sell units, things of that nature. They might have a way of using equitable doctrines to stave off a foreclosure, whereas conventional wisdom is, if there’s a default, there’s a default, but that’s not the case today,” Miller tells MHN.
The best course of action seems to be to convert the condominium into a rental community, as selling it as condos is impossible in this market, Miller notes, who believes his client will likely take this strategy.
In a recent ruling that found in favor of the developer, Gateway and 4th, an arbitrator banned the sale of Blu, an 82-unit, mixed-use condominium development, citing the "impossibility of selling the units" under current economic conditions.
“The second lien lenders (Pacific CityHome) tried to foreclosure and sell the interest,” explains Daniel S. Miller of law firm Miller Barondess LLP in Los Angeles, who represented Gatway and 4th. “The loan agreement allowed them to foreclose if units weren’t sold. We filed for a preliminary injunction to block the foreclosure.”
According to the proceedings, Pacific CityHome LLC agreed to loan $10.4 million to Gateway and 4th LLC—whose parent company is Intracorp—for the development of Blu, as stated in a loan agreement dated September 28, 2007. The agreement provides for minimum purchase prices ranging from $431,300 to $635,700.
Also according to the proceedings, Gateway took every step possible to sell units, but found that, given the state of the market, they were unable to close any sales.
Because Gateway and 4th had not defaulted on their loan payments, Miller argued that “under equitable doctrine, we should be skewed from performance and [the lender] should be blocked from foreclosing. We argued that this credit tsunami created an impossibility, and people can’t get credit to buy condos and, especially on these multi-unit buildings, it’s even more difficult because unless you have 50 percent under contract, you can’t get financing.”
JAMS (Judicial Arbitration and Mediation Service) arbitrator Robert Thomas enjoined the foreclosure sale of the development, which had been scheduled to take effect April 27.
“I think this could impact developers facing technical defaults and an inability to sell units, things of that nature. They might have a way of using equitable doctrines to stave off a foreclosure, whereas conventional wisdom is, if there’s a default, there’s a default, but that’s not the case today,” Miller tells MHN.
The best course of action seems to be to convert the condominium into a rental community, as selling it as condos is impossible in this market, Miller notes, who believes his client will likely take this strategy.
Richard Moody Promoted to Chief Economist, Director of Research for Forward Capital, and Other Moves
Forward Capital LLC has promoted Dr. Richard Moody (pictured right) to chief economist and director of research for Forward Capital and all of its operating entities, which includes Mission Residential. Moody was previously the chief economist and director of research of its Mission Residential unit.
Moody joined Mission Residential in 2006 to oversee the company’s micro and macroeconomic analysis team. He and his research team delivered local, regional and national supply/demand/balance metrics in real estate on a regular basis, as well as studying macroeconomic trends to help drive the firm’s multifamily acquisitions and portfolio practices.
Before joining Mission Residential, Dr. Moody was vice president and senior economist for Pittsburgh-based PNC Financial Services Group since 1998.
NCB Promotes Deirdre Casey Gernavage to VP, Closing Department of NY Underlying Lending Team
New York--NCB has promoted Deirdre Casey Gernavage (pictured) to vice president, New York Real Estate Closing Department in the bank’s Manhattan office.
Schreiber In this position, Gernavage is primarily responsible for managing the underwriting, loan processing and closing functions for New York’s underlying mortgage team. Her primary responsibilities include: locking interest rates on loans in process; serving as a liaison between the borrower, attorneys and mortgage brokers; arranging loan closing schedules; managing the disbursement of loan proceeds; resolution of environmental and engineering issues; and all due diligence requirements for securing an underlying mortgage loan. In addition, she produces the office’s monthly and quarterly loan production reports.
Gernavage has worked with NCB for 15 years starting in the Share Loan Division as administrative assistant and then closing coordinator. Most recently she has served as assistant vice president of the NY Underlying Team Closing Department.
CAS Partners New Financial and Legal Heads
Dallas--CAS Partners has hired Barbara A. Erhart and Michael G. Hoffman to lead financial and legal activities, respectively. As a result of its strategic expansion of multifamily real estate services, the company added Erhart to its executive team in the role of chief financial officer and Hoffman as the company’s first chief legal officer.
Erhart will oversee all financial operations, accounting and treasury functions. Hoffman will be responsible for all aspects of the company’s legal affairs, including corporate and transactional work, dispute resolution and legal compliance coordination.
Moody joined Mission Residential in 2006 to oversee the company’s micro and macroeconomic analysis team. He and his research team delivered local, regional and national supply/demand/balance metrics in real estate on a regular basis, as well as studying macroeconomic trends to help drive the firm’s multifamily acquisitions and portfolio practices.
Before joining Mission Residential, Dr. Moody was vice president and senior economist for Pittsburgh-based PNC Financial Services Group since 1998.
NCB Promotes Deirdre Casey Gernavage to VP, Closing Department of NY Underlying Lending Team
New York--NCB has promoted Deirdre Casey Gernavage (pictured) to vice president, New York Real Estate Closing Department in the bank’s Manhattan office.
Schreiber In this position, Gernavage is primarily responsible for managing the underwriting, loan processing and closing functions for New York’s underlying mortgage team. Her primary responsibilities include: locking interest rates on loans in process; serving as a liaison between the borrower, attorneys and mortgage brokers; arranging loan closing schedules; managing the disbursement of loan proceeds; resolution of environmental and engineering issues; and all due diligence requirements for securing an underlying mortgage loan. In addition, she produces the office’s monthly and quarterly loan production reports.
Gernavage has worked with NCB for 15 years starting in the Share Loan Division as administrative assistant and then closing coordinator. Most recently she has served as assistant vice president of the NY Underlying Team Closing Department.
CAS Partners New Financial and Legal Heads
Dallas--CAS Partners has hired Barbara A. Erhart and Michael G. Hoffman to lead financial and legal activities, respectively. As a result of its strategic expansion of multifamily real estate services, the company added Erhart to its executive team in the role of chief financial officer and Hoffman as the company’s first chief legal officer.
Erhart will oversee all financial operations, accounting and treasury functions. Hoffman will be responsible for all aspects of the company’s legal affairs, including corporate and transactional work, dispute resolution and legal compliance coordination.
Dupont Corian Launches ‘One-of-a-Kind’ Design Studio in New York
There is now a new showroom to help users apply DuPont Corian surfacing material in all kinds of ways.
The material can be molded for countertops, flooring, bathtubs, sinks, vanities, and even headboards, radiator covers and seating for the kitchen, bath, and basically all areas of the multifamily home as well as common areas.
DuPont, surface solutions provider Evans & Paul and marketing distributor Dolan & Traynor are unveiling the flagship showroom, the DuPont Corian Design Studio, located in the Flatiron district in New York.
The 5,000 square-foot space is an interactive workshop where design influencers can consult with materials experts to address specific project needs and help bring their ideas to life. The showroom will be open June 1.
“Our collective vision was to create a place of interaction and experiment, where industry experts can collaborate and create inspirational environments with Corian and Zodiaq,” said Elizabeth Lawson, North America commercial marketing manager – DuPont Surfaces. “The space will serve as the premier resource to demonstrate how DuPont Surfaces can be used as innovative, flexible and inspirational design materials.”
To provide consultation and project support for commercial designers and specifiers, Evans & Paul surfacing solutions experts will be on hand and available by appointment through designstudio.corian.com. The Design Studio will also host a variety of rotating exhibits from designers around the globe.
“The Design Studio is a showplace for new offerings, fabrication skills and real-life applications that convey how innovative designs can be flawlessly executed into striking spaces,” said Christopher Whitelaw, director of Research & Development – Evans & Paul.
In use for over 40 years, DuPoint Corian can be thermoformed into seamless custom shapes and contours, sandblasted, routed, carved, laser-etched and backlit. With proper cleaning, the manufacturer says, DuPont Corian does not promote the growth of mold, mildew or bacteria, and is nontoxic and nonallergenic to humans. It can also help facilitate improved infection control, says the manufacturer.
New York-based architects Michael Morris and Yoshiko Sato of Morris Sato Studio custom-designed the DuPont Corian Design Studio using cutting-edge lighting, sound and shape technology to create a “sanctuary of experience.”
“We have defined the studio space through the Japanese concept of a borrowed landscape. Like a delicate garden, it is a sensory experience where designers can look, touch, feel and see the energy that Corian evokes,” said Morris. “The specific technologies we have employed within the studio will actually draw people closer to the material, rather than farther away.”
The material can be molded for countertops, flooring, bathtubs, sinks, vanities, and even headboards, radiator covers and seating for the kitchen, bath, and basically all areas of the multifamily home as well as common areas.
DuPont, surface solutions provider Evans & Paul and marketing distributor Dolan & Traynor are unveiling the flagship showroom, the DuPont Corian Design Studio, located in the Flatiron district in New York.
The 5,000 square-foot space is an interactive workshop where design influencers can consult with materials experts to address specific project needs and help bring their ideas to life. The showroom will be open June 1.
“Our collective vision was to create a place of interaction and experiment, where industry experts can collaborate and create inspirational environments with Corian and Zodiaq,” said Elizabeth Lawson, North America commercial marketing manager – DuPont Surfaces. “The space will serve as the premier resource to demonstrate how DuPont Surfaces can be used as innovative, flexible and inspirational design materials.”
To provide consultation and project support for commercial designers and specifiers, Evans & Paul surfacing solutions experts will be on hand and available by appointment through designstudio.corian.com. The Design Studio will also host a variety of rotating exhibits from designers around the globe.
“The Design Studio is a showplace for new offerings, fabrication skills and real-life applications that convey how innovative designs can be flawlessly executed into striking spaces,” said Christopher Whitelaw, director of Research & Development – Evans & Paul.
In use for over 40 years, DuPoint Corian can be thermoformed into seamless custom shapes and contours, sandblasted, routed, carved, laser-etched and backlit. With proper cleaning, the manufacturer says, DuPont Corian does not promote the growth of mold, mildew or bacteria, and is nontoxic and nonallergenic to humans. It can also help facilitate improved infection control, says the manufacturer.
New York-based architects Michael Morris and Yoshiko Sato of Morris Sato Studio custom-designed the DuPont Corian Design Studio using cutting-edge lighting, sound and shape technology to create a “sanctuary of experience.”
“We have defined the studio space through the Japanese concept of a borrowed landscape. Like a delicate garden, it is a sensory experience where designers can look, touch, feel and see the energy that Corian evokes,” said Morris. “The specific technologies we have employed within the studio will actually draw people closer to the material, rather than farther away.”
Thursday, May 21, 2009
Housing won't lead the recovery
Led by a huge drop in apartments and condo construction, U.S. housing starts cratered again in April, falling 13% to the lowest level in the post-war era, depressing the bulls and emboldening the bears.
But investors would be well-advised to ignore the housing starts numbers for a few more months, at least. Housing led us into the recession, but it isn't likely to lead us out.
The housing market remains seriously distressed, and this bedridden patient isn't likely to be walking any time soon. Prices are still too high in many areas to clear the glut of unsold homes stemming from too much new construction and too many foreclosures.
That isn't to say the patient's condition isn't stabilizing.
The data from the Commerce Department released Tuesday painted an awfully grim picture of the home-building business, but remember that this report is among the most statistically challenged of any government data. The standard error for the monthly starts data is an astronomical 13%; which could mean the 13% drop in starts that everyone is getting so excited about is not statistically meaningful. See full story.
Over time, the starts data do reveal broad trends that can be trusted. Starts of single-family homes have stabilized over the past three months, and have actually risen at a 13% annual pace after falling at an 80% pace late last year. A few more months of that and we can start to believe the bottom in building may have been hit.
The stabilization in single-family permits over the past five months is even more encouraging, because the standard error is just 2%.
Of course, finding the bottom in building isn't the same as finding the bottom in home sales or prices. The government has tried to revive sales by lowering mortgage rates and subsidizing first-time buyers, but few current owners are willing or able to trade up to a bigger home in such uncertain times.
But investors would be well-advised to ignore the housing starts numbers for a few more months, at least. Housing led us into the recession, but it isn't likely to lead us out.
The housing market remains seriously distressed, and this bedridden patient isn't likely to be walking any time soon. Prices are still too high in many areas to clear the glut of unsold homes stemming from too much new construction and too many foreclosures.
That isn't to say the patient's condition isn't stabilizing.
The data from the Commerce Department released Tuesday painted an awfully grim picture of the home-building business, but remember that this report is among the most statistically challenged of any government data. The standard error for the monthly starts data is an astronomical 13%; which could mean the 13% drop in starts that everyone is getting so excited about is not statistically meaningful. See full story.
Over time, the starts data do reveal broad trends that can be trusted. Starts of single-family homes have stabilized over the past three months, and have actually risen at a 13% annual pace after falling at an 80% pace late last year. A few more months of that and we can start to believe the bottom in building may have been hit.
The stabilization in single-family permits over the past five months is even more encouraging, because the standard error is just 2%.
Of course, finding the bottom in building isn't the same as finding the bottom in home sales or prices. The government has tried to revive sales by lowering mortgage rates and subsidizing first-time buyers, but few current owners are willing or able to trade up to a bigger home in such uncertain times.
FBI sets up mortgage fraud team, uses wiretaps
A recently created FBI team is setting priorities on mortgage fraud investigations, and the bureau is using undercover operations, wiretaps and computer technology to get evidence of economic crimes, the agency's chief said on Wednesday.
FBI Director Robert Mueller told a House Judiciary Committee hearing that the agency in December created the National Mortgage Fraud Team at headquarters to assist field offices in their pending investigations.
In his prepared remarks submitted to the committee and in his actual comments, Mueller said the team also is helping to identify the worst mortgage fraud perpetrators and to evaluate where additional FBI employees are needed.
The FBI's mortgage fraud caseload has tripled in the past three years to more than 2,400 cases, Mueller said.
In addition, the FBI has more than 560 open corporate fraud investigations, including matters directly related to the current financial crisis, he said. The FBI has declined to identify any companies under criminal investigation.
Mueller said the FBI has found new ways to detect and combat mortgage fraud.
One example involved a national FBI initiative that uses statistical correlations and advanced computer technology to search for companies and individuals with patterns of property flipping, he said.
"In addition, sophisticated investigative techniques, such as undercover operations and wiretaps, not only result in the collection of valuable evidence, they provide an opportunity to apprehend criminals in the commission of their crimes, thus reducing loss to individuals and financial institutions," he said.
Mueller said he met last week with Mary Schapiro, the head of the U.S. Securities and Exchange Commission, so that the two agencies could better coordinate investigations.
The two agencies have been investigating allegations of financial statement manipulation, accounting fraud and insider trading that contributed to the current economic crisis.
FBI Director Robert Mueller told a House Judiciary Committee hearing that the agency in December created the National Mortgage Fraud Team at headquarters to assist field offices in their pending investigations.
In his prepared remarks submitted to the committee and in his actual comments, Mueller said the team also is helping to identify the worst mortgage fraud perpetrators and to evaluate where additional FBI employees are needed.
The FBI's mortgage fraud caseload has tripled in the past three years to more than 2,400 cases, Mueller said.
In addition, the FBI has more than 560 open corporate fraud investigations, including matters directly related to the current financial crisis, he said. The FBI has declined to identify any companies under criminal investigation.
Mueller said the FBI has found new ways to detect and combat mortgage fraud.
One example involved a national FBI initiative that uses statistical correlations and advanced computer technology to search for companies and individuals with patterns of property flipping, he said.
"In addition, sophisticated investigative techniques, such as undercover operations and wiretaps, not only result in the collection of valuable evidence, they provide an opportunity to apprehend criminals in the commission of their crimes, thus reducing loss to individuals and financial institutions," he said.
Mueller said he met last week with Mary Schapiro, the head of the U.S. Securities and Exchange Commission, so that the two agencies could better coordinate investigations.
The two agencies have been investigating allegations of financial statement manipulation, accounting fraud and insider trading that contributed to the current economic crisis.
Fed's economic forecast worsens
The Federal Reserve's latest forecasts for the U.S. economy are gloomier than the ones released three months earlier, with an expectation for higher unemployment and a steeper drop in economic activity.
The Fed's forecasts, released as part of the minutes from its April meeting, show that its staff now expects the unemployment rate to rise to between 9.2% and 9.6% this year. The central bank had forecast in January that the jobless rate would be in a range of 8.5% to 8.8%, but the unemployment rate topped that in April, hitting 8.9%.
The Fed also now expects the gross domestic product, the broadest measure of the nation's economic activity, to post a drop of between 1.3% and 2% this year. It had previously expected only a 0.5% to 1.3% decline.
At the April meeting, the Fed decided to once again leave its key federal funds rate near 0%, a level it has been at since last December. The central bank also announced that it did not plan on increasing purchasing more long-term Treasury notes anytime soon.
The Fed disclosed plans to begin buying $300 billion's worth of such Treasurys in March in order to try and keep long-term rates down and boost economic activity.
But according to the minutes, some members of the central bank's policy committee indicated they were open to increasing its purchases of Treasury notes and mortgage securities as a way of spurring more lending.
Treasury prices rallied after the minutes were released, pushing their yield, which moves in the opposite direction, down to 3.18%.
Stocks, which have moved sharply higher during the past two months on hopes that the recession may soon be ending, fell Wednesday afternoon.
According to the minutes, Fed members did indicate they expected GDP to increase slightly in the second half of this year. However, it would not be enough to overcome the anticipated declines in the first half. GDP shrunk more than 6% in the first quarter.
Policymakers acknowledged that there were some better economic readings in the period leading up to the April meeting, but added that they were not convinced the economy was out of the woods yet.
In the minutes, Fed members indicated that there are a number of factors that "would be likely to restrain the pace of economic recovery over the medium term" and added that the credit crunch would "recede only gradually" and that "households would likely remain cautious" in their spending.
Fed members expressed concerns about rising problems in the commercial real estate market as well, indicating that this could cause further problems for financial institutions still struggling with the effects of the collapse of home prices and rising mortgage defaults.
The Fed also reduced its GDP targets for 2010 and 2011, but the central banks still expects the economy to grow in both years.
Rich Yamarone, director of economic research at Argus Research, said that the Fed's new forecasts were "more of a reality check than a revision," given the deterioration in the labor market and overall economy since January.
But he and other economists said it also appeared from the minutes that the Fed is pleased with how the economy has started to respond to the steps it has taken, including the purchases of mortgages and Treasurys.
"I read [the minutes] as 'We think it's working, let's wait a few months to see how it plays out,'" said Gus Faucher - director of macroeconomics at Moody's Economy.com. He added that it did not seem like the Fed felt a "sense of urgency" to increase the scope of its Treasury purchase program.
And Yamarone said it's important to remember that the forecasts and minutes are three weeks old, and that economic readings since the meeting, including home sales and the rate of job losses, have generally showed signs of improvement.
"These minutes look like they have a bleaker assessment, but things were darker then," he said. "I can't say it's an accurate interpretation of their outlook today. I think that would be a little more favorable." To top of page
The Fed's forecasts, released as part of the minutes from its April meeting, show that its staff now expects the unemployment rate to rise to between 9.2% and 9.6% this year. The central bank had forecast in January that the jobless rate would be in a range of 8.5% to 8.8%, but the unemployment rate topped that in April, hitting 8.9%.
The Fed also now expects the gross domestic product, the broadest measure of the nation's economic activity, to post a drop of between 1.3% and 2% this year. It had previously expected only a 0.5% to 1.3% decline.
At the April meeting, the Fed decided to once again leave its key federal funds rate near 0%, a level it has been at since last December. The central bank also announced that it did not plan on increasing purchasing more long-term Treasury notes anytime soon.
The Fed disclosed plans to begin buying $300 billion's worth of such Treasurys in March in order to try and keep long-term rates down and boost economic activity.
But according to the minutes, some members of the central bank's policy committee indicated they were open to increasing its purchases of Treasury notes and mortgage securities as a way of spurring more lending.
Treasury prices rallied after the minutes were released, pushing their yield, which moves in the opposite direction, down to 3.18%.
Stocks, which have moved sharply higher during the past two months on hopes that the recession may soon be ending, fell Wednesday afternoon.
According to the minutes, Fed members did indicate they expected GDP to increase slightly in the second half of this year. However, it would not be enough to overcome the anticipated declines in the first half. GDP shrunk more than 6% in the first quarter.
Policymakers acknowledged that there were some better economic readings in the period leading up to the April meeting, but added that they were not convinced the economy was out of the woods yet.
In the minutes, Fed members indicated that there are a number of factors that "would be likely to restrain the pace of economic recovery over the medium term" and added that the credit crunch would "recede only gradually" and that "households would likely remain cautious" in their spending.
Fed members expressed concerns about rising problems in the commercial real estate market as well, indicating that this could cause further problems for financial institutions still struggling with the effects of the collapse of home prices and rising mortgage defaults.
The Fed also reduced its GDP targets for 2010 and 2011, but the central banks still expects the economy to grow in both years.
Rich Yamarone, director of economic research at Argus Research, said that the Fed's new forecasts were "more of a reality check than a revision," given the deterioration in the labor market and overall economy since January.
But he and other economists said it also appeared from the minutes that the Fed is pleased with how the economy has started to respond to the steps it has taken, including the purchases of mortgages and Treasurys.
"I read [the minutes] as 'We think it's working, let's wait a few months to see how it plays out,'" said Gus Faucher - director of macroeconomics at Moody's Economy.com. He added that it did not seem like the Fed felt a "sense of urgency" to increase the scope of its Treasury purchase program.
And Yamarone said it's important to remember that the forecasts and minutes are three weeks old, and that economic readings since the meeting, including home sales and the rate of job losses, have generally showed signs of improvement.
"These minutes look like they have a bleaker assessment, but things were darker then," he said. "I can't say it's an accurate interpretation of their outlook today. I think that would be a little more favorable." To top of page
Paulson’s Complaint
Hank Paulson, former master of the universe, sits in a nondescript office in northwest Washington, D.C. He is trying to work on his memoirs, but he is struggling. He doesn't seem like the onetime All-Ivy tackle at Dartmouth, the Harvard M.B.A. who ran Goldman Sachs, the prince of Wall Street who went on to be come secretary of the Treasury. He comes across more like an athlete who has lost a game and can't stop talking about the dropped pass, the missed shot. He is trying to explain the weekend last September when Lehman Brothers went down—and the financial world collapsed.
The conventional wisdom, he admits, congealed quickly: it was a mistake for the government to let Lehman die, and the blame rested squarely with Hank Paulson. On the day that Lehman filed for bankruptcy, Paulson had tried to get out ahead of the story. If Lehman couldn't save itself, he told reporters, then he wasn't about to ask the taxpayers to step up. "I never once considered it appropriate to put taxpayer money on the line," he said. The message was that the government would no longer bail out failing companies—that would just invite more foolish risk-taking. It would create a "moral hazard."
But of course, in the weeks and months since the fall of Lehman Brothers, the government has gone on to bail out banks and other financial firms to the tune of hundreds of billions of dollars. So why didn't it save Lehman? If only the government had rescued Lehman, a financial panic could have been averted. Or so the story goes. The narrative was set from the beginning by Paulson's moralizing tone, followed by a market crash—and, as the once mighty bankers crawled out of the wreckage, the anguished testimony before Congress of Dick Fuld, the CEO of Lehman, who portrayed Paulson as a backstabbing Judas. "Until they put me in the ground," Fuld said, leaning into the microphone and baring his teeth, "I will wonder."
Paulson insists that he did not turn his back on Lehman. "There's no company that I spent more time with and worked harder to save. That's sort of the irony of the narrative that we wanted them to go under," he told NEWSWEEK in one of his first extended interviews since leaving office. He also dismisses the argument that the fall of Lehman provoked a panic. "It is absolutely a fiction that Lehman was anything more than a symptom." He says a perfect storm of other near failures caused the financial crisis—the troubles at Fannie and Freddie, the news that AIG faced huge liabilities from its financial insurance gambles, the teetering of giant mortgage lender Washington Mutual on the edge.
All this is true enough, but it doesn't mean that Paulson knew what he was doing when Lehman went down. The panicked scenes that played out between bankers and policymakers during Leh-man's last days were recounted in the newspapers in the weeks that followed. But now, more than half a year later, and with the most acute moments of the financial crisis behind us, the key players are better able to reflect on the decisions they made. Perhaps no one has spent more time reconstructing the events than Paulson. In retrospect, it appears that Paulson was not the callous titan of Wall Street, but rather an earnest, sometimes bewildered man caught in a whirlwind he could not tame or even fully understand. He did the best he could, reaching, sometimes lurching for answers, but in the end he was rescued by the sort of nerdy professor type who might have been devoured on the trading floors of Wall Street. To the extent that there was a hero during those weeks, it was arguably Ben Bernanke, the quiet, shy chairman of the Federal Reserve, whose problem-solving and salesmanship before a skeptical Congress were critical to avoiding financial disaster.
Paulson was known as "the Hammer" as a 6-foot-1, 200-pound tackle on the Dartmouth football team because he seemed to explode at the snap of the ball. Tenacity and drive, more than brainpower, have distinguished his career. He has been a champion arm-twister and shrewd enough: when he rescued Goldman's IPO in the wake of the Russian financial crash in 1998 he made hundreds of millions for his partners and shortly thereafter became their leader. Yet Paulson can be oddly inarticulate for such a powerful man. He is not a Wall Street smoothie: no trophy wife (he remains married to his college sweetheart), and at Goldman he was known for wearing penny loafers, not handmade Italian shoes. He's an avid bird watcher. A nonsmoking, nondrinking Christian Scientist, he did not head for the Hamptons on the weekend but visited his mother in Barrington, Ill. Yet, physically imposing, radiating a confident forcefulness, he came to stand for the dominating Goldman brand. In the Wall Street hierarchy, Goldman is the smartest and most confident of them all: the firm makes bets, but only ones it feels sure to win.
The Lords of Goldman, who tend to come from Ivy League schools, looked down on the hustlers at lower-ranked firms like Lehman, who came out of state schools and the trading pits. Lehman was an old firm, but its modern incarnation was built in the image of its scrappy CEO, Fuld, who came from the trading floor and liked to make big, risky bets. Fuld was called "the Gorilla," a nickname some might have resented. Fuld kept a toy gorilla in his office. His ethos was us (the public-school guys—Fuld went to the University of Colorado) against them (the Harvard know-it-alls like Paulson of Goldman Sachs). Paulson and Fuld have known each other for years. For the record, as well as in private, Paulson describes Fuld as a "good guy" and even as a "friend." (Fuld declined to speak to NEWSWEEK). But knowledgeable Wall Streeters and government officials who asked to remain anonymous in order to speak more freely say that Paulson regarded Fuld as a gambler who lost sight of reality.
Paulson began having his doubts about Fuld—and the future of Lehman—as early as October 2007, when Lehman made a big bet on commercial real estate even though there were signs the deal was unwise. Paulson remained dubious about Leh-man's rosy earnings reports for the first half of 2008, and when the red ink began to show in June, he began urging Fuld to scale back Lehman's leverage and find a buyer or a fresh infusion of capital. He was frustrated, say these knowledgeable sources, when Fuld stubbornly demanded terms that were too favorable to Lehman to attract any buyers or investors.
Fuld's 31st-floor midtown office had sweeping views of the Hudson River and the New York City skyscrapers. In early September, the executive suite of Lehman Brothers became a kind of war room; day and night, Fuld's lieutenants padded about, munching M&M's and chugging Diet Cokes, as they searched, with growing desperation, for a solution. A South Korean bank had seemed interested in investing, then backed off. Fuld and his men tried to stay hopeful. Six months earlier, in March, JPMorgan had rescued the failing investment bank Bear Stearns—with the help of a loan from the federal government. In early September, the Feds seized control of Fannie Mae and Freddie Mac, the two mortgage giants sucked down by the collapsing real-estate market. Surely, the Lehman team believed, the Feds would step in to help—if Lehman could only find a buyer.
Paulson does not seem to have grasped the urgency of the looming disaster. Although top financial experts were warning about the housing bubble back in 2006, Paulson—by his own admission—was not paying much attention to the way banks were slicing and dicing mortgages and selling them as complex securities. "I didn't understand the retail market; I just wasn't close to it," he told NEWSWEEK. But while he was at Goldman, he had lobbied Congress—successfully—for new rules allowing investment houses to at least double the amount of leverage they could carry.
The conventional wisdom, he admits, congealed quickly: it was a mistake for the government to let Lehman die, and the blame rested squarely with Hank Paulson. On the day that Lehman filed for bankruptcy, Paulson had tried to get out ahead of the story. If Lehman couldn't save itself, he told reporters, then he wasn't about to ask the taxpayers to step up. "I never once considered it appropriate to put taxpayer money on the line," he said. The message was that the government would no longer bail out failing companies—that would just invite more foolish risk-taking. It would create a "moral hazard."
But of course, in the weeks and months since the fall of Lehman Brothers, the government has gone on to bail out banks and other financial firms to the tune of hundreds of billions of dollars. So why didn't it save Lehman? If only the government had rescued Lehman, a financial panic could have been averted. Or so the story goes. The narrative was set from the beginning by Paulson's moralizing tone, followed by a market crash—and, as the once mighty bankers crawled out of the wreckage, the anguished testimony before Congress of Dick Fuld, the CEO of Lehman, who portrayed Paulson as a backstabbing Judas. "Until they put me in the ground," Fuld said, leaning into the microphone and baring his teeth, "I will wonder."
Paulson insists that he did not turn his back on Lehman. "There's no company that I spent more time with and worked harder to save. That's sort of the irony of the narrative that we wanted them to go under," he told NEWSWEEK in one of his first extended interviews since leaving office. He also dismisses the argument that the fall of Lehman provoked a panic. "It is absolutely a fiction that Lehman was anything more than a symptom." He says a perfect storm of other near failures caused the financial crisis—the troubles at Fannie and Freddie, the news that AIG faced huge liabilities from its financial insurance gambles, the teetering of giant mortgage lender Washington Mutual on the edge.
All this is true enough, but it doesn't mean that Paulson knew what he was doing when Lehman went down. The panicked scenes that played out between bankers and policymakers during Leh-man's last days were recounted in the newspapers in the weeks that followed. But now, more than half a year later, and with the most acute moments of the financial crisis behind us, the key players are better able to reflect on the decisions they made. Perhaps no one has spent more time reconstructing the events than Paulson. In retrospect, it appears that Paulson was not the callous titan of Wall Street, but rather an earnest, sometimes bewildered man caught in a whirlwind he could not tame or even fully understand. He did the best he could, reaching, sometimes lurching for answers, but in the end he was rescued by the sort of nerdy professor type who might have been devoured on the trading floors of Wall Street. To the extent that there was a hero during those weeks, it was arguably Ben Bernanke, the quiet, shy chairman of the Federal Reserve, whose problem-solving and salesmanship before a skeptical Congress were critical to avoiding financial disaster.
Paulson was known as "the Hammer" as a 6-foot-1, 200-pound tackle on the Dartmouth football team because he seemed to explode at the snap of the ball. Tenacity and drive, more than brainpower, have distinguished his career. He has been a champion arm-twister and shrewd enough: when he rescued Goldman's IPO in the wake of the Russian financial crash in 1998 he made hundreds of millions for his partners and shortly thereafter became their leader. Yet Paulson can be oddly inarticulate for such a powerful man. He is not a Wall Street smoothie: no trophy wife (he remains married to his college sweetheart), and at Goldman he was known for wearing penny loafers, not handmade Italian shoes. He's an avid bird watcher. A nonsmoking, nondrinking Christian Scientist, he did not head for the Hamptons on the weekend but visited his mother in Barrington, Ill. Yet, physically imposing, radiating a confident forcefulness, he came to stand for the dominating Goldman brand. In the Wall Street hierarchy, Goldman is the smartest and most confident of them all: the firm makes bets, but only ones it feels sure to win.
The Lords of Goldman, who tend to come from Ivy League schools, looked down on the hustlers at lower-ranked firms like Lehman, who came out of state schools and the trading pits. Lehman was an old firm, but its modern incarnation was built in the image of its scrappy CEO, Fuld, who came from the trading floor and liked to make big, risky bets. Fuld was called "the Gorilla," a nickname some might have resented. Fuld kept a toy gorilla in his office. His ethos was us (the public-school guys—Fuld went to the University of Colorado) against them (the Harvard know-it-alls like Paulson of Goldman Sachs). Paulson and Fuld have known each other for years. For the record, as well as in private, Paulson describes Fuld as a "good guy" and even as a "friend." (Fuld declined to speak to NEWSWEEK). But knowledgeable Wall Streeters and government officials who asked to remain anonymous in order to speak more freely say that Paulson regarded Fuld as a gambler who lost sight of reality.
Paulson began having his doubts about Fuld—and the future of Lehman—as early as October 2007, when Lehman made a big bet on commercial real estate even though there were signs the deal was unwise. Paulson remained dubious about Leh-man's rosy earnings reports for the first half of 2008, and when the red ink began to show in June, he began urging Fuld to scale back Lehman's leverage and find a buyer or a fresh infusion of capital. He was frustrated, say these knowledgeable sources, when Fuld stubbornly demanded terms that were too favorable to Lehman to attract any buyers or investors.
Fuld's 31st-floor midtown office had sweeping views of the Hudson River and the New York City skyscrapers. In early September, the executive suite of Lehman Brothers became a kind of war room; day and night, Fuld's lieutenants padded about, munching M&M's and chugging Diet Cokes, as they searched, with growing desperation, for a solution. A South Korean bank had seemed interested in investing, then backed off. Fuld and his men tried to stay hopeful. Six months earlier, in March, JPMorgan had rescued the failing investment bank Bear Stearns—with the help of a loan from the federal government. In early September, the Feds seized control of Fannie Mae and Freddie Mac, the two mortgage giants sucked down by the collapsing real-estate market. Surely, the Lehman team believed, the Feds would step in to help—if Lehman could only find a buyer.
Paulson does not seem to have grasped the urgency of the looming disaster. Although top financial experts were warning about the housing bubble back in 2006, Paulson—by his own admission—was not paying much attention to the way banks were slicing and dicing mortgages and selling them as complex securities. "I didn't understand the retail market; I just wasn't close to it," he told NEWSWEEK. But while he was at Goldman, he had lobbied Congress—successfully—for new rules allowing investment houses to at least double the amount of leverage they could carry.
There's only one true barometer of the economy: bartenders
There's no need to complicate things. None whatsoever.
Everytime I hear these weird statistical figures touted or rehearsed in order to validate a prognostication, it makes me cringe. I cringe as if I was getting a neck massage from a full-grown silverback gorilla.
You see... there is no reason to crunch numbers or delve into statistical references that will do nothing other than confuse the masses as well as yourself. There is only one Ricky Hatton and there is only one true barometer to measure the state of the economy.
For those of you that don't know... I present to you the most important, mind-boggling, simplified piece of information that you won't learn in MBA school or any other nonsensical outlet of "education".
Are you ready?
Bartenders.
Bartenders are the truest measure of how the economy is doing both in good times, bad times, and sideways times.
At the height of the housing market and upswing within the "economy", bartenders were experiencing an influx of money that they might never experience again in this lifetime. I personally know of numerous tavern tyrants who were making greenbacks hand-over-fist several years back. I'm referring to averaging anywhere between $60 and $100 an hour... IN CASH, at their places of employment.
Things have changed recently.
While many like to tout that during recession/depression periods the alcohol industry continues to chug along with no substantial drawbacks from the surrounding turmoil... nothing could be further from the truth.
You see... bartenders are the true barometer as to the health of the economy and where we stand in terms of financial well-being.
Here's what one long-time barkeep had to say... "Things are so slow right now it's crazy! I remember when we could work a shift and walk out the door with a minimum of $300 a night. This past weekend I made the lowest amount I've ever experienced with only $110. We've consistently been making about half of what we used to make and some nights are even worse."
Another chimed in... "People are still going out but alot of them are just doing it for social reasons. They'll come in and nurse one or two beers for the whole night while going outside to their car trunks for hard liquor. I guess it's the economy that has people more cost conscious as to how much they spend on booze and getting their moneys worth."
Nobody is immune from the downturn we're experiencing... nobody.
Forget about GDP, NAIRU, or RBL... just ask your local bartender how they've been making out on a consistent basis recently. That will give you the true measure of whether we are poised for a turn around in the near future.
Once they start experiencing a sustained level of cash income, then and only then will this country be ready to climb out of the dumpster. Until then... we will continue the downward plunge into this abyss of debt, piss, and vinegar.
PS. The real reason that bartenders are the real barometers for the health of the economy is simply because much if not most of their wages comes in the form of tips. Tips are considered "extra". There's nothing illegal about not leaving a "tip" although there should be. In the housing heyday consumers were quite generous when it came to compensating their pourers of joy. This expendable "extra" money is no longer available and therefore "tips" have come down to their true amounts.
Everytime I hear these weird statistical figures touted or rehearsed in order to validate a prognostication, it makes me cringe. I cringe as if I was getting a neck massage from a full-grown silverback gorilla.
You see... there is no reason to crunch numbers or delve into statistical references that will do nothing other than confuse the masses as well as yourself. There is only one Ricky Hatton and there is only one true barometer to measure the state of the economy.
For those of you that don't know... I present to you the most important, mind-boggling, simplified piece of information that you won't learn in MBA school or any other nonsensical outlet of "education".
Are you ready?
Bartenders.
Bartenders are the truest measure of how the economy is doing both in good times, bad times, and sideways times.
At the height of the housing market and upswing within the "economy", bartenders were experiencing an influx of money that they might never experience again in this lifetime. I personally know of numerous tavern tyrants who were making greenbacks hand-over-fist several years back. I'm referring to averaging anywhere between $60 and $100 an hour... IN CASH, at their places of employment.
Things have changed recently.
While many like to tout that during recession/depression periods the alcohol industry continues to chug along with no substantial drawbacks from the surrounding turmoil... nothing could be further from the truth.
You see... bartenders are the true barometer as to the health of the economy and where we stand in terms of financial well-being.
Here's what one long-time barkeep had to say... "Things are so slow right now it's crazy! I remember when we could work a shift and walk out the door with a minimum of $300 a night. This past weekend I made the lowest amount I've ever experienced with only $110. We've consistently been making about half of what we used to make and some nights are even worse."
Another chimed in... "People are still going out but alot of them are just doing it for social reasons. They'll come in and nurse one or two beers for the whole night while going outside to their car trunks for hard liquor. I guess it's the economy that has people more cost conscious as to how much they spend on booze and getting their moneys worth."
Nobody is immune from the downturn we're experiencing... nobody.
Forget about GDP, NAIRU, or RBL... just ask your local bartender how they've been making out on a consistent basis recently. That will give you the true measure of whether we are poised for a turn around in the near future.
Once they start experiencing a sustained level of cash income, then and only then will this country be ready to climb out of the dumpster. Until then... we will continue the downward plunge into this abyss of debt, piss, and vinegar.
PS. The real reason that bartenders are the real barometers for the health of the economy is simply because much if not most of their wages comes in the form of tips. Tips are considered "extra". There's nothing illegal about not leaving a "tip" although there should be. In the housing heyday consumers were quite generous when it came to compensating their pourers of joy. This expendable "extra" money is no longer available and therefore "tips" have come down to their true amounts.
Wednesday, May 20, 2009
Temporary housing need in London soars above average
The number of Londoners living in temporary accommodation is ten times higher than the national average, according to a new study.
Research from the City Parochial Foundation and the New Policy Institute found almost 2 per cent of all households in London are in temporary accommodation. Of these, 40 per cent had spent more than two years in such circumstances.
North London tended to have higher rates of temporary accommodation than the south of the capital. The boroughs with the highest rates were Newham and Haringey, where 6 per cent of all households were in temporary accommodation.
Even the boroughs with the lowest rates for London were still above average for the rest of England. In Richmond and Merton, 0.5 per cent of households were temporary, compared with 0.4 per cent in Manchester.
The report also discovered almost 25 per cent of households in London were classed as overcrowded. In some boroughs, including Camden, Westminster, Kensington and Chelsea and Tower Hamlets, this figure was closer to 30 per cent.
Bharat Mehta, chief executive of the City Parochial Foundation, said: ‘We need the government, London’s mayor, our local councils and the wider public and voluntary sectors to work together to give London the future it deserves.’
Research from the City Parochial Foundation and the New Policy Institute found almost 2 per cent of all households in London are in temporary accommodation. Of these, 40 per cent had spent more than two years in such circumstances.
North London tended to have higher rates of temporary accommodation than the south of the capital. The boroughs with the highest rates were Newham and Haringey, where 6 per cent of all households were in temporary accommodation.
Even the boroughs with the lowest rates for London were still above average for the rest of England. In Richmond and Merton, 0.5 per cent of households were temporary, compared with 0.4 per cent in Manchester.
The report also discovered almost 25 per cent of households in London were classed as overcrowded. In some boroughs, including Camden, Westminster, Kensington and Chelsea and Tower Hamlets, this figure was closer to 30 per cent.
Bharat Mehta, chief executive of the City Parochial Foundation, said: ‘We need the government, London’s mayor, our local councils and the wider public and voluntary sectors to work together to give London the future it deserves.’
Lend Lease unveils shortlist for Olympic Village build
Olympic Village developer Lend Lease has announced the shortlist of companies bidding to build on a 300 home plot on the site.
Ardmore Construction, Galliford Try and Wates are all in the running, with a decision expected at the end of July.
Lend Lease athletes village project director Rob Johnson said: ‘Lend Lease and the Olympic Delivery Authority are pleased at the level of competitiveness and interest shown in the tender process.
‘We look forward to working with the contractors to finalise an arrangement that will deliver the high quality outcome we are after.’
The Olympic Village will house athletes during the 2012 games, and afterwards will be turned into around 3,000 homes, at least a third of which will be affordable housing.
Work has been carried out to prepare the site and put in the necessary site infrastructure, and the construction of the village is now moving ahead.
Ardmore Construction, Galliford Try and Wates are all in the running, with a decision expected at the end of July.
Lend Lease athletes village project director Rob Johnson said: ‘Lend Lease and the Olympic Delivery Authority are pleased at the level of competitiveness and interest shown in the tender process.
‘We look forward to working with the contractors to finalise an arrangement that will deliver the high quality outcome we are after.’
The Olympic Village will house athletes during the 2012 games, and afterwards will be turned into around 3,000 homes, at least a third of which will be affordable housing.
Work has been carried out to prepare the site and put in the necessary site infrastructure, and the construction of the village is now moving ahead.
Thames Gateway boss predicts 10-year slump
The head of the body responsible for the regeneration of the Thames Gateway has issued a stark warning to MPs on the damage being done by the recession.
In a submission to an inquiry being carried out by the All Party Urban Development Group, the chief executive of the London Thames Gateway Development Corporation warns that the capacity to deliver physical regeneration in line with government aims will be ‘extremely limited for at least the next five to 10 years’.
Peter Andrews says the problems are particularly acute in the Thames Gateway area because of the planned volume of high-density housing. He states that the business model for this kind of development, which was largely reliant on pre-agreed sales based on the assumption that property prices would rise, is ‘effectively broken with no apparent replacement’.
He says the only construction work still continuing in the Thames Gateway is on projects that began before the autumn of 2007, or are supported by the public sector. In 2008/09 work has started on just six new sites, five of which involve housing associations as the lead developer. If they are all fully completed they will deliver 1,800 homes, against a government target of 40,000 by 2016.
Mr Andrews says few projects have been mothballed, but that ‘stalled sites’ where planning permission has been granted but no work is taking place, are increasingly common. He estimates there are now 10 of these, with approval for 7,000 homes.
The Corporation suggests a number of ways to address the problems:
* Preparing sites for an upturn in the market
* Setting up partnerships where the public sector contributes land in return for revenue from developers
* Scaling back planning gain aspirations
* Investing in the infrastructure of the Thames Gateway area
But it notes that these steps are ‘unlikely to bring about the scale of housing delivery required’, and calls on the government to set up a ‘fundamental review that grapples with the problems being faced by the house-building industry’.
The All Party Urban Development Group is carrying out an inquiry looking at the impact the recession has had on regeneration, and possible solutions. It is expected to report at the end of June.
In a submission to an inquiry being carried out by the All Party Urban Development Group, the chief executive of the London Thames Gateway Development Corporation warns that the capacity to deliver physical regeneration in line with government aims will be ‘extremely limited for at least the next five to 10 years’.
Peter Andrews says the problems are particularly acute in the Thames Gateway area because of the planned volume of high-density housing. He states that the business model for this kind of development, which was largely reliant on pre-agreed sales based on the assumption that property prices would rise, is ‘effectively broken with no apparent replacement’.
He says the only construction work still continuing in the Thames Gateway is on projects that began before the autumn of 2007, or are supported by the public sector. In 2008/09 work has started on just six new sites, five of which involve housing associations as the lead developer. If they are all fully completed they will deliver 1,800 homes, against a government target of 40,000 by 2016.
Mr Andrews says few projects have been mothballed, but that ‘stalled sites’ where planning permission has been granted but no work is taking place, are increasingly common. He estimates there are now 10 of these, with approval for 7,000 homes.
The Corporation suggests a number of ways to address the problems:
* Preparing sites for an upturn in the market
* Setting up partnerships where the public sector contributes land in return for revenue from developers
* Scaling back planning gain aspirations
* Investing in the infrastructure of the Thames Gateway area
But it notes that these steps are ‘unlikely to bring about the scale of housing delivery required’, and calls on the government to set up a ‘fundamental review that grapples with the problems being faced by the house-building industry’.
The All Party Urban Development Group is carrying out an inquiry looking at the impact the recession has had on regeneration, and possible solutions. It is expected to report at the end of June.
132-Unit Apartment Community Sells Out of Receivership, and Other Transactions
Tikijian Associates has arranged the sale of Hilltop Apartments (pictured), a 132-unit community in Anderson, Ind. The listing price was $2,250,000 but sales price was not disclosed.
Hilltop Apartments was formerly owned by Wextrust Capital LLC, a Chicago-based real estate investment firm that purchased the property in 2000. In 2008 the two principals of Wextrust were arrested on federal fraud charges for allegedly conducting a $225 million Ponzi scheme and were later indicted on charges of securities fraud and conspiracy. Both men remain in jail. Indianapolis-based apartment owner and manager, Buckingham Cos., was named as the court appointed receiver to oversee the property’s operations until the time of a sale.
Tikijian Associates was engaged to sell Hilltop, and after many months of marketing, the property was purchased by an entity formed by Ethan D Fernhaber, the principal of Renewing Properties.
Major capital improvements are already underway at the property and include renovation of the swimming pool, all new windows and doors, complete remodeling of older units, painting and much more. As part of the renovation, Hilltop will now be known as Stonebrook Townhomes & Apartments.
Meridian Arranges $3.3M Refi Loan for 36-Unit Rental Community
East Orange, N.J.--Meridian Capital Group recently arranged $3,300,000 for the refinance of a five-story multifamily building located in East Orange, N.J. The property features a total of 36 units and is located on South Maple Avenue.
Meridian’s New Jersey office negotiated on behalf of the borrower to secure a five-year permanent non-recourse loan with no interest reserves.
Hilltop Apartments was formerly owned by Wextrust Capital LLC, a Chicago-based real estate investment firm that purchased the property in 2000. In 2008 the two principals of Wextrust were arrested on federal fraud charges for allegedly conducting a $225 million Ponzi scheme and were later indicted on charges of securities fraud and conspiracy. Both men remain in jail. Indianapolis-based apartment owner and manager, Buckingham Cos., was named as the court appointed receiver to oversee the property’s operations until the time of a sale.
Tikijian Associates was engaged to sell Hilltop, and after many months of marketing, the property was purchased by an entity formed by Ethan D Fernhaber, the principal of Renewing Properties.
Major capital improvements are already underway at the property and include renovation of the swimming pool, all new windows and doors, complete remodeling of older units, painting and much more. As part of the renovation, Hilltop will now be known as Stonebrook Townhomes & Apartments.
Meridian Arranges $3.3M Refi Loan for 36-Unit Rental Community
East Orange, N.J.--Meridian Capital Group recently arranged $3,300,000 for the refinance of a five-story multifamily building located in East Orange, N.J. The property features a total of 36 units and is located on South Maple Avenue.
Meridian’s New Jersey office negotiated on behalf of the borrower to secure a five-year permanent non-recourse loan with no interest reserves.
25,000 Apartment Units Set to Be Green With $250M in Government Funds
How will 25,000 apartment units become more energy efficient in the next two years? With the help of approximately $250 million in grants and loans being offered by the U.S. Department of Housing and Urban Development (HUD). This money is being made available through the American Recovery and Reinvestment Act of 2009 (Recovery Act), which was recently signed into law by President Barack Obama. It is designed to create thousands of "green collar jobs" as workers retrofit older federally assisted multifamily apartment developments with the next generation of energy-efficient technologies.
"HUD will begin to accept applications starting June 15, begin obligating funds by September 2009, and owners will begin making improvements immediately thereafter (owners must complete work within two years)," HUD Spokesman Brian E. Sullivan tells MHN.
HUD's new Green Retrofit Program for Multifamily Housing will offer up to $15,000 per residential unit to reduce energy costs, cut water consumption, and improve indoor air quality. Eligible applicants must already be HUD assisted, either through Section 8 project-based rental assistance or the Department's Section 202 (elderly) and Section 811 (disabled) programs.
"This funding will not only improve our housing stock, but will lower energy costs and create green jobs in the process," says HUD Secretary Shaun Donovan. "This administration is working overtime to ensure that Recovery Act funding will not only jumpstart America's economy, but will also put us on a path toward energy independence while improving living conditions for tens of thousands of lower income families."
Grants and loans provided through this program will help private landlords and property management companies in cutting heating and air conditioning costs by installing more efficient heating and cooling systems as well as to reduce water use by replacing faucets and toilets. Additionally, these Recovery Act funds will produce other environmental benefits by encouraging the use of recycled building materials, reflective roofing and low-VOC products to reduce potentially harmful "off gassing." Financial health as well as underwriting and a physical evaluation of the property will be considered while disbursing these funds.
The Recovery Act includes $13.61 billion for projects and programs administered by HUD, nearly 75 percent of which was allocated to state and local recipients soon after the signing of law. The remaining 25 percent of funds are expected to be awarded through a competitive grant process in the coming months.
"HUD will begin to accept applications starting June 15, begin obligating funds by September 2009, and owners will begin making improvements immediately thereafter (owners must complete work within two years)," HUD Spokesman Brian E. Sullivan tells MHN.
HUD's new Green Retrofit Program for Multifamily Housing will offer up to $15,000 per residential unit to reduce energy costs, cut water consumption, and improve indoor air quality. Eligible applicants must already be HUD assisted, either through Section 8 project-based rental assistance or the Department's Section 202 (elderly) and Section 811 (disabled) programs.
"This funding will not only improve our housing stock, but will lower energy costs and create green jobs in the process," says HUD Secretary Shaun Donovan. "This administration is working overtime to ensure that Recovery Act funding will not only jumpstart America's economy, but will also put us on a path toward energy independence while improving living conditions for tens of thousands of lower income families."
Grants and loans provided through this program will help private landlords and property management companies in cutting heating and air conditioning costs by installing more efficient heating and cooling systems as well as to reduce water use by replacing faucets and toilets. Additionally, these Recovery Act funds will produce other environmental benefits by encouraging the use of recycled building materials, reflective roofing and low-VOC products to reduce potentially harmful "off gassing." Financial health as well as underwriting and a physical evaluation of the property will be considered while disbursing these funds.
The Recovery Act includes $13.61 billion for projects and programs administered by HUD, nearly 75 percent of which was allocated to state and local recipients soon after the signing of law. The remaining 25 percent of funds are expected to be awarded through a competitive grant process in the coming months.
Two Multi-Housing Industry Leaders Launch Company to Acquire, Renovate 7,000 Units
Jeff Adler, former chief property operations officer at AIMCO and Jack Kern, former investment research director at Archstone-Smith and vice chair of the NMHC Research Committee, have formed a new multifamily investment vehicle, Sanctuary Multifamily Advisors.
The asset management firm, one of Sanctuary Group’s companies, which Adler formed in October 2008 after departing AIMCO, plans to initially acquire and renovate 5,000 to 7,000 units in Denver, San Diego and Orange County, Calif.
“Our concept all along has been to marry a solid quantitative foundation in investment analysis with moderate leverage and a passion for the customer experience to generate superior investment returns,” says Adler. “We’re now in a position to deliver on that mission, starting with these three markets, which we believe have limited downside risk and great upside potential.”
The venture has targeted post-1990 low- to mid-rise apartment communities of over 100 units in need of their first major rehabilitation, along with operationally or financially distressed properties. A separate investment opportunity is newly constructed product that has failed to achieve underwritten rents and requires an immediate all cash exit strategy.
“We believe that the next 12 months represent a significant opportunity to enter select markets at reasonable price levels. Three years from now, people will be kicking themselves for not having bought now,” says Adler. “Yes, there may be the occasional distressed asset, but most properties are not going to be distressed, and there are a lot of owners looking for a reasonable exit,” says Adler.
The asset management firm, one of Sanctuary Group’s companies, which Adler formed in October 2008 after departing AIMCO, plans to initially acquire and renovate 5,000 to 7,000 units in Denver, San Diego and Orange County, Calif.
“Our concept all along has been to marry a solid quantitative foundation in investment analysis with moderate leverage and a passion for the customer experience to generate superior investment returns,” says Adler. “We’re now in a position to deliver on that mission, starting with these three markets, which we believe have limited downside risk and great upside potential.”
The venture has targeted post-1990 low- to mid-rise apartment communities of over 100 units in need of their first major rehabilitation, along with operationally or financially distressed properties. A separate investment opportunity is newly constructed product that has failed to achieve underwritten rents and requires an immediate all cash exit strategy.
“We believe that the next 12 months represent a significant opportunity to enter select markets at reasonable price levels. Three years from now, people will be kicking themselves for not having bought now,” says Adler. “Yes, there may be the occasional distressed asset, but most properties are not going to be distressed, and there are a lot of owners looking for a reasonable exit,” says Adler.
TOD in Beantown’s Urban Core Remains City’s Bright Spot
The bright spot in the near term of Boston’s multi-housing market will be the “urban core Class B product,” predicts Greg Willett, vice president of research and analysis at M|PF Yieldstar.
Willett predicts the city’s transit-oriented development will outperform other building types. Meanwhile, he anticipates that “the struggles will be when you get to the suburbs, where you have new product coming online and you have competition from the single-family market.”
Most of the new supply that is coming online in the Boston metro market—approximately 5,000 units—is concentrated in the suburbs, Willett tells MHN.
Occupancy in the metro is down 120 basis points, to 93.9 percent, which as Willett points out, is similar to the pattern in many other major metro markets. Because the city started with a “strong occupancy position,” it remains above the national norm.
Rents have dropped only 0.4 percent, a considerably smaller correction than other major metros, notes Willett, adding that during the strong boom period, when most major markets had strong rent growth, Boston was more moderate. Willett attributes this to the amount of product on the market, which resulted in a lack of huge rent run-ups. Consequently, the “correction won’t be quite as severe."
Cap rates are averaging about 7.5 percent, though investors are willing to pay a premium for stable assets in the Brookline, Somerville and Cambridge submarkets—where assets are trading in the low- to mid-6 percent range—according to Marcus & Millichap’s 2009 National Apartment Report.
Willett predicts the city’s transit-oriented development will outperform other building types. Meanwhile, he anticipates that “the struggles will be when you get to the suburbs, where you have new product coming online and you have competition from the single-family market.”
Most of the new supply that is coming online in the Boston metro market—approximately 5,000 units—is concentrated in the suburbs, Willett tells MHN.
Occupancy in the metro is down 120 basis points, to 93.9 percent, which as Willett points out, is similar to the pattern in many other major metro markets. Because the city started with a “strong occupancy position,” it remains above the national norm.
Rents have dropped only 0.4 percent, a considerably smaller correction than other major metros, notes Willett, adding that during the strong boom period, when most major markets had strong rent growth, Boston was more moderate. Willett attributes this to the amount of product on the market, which resulted in a lack of huge rent run-ups. Consequently, the “correction won’t be quite as severe."
Cap rates are averaging about 7.5 percent, though investors are willing to pay a premium for stable assets in the Brookline, Somerville and Cambridge submarkets—where assets are trading in the low- to mid-6 percent range—according to Marcus & Millichap’s 2009 National Apartment Report.
S.F. not exempt from recession's effects
A statistical snapshot from the San Francisco controller's office says the city's unemployment rate reached 9 percent in March - a level the city has not seen since 1984.
Temp agencies, construction, retail trade and financial services continued to show the largest percentage declines in employment. Job losses also are starting to accelerate in tourism-related businesses.
Both the hotel sector and international arrivals to San Francisco International Airport posted their weakest numbers of this recession in February, according to the report.
The city's real estate industry showed no signs of a recovery, with accelerating weakness in residential asking rents, median home sales and commercial rents. The commercial vacancy rate remained a relatively healthy 13.8 percent, but this figure did not include nearly 1 million square feet of sublease space now on the market.
For the first time during this recession, the city has seen a large monthly increase in its County Adult Assistance Programs utilization, which rose 5.2 percent over February. The increase in unemployment during the recession is now affecting the city's social service costs.
Temp agencies, construction, retail trade and financial services continued to show the largest percentage declines in employment. Job losses also are starting to accelerate in tourism-related businesses.
Both the hotel sector and international arrivals to San Francisco International Airport posted their weakest numbers of this recession in February, according to the report.
The city's real estate industry showed no signs of a recovery, with accelerating weakness in residential asking rents, median home sales and commercial rents. The commercial vacancy rate remained a relatively healthy 13.8 percent, but this figure did not include nearly 1 million square feet of sublease space now on the market.
For the first time during this recession, the city has seen a large monthly increase in its County Adult Assistance Programs utilization, which rose 5.2 percent over February. The increase in unemployment during the recession is now affecting the city's social service costs.
Hamptons Homes Drop Most Since Realtors Kept Records (Update1)
Sculptor Fredi Cohen expected the hand-carved sinks and tubs in her East Hampton, New York, home to stand out in the real estate market and help sell her three- bedroom house for $1.25 million.
Almost two years later she’s still waiting.
“People have stopped buying real estate,” said Cohen, who designed the kitchen and bathroom tiles herself. “Now I would sell it for $999,000.”
The number of unsold homes in the Hamptons rose 15 percent to a record 1,673 in the first quarter from a year earlier, according to data compiled by New York-based appraiser Miller Samuel Inc. Sales have declined the most in the 27 years that broker Town & Country Real Estate has kept records for the Long Island beach towns about 100 miles east of Manhattan.
The inventory of Hamptons’ homes would take 34 months to sell at the current pace, Miller Samuel reported, or more than three times the 9.8 months’ supply of existing homes in the U.S. as tracked by the National Association of Realtors.
Wall Street bonus cuts and job losses have resulted in fewer buyers in a community that has attracted Hollywood celebrities such as Sarah Jessica Parker and financiers, including Blackstone Group LP Chief Executive Officer Stephen Schwarzman.
Hurricane Katrina
“This isn’t like your typical Nor’easter where a tree falls and your lights flicker,” said Michael Daly, founder of the buyers’ brokerage True North Realty Associates in North Haven, New York, and a Hamptons real estate blogger. “This is more like a Katrina,” he said, alluding to the historic 2005 Category 5 Hurricane. “It’s going to be a number of years before the market recovers.”
Sales in the Hamptons plunged 67 percent in the first quarter from a year earlier, according to a report by Town & Country. It was the biggest percentage drop in records dating to 1982.
The median price dropped 28 percent from a year earlier to $698,461, mostly on a decline in sales of $5 million or more, Town & Country said. The total value of all Hamptons real estate sold in the first quarter fell 78 percent to $140.2 million.
Miller Samuel put the first-quarter median price at $675,000, down 23.5 percent from a year earlier. Inventory is at a record for the three years Miller Samuel has data.
As prices fall, buyers are searching for deals and sellers are offering discounts, according to Judi Desiderio, president of Town & Country in East Hampton, New York.
“The sellers are keenly aware that if they haven’t sold in a better market, they really need to adjust their prices,” Desiderio said.
North Fork
Susan McGraw Keber is witnessing the market from both sides.
Keber, 54, a broker for Town & Country and a model who appears in Target Corp. and Macy’s Inc. advertisements, has been trying to sell the Bridgehampton home she shares with her husband for the past year.
The couple wants to build on waterfront property on Long Island’s North Fork, an area of vineyards and beaches across the Peconic Bay from the Hamptons.
They initially priced their 2,400-square-foot home on Halsey Lane, a half mile from the ocean, on the “higher end,” at $4.55 million, Keber said. The four-bedroom house on an acre of land includes cathedral ceilings with skylights, a heated pool and fireplace. The price was based on sales south of the Montauk Highway in recent years.
“Now we’re more serious,” Keber said.
Collapse of Lehman
The couple cut the asking price to $3.95 million in April. They had been willing to rent it for the summer for $125,000 -- the same amount it went for the last three summers. Now they have pulled the property off the rental market because the offers they received were too low, Keber said.
Casual deal seekers still show up at open houses and sizable price cuts can result in offers -- even bidding wars, said Jan Robinson, president of Hampton Homes Inc., a broker in East Hampton.
When Jay Litvack, 58, an executive at a women’s footwear company, began his Hamptons house hunting in early 2008, he had a budget of $1 million for a place in move-in condition. As the Dow Jones Industrial Average fell almost 40 percent, he cut his budget to $900,000.
Litvack said he looked at 150 houses and kept his eye on a four-bedroom home in East Hampton with a swimming pool and newly renovated kitchen and floors. The seller wanted $1.3 million in March 2008. The price was lowered to $995,000 after the collapse of Lehman Brothers Holdings Inc. in September, Litvack said.
‘No Market’
The Peters Path property was then cut by another $50,000 and finally reduced to $825,000. Litvack made an offer in October and two other bids came minutes later, said Robinson, his broker.
“I held out and I held out, and then pounced,” Litvack said. “Honestly, I’m shocked what I got it for.”
Price cuts averaged almost 11 percent in the Hamptons this year through May 15, according to data compiled by Sofia Kim, vice president of research for Streeteasy.com, a real estate listings service.
Big Price Cuts
The biggest reduction is for a newly built five-bedroom home in Westhampton Beach with deck views of Moriches Bay, according to Streeteasy. The 4,000 square-foot home on Tuttle Place was reduced 50 percent to $1.6 million, said Eileen Brod, the listing agent from First Hampton International Realty.
The second most-discounted home as of May 15, is a three- bedroom, 1,472 square foot cottage that was reduced 47 percent to its current price of $950,000, Streeteasy said. Also discounted by 47 percent is a 4-bedroom house in Springs that is now listed at $685,000, down from its original $1.3 million asking price.
Vacant land sales have also declined. In the first quarter, 29 residential parcels sold for a total of $19 million, 56 percent fewer properties than a year earlier and 88 percent fewer than the same quarter in 2005, according to Suffolk Research Service Inc. in Hampton Bays.
“It’s a strong indicator for the fact that there’s no market for houses,” said George Simpson, president of Suffolk Research, a real estate data service. “There are enough of them around you’d be crazy to build one.”
Almost two years later she’s still waiting.
“People have stopped buying real estate,” said Cohen, who designed the kitchen and bathroom tiles herself. “Now I would sell it for $999,000.”
The number of unsold homes in the Hamptons rose 15 percent to a record 1,673 in the first quarter from a year earlier, according to data compiled by New York-based appraiser Miller Samuel Inc. Sales have declined the most in the 27 years that broker Town & Country Real Estate has kept records for the Long Island beach towns about 100 miles east of Manhattan.
The inventory of Hamptons’ homes would take 34 months to sell at the current pace, Miller Samuel reported, or more than three times the 9.8 months’ supply of existing homes in the U.S. as tracked by the National Association of Realtors.
Wall Street bonus cuts and job losses have resulted in fewer buyers in a community that has attracted Hollywood celebrities such as Sarah Jessica Parker and financiers, including Blackstone Group LP Chief Executive Officer Stephen Schwarzman.
Hurricane Katrina
“This isn’t like your typical Nor’easter where a tree falls and your lights flicker,” said Michael Daly, founder of the buyers’ brokerage True North Realty Associates in North Haven, New York, and a Hamptons real estate blogger. “This is more like a Katrina,” he said, alluding to the historic 2005 Category 5 Hurricane. “It’s going to be a number of years before the market recovers.”
Sales in the Hamptons plunged 67 percent in the first quarter from a year earlier, according to a report by Town & Country. It was the biggest percentage drop in records dating to 1982.
The median price dropped 28 percent from a year earlier to $698,461, mostly on a decline in sales of $5 million or more, Town & Country said. The total value of all Hamptons real estate sold in the first quarter fell 78 percent to $140.2 million.
Miller Samuel put the first-quarter median price at $675,000, down 23.5 percent from a year earlier. Inventory is at a record for the three years Miller Samuel has data.
As prices fall, buyers are searching for deals and sellers are offering discounts, according to Judi Desiderio, president of Town & Country in East Hampton, New York.
“The sellers are keenly aware that if they haven’t sold in a better market, they really need to adjust their prices,” Desiderio said.
North Fork
Susan McGraw Keber is witnessing the market from both sides.
Keber, 54, a broker for Town & Country and a model who appears in Target Corp. and Macy’s Inc. advertisements, has been trying to sell the Bridgehampton home she shares with her husband for the past year.
The couple wants to build on waterfront property on Long Island’s North Fork, an area of vineyards and beaches across the Peconic Bay from the Hamptons.
They initially priced their 2,400-square-foot home on Halsey Lane, a half mile from the ocean, on the “higher end,” at $4.55 million, Keber said. The four-bedroom house on an acre of land includes cathedral ceilings with skylights, a heated pool and fireplace. The price was based on sales south of the Montauk Highway in recent years.
“Now we’re more serious,” Keber said.
Collapse of Lehman
The couple cut the asking price to $3.95 million in April. They had been willing to rent it for the summer for $125,000 -- the same amount it went for the last three summers. Now they have pulled the property off the rental market because the offers they received were too low, Keber said.
Casual deal seekers still show up at open houses and sizable price cuts can result in offers -- even bidding wars, said Jan Robinson, president of Hampton Homes Inc., a broker in East Hampton.
When Jay Litvack, 58, an executive at a women’s footwear company, began his Hamptons house hunting in early 2008, he had a budget of $1 million for a place in move-in condition. As the Dow Jones Industrial Average fell almost 40 percent, he cut his budget to $900,000.
Litvack said he looked at 150 houses and kept his eye on a four-bedroom home in East Hampton with a swimming pool and newly renovated kitchen and floors. The seller wanted $1.3 million in March 2008. The price was lowered to $995,000 after the collapse of Lehman Brothers Holdings Inc. in September, Litvack said.
‘No Market’
The Peters Path property was then cut by another $50,000 and finally reduced to $825,000. Litvack made an offer in October and two other bids came minutes later, said Robinson, his broker.
“I held out and I held out, and then pounced,” Litvack said. “Honestly, I’m shocked what I got it for.”
Price cuts averaged almost 11 percent in the Hamptons this year through May 15, according to data compiled by Sofia Kim, vice president of research for Streeteasy.com, a real estate listings service.
Big Price Cuts
The biggest reduction is for a newly built five-bedroom home in Westhampton Beach with deck views of Moriches Bay, according to Streeteasy. The 4,000 square-foot home on Tuttle Place was reduced 50 percent to $1.6 million, said Eileen Brod, the listing agent from First Hampton International Realty.
The second most-discounted home as of May 15, is a three- bedroom, 1,472 square foot cottage that was reduced 47 percent to its current price of $950,000, Streeteasy said. Also discounted by 47 percent is a 4-bedroom house in Springs that is now listed at $685,000, down from its original $1.3 million asking price.
Vacant land sales have also declined. In the first quarter, 29 residential parcels sold for a total of $19 million, 56 percent fewer properties than a year earlier and 88 percent fewer than the same quarter in 2005, according to Suffolk Research Service Inc. in Hampton Bays.
“It’s a strong indicator for the fact that there’s no market for houses,” said George Simpson, president of Suffolk Research, a real estate data service. “There are enough of them around you’d be crazy to build one.”
Condo associations dying as fees dry up
Homeowner associations, the de facto local government in much of Florida, are getting desperate.
Assessment payments are as low as 50 percent in some communities, causing some board members to consider measures that might include publicly shaming those who are delinquent.
"When I tell you it is an unadulterated nightmare out there, I mean it," said Harry Burnard, who owns Qualified Property Management in New Port Richey, plus a side business that fronts the dues and collects the debts.
The problem exists nationwide, most notably in communities built during the boom years.
"I haven't seen bake sales yet or carwashes," said association attorney Robert Tankel of Dunedin. "But I have suggested that people who don't pay need to consider doing that. Sell their flat-screen TVs."
Things are so bad that the Southpointe condominium association in Orlando sent a letter to all of its members, listing units with unpaid dues.
"I thought I'd be getting a lot more rotten eggs," said Malcolm Galvin, an attorney for the association. "I was kind of amazed that most of the feedback was favorable to the association."
The urge to shame
Most area attorneys are advising their boards against any kind of public humiliation. "The nature of communities anymore is that nobody knows their neighbors anyway," Tankel said.
But it's been suggested at a lot of homeowner meetings.
IKare community newsletter publisher Karen Uhlig, when asked if she would have a problem with such a practice, said, "Personally, not at all. But professionally, I'd have to check for legal advice."
One of her clients, the Nassau Pointe townhome section of New Tampa's Heritage Isles, could be among the first to publicize delinquent accounts.
"We've been tossing the idea around," said board member Barbara Adams. "We don't want to do it, but we're just having little choice when they ignore us."
About 30 percent of her neighbors are not paying the $228 monthly fee. "In our community, it covers cable and water," she said. Dues also pay to landscape the grounds and repair the roof.
Uhlig, who serves on two boards in her own Wesley Chapel community, knows associations that are filing liens over very small amounts. Tankel advocates suing quickly instead of waiting for banks to foreclose, essentially beating them to the courthouse steps.
Some boards have members literally knocking on doors, a practice attorneys discourage.
"You never know when you are going to meet Mister Doberman, or Mister 9-millimeter," Tankel said.
There is a case on appeal where an association sued a man who invited the president up to the roof for a frank discussion about issues related to his condo, and was going to throw him off the roof, Tankel added.
Tampa real estate attorney Court Terrell agreed.
"What you tend to be met with is a very angry resident," he said. "People are strapped financially and under a lot of stress."
Not surprisingly, lawyers advise boards to use the legal process, beginning with a series of warning letters. At least half of the time, members pay up when they realize that the association could ultimately seize their home over a debt of $300 or $400.
"You can give up one Starbucks a week and pay that," Tankel said.
But some associations can scarcely afford to pay the attorney.
That's why Burnard says his Forclosure Solutions, which makes its profit from late fees and interest, is in great demand. "I have been approached by association after association after association," he said.
The impact varies
Just what the dues pay for varies among communities, as do the amounts and the impact when they go unpaid.
Uhlig's Barrington neighborhood, in Northwood, uses dues largely for landscaping. She pays $69.96 per month. It used to be $60.96, but the board had to raise the amount to make up for those who didn't pay.
Terrell has heard of lists posted in condominium lobbies.
"There are a lot of boards that have the urge, and rightfully so, quite honestly," he said. "If everybody else is paying and these people are still getting a lot of benefits, there is an urge for folks to say, 'Here are our bad actors.' They are riding the coattails, leeching off everyone else."
Complex 'imploded'
Even small debts can add up.
Southpointe, the Orlando complex, faced a deficit of $90,000 and the prospect of a special assessment when it sent out the list of delinquents, Galvin said.
In New Port Richey, things got so bad at the 32-unit Glen Crest condominiums that pretty soon no one could afford the dues, said Burnard, whose firm managed the place. "It just imploded on itself," he said.
Part of the problem was a block of absentee owners who bailed when housing values fell. One by one, the condos went into foreclosure and the residents moved out. Today the complex stands weed-strewn and empty, with boards on some of the windows.
While the Glen Crest situation is extreme, managers and lawyers worry that basic services in many communities will suffer as owners neglect their obligations.
"The community association operations are really the privatization of local government," Tankel said. "Government is getting out of the business of government."
Stepping into that role, he said, are volunteers who are elected by their neighbors.
"They have no salary and they have to do what's necessary to maintain the financial integrity in their communities," Tankel said. "And no one's bailing them out."
Assessment payments are as low as 50 percent in some communities, causing some board members to consider measures that might include publicly shaming those who are delinquent.
"When I tell you it is an unadulterated nightmare out there, I mean it," said Harry Burnard, who owns Qualified Property Management in New Port Richey, plus a side business that fronts the dues and collects the debts.
The problem exists nationwide, most notably in communities built during the boom years.
"I haven't seen bake sales yet or carwashes," said association attorney Robert Tankel of Dunedin. "But I have suggested that people who don't pay need to consider doing that. Sell their flat-screen TVs."
Things are so bad that the Southpointe condominium association in Orlando sent a letter to all of its members, listing units with unpaid dues.
"I thought I'd be getting a lot more rotten eggs," said Malcolm Galvin, an attorney for the association. "I was kind of amazed that most of the feedback was favorable to the association."
The urge to shame
Most area attorneys are advising their boards against any kind of public humiliation. "The nature of communities anymore is that nobody knows their neighbors anyway," Tankel said.
But it's been suggested at a lot of homeowner meetings.
IKare community newsletter publisher Karen Uhlig, when asked if she would have a problem with such a practice, said, "Personally, not at all. But professionally, I'd have to check for legal advice."
One of her clients, the Nassau Pointe townhome section of New Tampa's Heritage Isles, could be among the first to publicize delinquent accounts.
"We've been tossing the idea around," said board member Barbara Adams. "We don't want to do it, but we're just having little choice when they ignore us."
About 30 percent of her neighbors are not paying the $228 monthly fee. "In our community, it covers cable and water," she said. Dues also pay to landscape the grounds and repair the roof.
Uhlig, who serves on two boards in her own Wesley Chapel community, knows associations that are filing liens over very small amounts. Tankel advocates suing quickly instead of waiting for banks to foreclose, essentially beating them to the courthouse steps.
Some boards have members literally knocking on doors, a practice attorneys discourage.
"You never know when you are going to meet Mister Doberman, or Mister 9-millimeter," Tankel said.
There is a case on appeal where an association sued a man who invited the president up to the roof for a frank discussion about issues related to his condo, and was going to throw him off the roof, Tankel added.
Tampa real estate attorney Court Terrell agreed.
"What you tend to be met with is a very angry resident," he said. "People are strapped financially and under a lot of stress."
Not surprisingly, lawyers advise boards to use the legal process, beginning with a series of warning letters. At least half of the time, members pay up when they realize that the association could ultimately seize their home over a debt of $300 or $400.
"You can give up one Starbucks a week and pay that," Tankel said.
But some associations can scarcely afford to pay the attorney.
That's why Burnard says his Forclosure Solutions, which makes its profit from late fees and interest, is in great demand. "I have been approached by association after association after association," he said.
The impact varies
Just what the dues pay for varies among communities, as do the amounts and the impact when they go unpaid.
Uhlig's Barrington neighborhood, in Northwood, uses dues largely for landscaping. She pays $69.96 per month. It used to be $60.96, but the board had to raise the amount to make up for those who didn't pay.
Terrell has heard of lists posted in condominium lobbies.
"There are a lot of boards that have the urge, and rightfully so, quite honestly," he said. "If everybody else is paying and these people are still getting a lot of benefits, there is an urge for folks to say, 'Here are our bad actors.' They are riding the coattails, leeching off everyone else."
Complex 'imploded'
Even small debts can add up.
Southpointe, the Orlando complex, faced a deficit of $90,000 and the prospect of a special assessment when it sent out the list of delinquents, Galvin said.
In New Port Richey, things got so bad at the 32-unit Glen Crest condominiums that pretty soon no one could afford the dues, said Burnard, whose firm managed the place. "It just imploded on itself," he said.
Part of the problem was a block of absentee owners who bailed when housing values fell. One by one, the condos went into foreclosure and the residents moved out. Today the complex stands weed-strewn and empty, with boards on some of the windows.
While the Glen Crest situation is extreme, managers and lawyers worry that basic services in many communities will suffer as owners neglect their obligations.
"The community association operations are really the privatization of local government," Tankel said. "Government is getting out of the business of government."
Stepping into that role, he said, are volunteers who are elected by their neighbors.
"They have no salary and they have to do what's necessary to maintain the financial integrity in their communities," Tankel said. "And no one's bailing them out."
Housing Starts May Have a Way to Fall
The disappointing economic news today is that housing starts fell in April, or so the wires say. To me this is more evidence that when markets rise people expect things to get better.
Such forecasts for housing starts ignore the reality. It is amazing that any homes are started at all these days, given the high supply of unsold new homes and the large number of foreclosed homes available.
The latest figures indicate that 509,600 single-family homes were started in the 12 months through April. That is the lowest figure for any 12 months since the government started keeping count in 1959. The annual rate of April’s starts on single-family homes was just 368,000. That rate is the highest of 2009, but otherwise is the lowest ever.
Numbers like that could be taken as a sign that demand surely is about to catch up with supply. But that is not the case. One result of the boom is a housing glut in many markets. Looking at running five-year totals, the figure is still among the highest ever.
There will be signs when the housing market begins to recover, but they won’t be found in this statistic.
Such forecasts for housing starts ignore the reality. It is amazing that any homes are started at all these days, given the high supply of unsold new homes and the large number of foreclosed homes available.
The latest figures indicate that 509,600 single-family homes were started in the 12 months through April. That is the lowest figure for any 12 months since the government started keeping count in 1959. The annual rate of April’s starts on single-family homes was just 368,000. That rate is the highest of 2009, but otherwise is the lowest ever.
Numbers like that could be taken as a sign that demand surely is about to catch up with supply. But that is not the case. One result of the boom is a housing glut in many markets. Looking at running five-year totals, the figure is still among the highest ever.
There will be signs when the housing market begins to recover, but they won’t be found in this statistic.
Wary of U.S. debt, China shifts gears on investment
China has engineered a subtle yet significant shift in the investment of its foreign exchange reserves, a sign of how it is willing to act on concerns about financing an explosion of U.S. debt.
Beijing has been far and away the single biggest foreign buyer of Treasuries over the past year, but this apparent vote of confidence belies how it has turned its back on long-term U.S. debt in favor of shorter maturities.
China's move to the shorter end of the U.S. debt spectrum is a defensive tactic adopted by the wider market as well on the view that the United States will have to raise interest rates down the road to control inflationary pressures when the economy recovers from the financial crisis.
But the shift also comes after pointed comments from Beijing expressing worries over the security of its U.S. investments and calls from Chinese government economists for a tough line with Washington in return for continued access to loans.
"The United States is making policy decisions purely according to domestic considerations and is giving little thought to the outside world," said Zhang Ming, an economist at the Chinese Academy of Social Sciences (CASS), a leading think-tank.
"This being so, the Chinese government should prepare its defenses," he said. "We can keep buying U.S. debt but we have to attach some conditions."
But China's leverage may be limited, despite sitting on the world's largest stockpile of foreign exchange reserves at $2 trillion.
The very surge in U.S. debt -- the Treasury plans gross issuance this fiscal year of $8 trillion -- means China's heavy buying is increasingly looking like a drop, albeit a very big one, in the ocean.
PLAY IT SHORT
Beijing has also taken pains to stress that, while uneasy about the U.S. economic outlook, it views Treasuries as a safe investment. And it knows that it would lose a lot from a plunging dollar with so much invested in the U.S. already.
So rather than cut off financing for the U.S.'s record budget deficit for this fiscal year, China has instead, little by little, shifted its buying out of longer-term bonds.
Between August 2008 and March 2009, China bought $171.3 billion of bills, debt that carries a maturity of up to a year, compared with just $22.9 billion of longer-term notes and bonds with a maturity of two years or more. It also sold $23.5 billion of long-term agency debt, U.S. data shows.
That followed purchases of just $9.6 billion of bills against $47.8 billion of bonds and $45.6 billion of agency debt in the first half of 2008.
Beijing has been far and away the single biggest foreign buyer of Treasuries over the past year, but this apparent vote of confidence belies how it has turned its back on long-term U.S. debt in favor of shorter maturities.
China's move to the shorter end of the U.S. debt spectrum is a defensive tactic adopted by the wider market as well on the view that the United States will have to raise interest rates down the road to control inflationary pressures when the economy recovers from the financial crisis.
But the shift also comes after pointed comments from Beijing expressing worries over the security of its U.S. investments and calls from Chinese government economists for a tough line with Washington in return for continued access to loans.
"The United States is making policy decisions purely according to domestic considerations and is giving little thought to the outside world," said Zhang Ming, an economist at the Chinese Academy of Social Sciences (CASS), a leading think-tank.
"This being so, the Chinese government should prepare its defenses," he said. "We can keep buying U.S. debt but we have to attach some conditions."
But China's leverage may be limited, despite sitting on the world's largest stockpile of foreign exchange reserves at $2 trillion.
The very surge in U.S. debt -- the Treasury plans gross issuance this fiscal year of $8 trillion -- means China's heavy buying is increasingly looking like a drop, albeit a very big one, in the ocean.
PLAY IT SHORT
Beijing has also taken pains to stress that, while uneasy about the U.S. economic outlook, it views Treasuries as a safe investment. And it knows that it would lose a lot from a plunging dollar with so much invested in the U.S. already.
So rather than cut off financing for the U.S.'s record budget deficit for this fiscal year, China has instead, little by little, shifted its buying out of longer-term bonds.
Between August 2008 and March 2009, China bought $171.3 billion of bills, debt that carries a maturity of up to a year, compared with just $22.9 billion of longer-term notes and bonds with a maturity of two years or more. It also sold $23.5 billion of long-term agency debt, U.S. data shows.
That followed purchases of just $9.6 billion of bills against $47.8 billion of bonds and $45.6 billion of agency debt in the first half of 2008.
The Destructive Implications of the Bailout - Understanding Equilibrium
One of the features that has enabled the bureaucratic abuse of the public during the past year has been the frantic, if temporary, flight-to-safety by investors. The Treasury has issued an enormous volume of debt into the frightened hands of investors seeking default-free securities. This has allowed the Treasury to finance a massive and largely needless transfer of wealth to bank bondholders so easily over the short-term that the longer-term cost has been almost completely obscured. But by transferring wealth from those who did not finance reckless loans to those who did – providing monetary compensation without economic production – the bureaucrats at the Treasury and Federal Reserve have crowded out more than a trillion dollars of gross investment that would have otherwise have been made by responsible people in the coming years, shifted assets to the control of those who have proven themselves to be irresponsible destroyers of capital, and have planted the seeds of inflation that will cut short any emerging recovery.
In order to understand the impact of these interventions, you have to think in terms of equilibrium - recognizing that all securities that are issued must also be held by someone - and then follow the money. Initially, suppose you have a banking system with $12 trillion in assets, financed with about $7 trillion in deposits and other liabilities to customers, about $4 trillion in debt to the bondholders of the banks, and about $1 trillion in shareholder equity as a buffer against insolvency.
Now, suppose that the value of the assets deteriorates by $1 trillion, effectively wiping out the shareholder equity and putting much of the banking system in an insolvent position. Suppose also that government bureaucrats refuse to properly take receivership of insolvent banks, to impose haircuts on the debt to bondholders or to require them to swap debt for equity. Instead, suppose these bureaucrats prefer to defend the private bondholders who funded the bad loans from experiencing any loss whatsoever, and are willing to use public funds to do it.
In order to do this, the Treasury issues $1 trillion in government debt, with a preference toward shorter “money market” maturities (since it doesn't want to drive up long-term interest rates at the same time the Fed hopes to invigorate the housing market). It may seem like this means that there is $1 trillion of new “liquidity” in the economy, but you have to think carefully.
If you look at various individuals in the economy, including yourself, notice that except for cold, hard currency in your wallet, whatever savings you have accumulated in the past have been allocated to finance investments that have already occurred. You may think that your stocks and bonds and bank CDs and money market securities represent your “savings,” but they are actually securities that exist as evidence of money that has already been spent by some borrower, and on which you have some claim to future income or repayment. And this is crucial: the securities that represent those claims – the stocks, the bonds, the CDs – will all continue to exist until and those securities are retired. If you sell your stocks, or bonds, or money market securities, you have to sell them to someone who presently holds cash. In other words, in order for you to get cash that you can spend, you have to sell your securities to someone whose savings have not already been allocated to something.
So where does the money come from to buy these new Treasury securities? Clearly, the sale of those securities must absorb the savings of someone in the economy whose savings have not already been claimed. Alternatively, the Fed can directly purchase those Treasury securities and literally print money. In practice, we have a third option. The Fed can acquire $1 trillion of commercial mortgage-backed securities and other assets from banks and create an equivalent amount of “reserves” (which is essentially printing money) at the same time that the Treasury issues the $1 trillion in new Treasury securities. In this case, which is in fact exactly what has happened, the banks that previously held $1 trillion in commercial debt securities can now use their newly acquired reserves to buy the $1 trillion in newly issued Treasuries. Having done this, they have no more money to lend than they had before. There is no more “liquidity” in the system than there was previously, except that the “quality” of the bank balance sheets has improved.
The Fed has turned its balance sheet into a garbage dump, in order to accommodate all of the additional Treasury issuance required to finance the rescue of bank bondholders.
In order to understand the impact of these interventions, you have to think in terms of equilibrium - recognizing that all securities that are issued must also be held by someone - and then follow the money. Initially, suppose you have a banking system with $12 trillion in assets, financed with about $7 trillion in deposits and other liabilities to customers, about $4 trillion in debt to the bondholders of the banks, and about $1 trillion in shareholder equity as a buffer against insolvency.
Now, suppose that the value of the assets deteriorates by $1 trillion, effectively wiping out the shareholder equity and putting much of the banking system in an insolvent position. Suppose also that government bureaucrats refuse to properly take receivership of insolvent banks, to impose haircuts on the debt to bondholders or to require them to swap debt for equity. Instead, suppose these bureaucrats prefer to defend the private bondholders who funded the bad loans from experiencing any loss whatsoever, and are willing to use public funds to do it.
In order to do this, the Treasury issues $1 trillion in government debt, with a preference toward shorter “money market” maturities (since it doesn't want to drive up long-term interest rates at the same time the Fed hopes to invigorate the housing market). It may seem like this means that there is $1 trillion of new “liquidity” in the economy, but you have to think carefully.
If you look at various individuals in the economy, including yourself, notice that except for cold, hard currency in your wallet, whatever savings you have accumulated in the past have been allocated to finance investments that have already occurred. You may think that your stocks and bonds and bank CDs and money market securities represent your “savings,” but they are actually securities that exist as evidence of money that has already been spent by some borrower, and on which you have some claim to future income or repayment. And this is crucial: the securities that represent those claims – the stocks, the bonds, the CDs – will all continue to exist until and those securities are retired. If you sell your stocks, or bonds, or money market securities, you have to sell them to someone who presently holds cash. In other words, in order for you to get cash that you can spend, you have to sell your securities to someone whose savings have not already been allocated to something.
So where does the money come from to buy these new Treasury securities? Clearly, the sale of those securities must absorb the savings of someone in the economy whose savings have not already been claimed. Alternatively, the Fed can directly purchase those Treasury securities and literally print money. In practice, we have a third option. The Fed can acquire $1 trillion of commercial mortgage-backed securities and other assets from banks and create an equivalent amount of “reserves” (which is essentially printing money) at the same time that the Treasury issues the $1 trillion in new Treasury securities. In this case, which is in fact exactly what has happened, the banks that previously held $1 trillion in commercial debt securities can now use their newly acquired reserves to buy the $1 trillion in newly issued Treasuries. Having done this, they have no more money to lend than they had before. There is no more “liquidity” in the system than there was previously, except that the “quality” of the bank balance sheets has improved.
The Fed has turned its balance sheet into a garbage dump, in order to accommodate all of the additional Treasury issuance required to finance the rescue of bank bondholders.
2 Firms Accused of Fraud in Debt Settlement
The New York attorney general, Andrew M. Cuomo, sued two large debt settlement companies Tuesday, saying they had engaged in fraudulent and deceptive business practices and false advertising.
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Dan Cappellazzo for The New York Times
The suits seek to enjoin the companies, Nationwide Asset Services and Credit Solutions of America, from many of their business practices, including charging customers before any settlement work is done. They also seek restitution and damages for dissatisfied customers.
“These companies claim to be the light at the end of the tunnel, but time after time they have shown that they only add to the burdens of Americans dealing with debt,” Mr. Cuomo said in a statement.
Credit Solutions enrolled 18,000 customers in New York State in the last five years, earning $17 million in fees, but settled the debts of fewer than 2,000 of them, the attorney general said.
Nationwide signed up 1,981 New York residents in three years, the suit against it says, but only 64 completed the program. Twenty-seven of those ended up paying more than they originally owed because of Nationwide’s fees, the suit alleges.
Mark Walling, a lawyer for Phoenix-based Nationwide, said he had not seen the suit. “My client denies any wrongdoing,” he said.
Credit Solutions, based in Richardson, Tex., disputed liability over the complaints and practices in the suit, saying in a statement that they had largely occurred when the company was under different ownership in 2007.
The suits are part of an effort by Mr. Cuomo to control the debt settlement industry, which has mushroomed as the economy has worsened. This month he sent subpoenas to 15 major companies that do settlements, seeking details about business practices.
As unemployment rises, many people can no longer afford to pay the minimum on their credit cards. The Federal Reserve said this week that delinquencies rose in the first quarter to 6.5 percent, the highest since it began tracking them in 1991. Citigroup and Wells Fargo said April defaults were more than 10 percent.
For consumers on the verge of default, debt settlement companies promise relief. In voluminous radio and late-night television advertisements, the companies say they can shrink those onerous balances by striking deals with creditors.
Credit Solutions, which was founded in 2003 by an entrepreneur named Doug Van Arsdale, initially said it could shrink a customer’s credit card debt by as much as 75 percent. “There’s more to life than paying bills,” its Web site said, promising “honest and sincere” evaluations.
Such claims powered it to a leading position in the industry. Mr. Van Arsdale said he sold the company in December 2006, but, unhappy with how it was being run, bought it back a year later. The Web site now says the company has served 200,000 people with a combined debt of $2.25 billion.
An early flashpoint was its practice of charging, in advance, a fee of 15 percent of the customer’s total enrolled debt. Credit Solutions had to refund $700,000 to customers in South Carolina in 2007 after the state accused it of violating local credit counseling laws.
It had to pay $588,000 to Idaho customers in 2008 for operating in the state without a license. In March, the Texas attorney general sued Credit Solutions, alleging “false, deceptive and misleading acts.”
The Better Business Bureau of Dallas gives Credit Solutions a grade of F, citing 1,679 complaints against the company.
A Credit Solutions spokeswoman, Genie Hayes, called that number relatively small, “given the difficulty and length of the settlement process.” She said all the complaints had been resolved except for six cases where the consumers had disappeared.
Typically, debt settlement companies tell consumers to stop paying any amount on their bills and start accumulating money in a special account. Eventually, the company promises, it will use that money to negotiate settlements with creditors.
But Mr. Cuomo contends that many people leave the Credit Solutions program because it is too hard for them to save, especially after paying the company’s fees. Even when they stick it out, the promised deals often do not materialize. “Credit Solutions frequently fails to obtain settlement offers at all,” the suit says.
Evelyn Mazzella, who lives in Westchester County, signed up with Credit Solutions after a friend recommended it. “I ended up paying them a couple of thousand dollars, but they only settled one card,” with Best Buy electronics, she said. She complained to the attorney general’s office.
Credit Solutions used to send customers a 60-item list of ways to raise money. First is “refinance home,” followed by “get a second mortgage” — the two things that got many people in over their heads in the first place. Among the other tips are: “Baby sit,” “Sell plasma,” “Ask for raise,” “Get off the station before your usual stop and walk,” “Cut down your drinking,” “Drink tap water,” “Buy frozen.”
Nationwide Asset is less known than Credit Solutions. Doreen and Barry Melton, a retired couple who live in Lewiston, N.Y., became clients in 2007. They had about 13 credit cards, Mrs. Melton estimates. After Mr. Melton had back surgery, then eye surgery, then heart surgery, the bills got out of hand.
“I thought settlement was an answer to my prayers,” said Mrs. Melton, who appeared Tuesday at a news conference with Mr. Cuomo in Buffalo. “They were going to take care of all my debt in a year and a half.”
Before she knew it, however, she had paid Nationwide $1,400, and then was paying $56.65 monthly. The company told her not to answer the phone, which only redoubled the creditors’ zeal. “Our phone was ringing constantly from morning to 9 or 10 at night,” she said.
A few bills were settled, and each time Nationwide charged her another fee. Most were not settled. Now, she said, “our credit is destroyed.”
Skip to next paragraph
Enlarge This Image
Dan Cappellazzo for The New York Times
The suits seek to enjoin the companies, Nationwide Asset Services and Credit Solutions of America, from many of their business practices, including charging customers before any settlement work is done. They also seek restitution and damages for dissatisfied customers.
“These companies claim to be the light at the end of the tunnel, but time after time they have shown that they only add to the burdens of Americans dealing with debt,” Mr. Cuomo said in a statement.
Credit Solutions enrolled 18,000 customers in New York State in the last five years, earning $17 million in fees, but settled the debts of fewer than 2,000 of them, the attorney general said.
Nationwide signed up 1,981 New York residents in three years, the suit against it says, but only 64 completed the program. Twenty-seven of those ended up paying more than they originally owed because of Nationwide’s fees, the suit alleges.
Mark Walling, a lawyer for Phoenix-based Nationwide, said he had not seen the suit. “My client denies any wrongdoing,” he said.
Credit Solutions, based in Richardson, Tex., disputed liability over the complaints and practices in the suit, saying in a statement that they had largely occurred when the company was under different ownership in 2007.
The suits are part of an effort by Mr. Cuomo to control the debt settlement industry, which has mushroomed as the economy has worsened. This month he sent subpoenas to 15 major companies that do settlements, seeking details about business practices.
As unemployment rises, many people can no longer afford to pay the minimum on their credit cards. The Federal Reserve said this week that delinquencies rose in the first quarter to 6.5 percent, the highest since it began tracking them in 1991. Citigroup and Wells Fargo said April defaults were more than 10 percent.
For consumers on the verge of default, debt settlement companies promise relief. In voluminous radio and late-night television advertisements, the companies say they can shrink those onerous balances by striking deals with creditors.
Credit Solutions, which was founded in 2003 by an entrepreneur named Doug Van Arsdale, initially said it could shrink a customer’s credit card debt by as much as 75 percent. “There’s more to life than paying bills,” its Web site said, promising “honest and sincere” evaluations.
Such claims powered it to a leading position in the industry. Mr. Van Arsdale said he sold the company in December 2006, but, unhappy with how it was being run, bought it back a year later. The Web site now says the company has served 200,000 people with a combined debt of $2.25 billion.
An early flashpoint was its practice of charging, in advance, a fee of 15 percent of the customer’s total enrolled debt. Credit Solutions had to refund $700,000 to customers in South Carolina in 2007 after the state accused it of violating local credit counseling laws.
It had to pay $588,000 to Idaho customers in 2008 for operating in the state without a license. In March, the Texas attorney general sued Credit Solutions, alleging “false, deceptive and misleading acts.”
The Better Business Bureau of Dallas gives Credit Solutions a grade of F, citing 1,679 complaints against the company.
A Credit Solutions spokeswoman, Genie Hayes, called that number relatively small, “given the difficulty and length of the settlement process.” She said all the complaints had been resolved except for six cases where the consumers had disappeared.
Typically, debt settlement companies tell consumers to stop paying any amount on their bills and start accumulating money in a special account. Eventually, the company promises, it will use that money to negotiate settlements with creditors.
But Mr. Cuomo contends that many people leave the Credit Solutions program because it is too hard for them to save, especially after paying the company’s fees. Even when they stick it out, the promised deals often do not materialize. “Credit Solutions frequently fails to obtain settlement offers at all,” the suit says.
Evelyn Mazzella, who lives in Westchester County, signed up with Credit Solutions after a friend recommended it. “I ended up paying them a couple of thousand dollars, but they only settled one card,” with Best Buy electronics, she said. She complained to the attorney general’s office.
Credit Solutions used to send customers a 60-item list of ways to raise money. First is “refinance home,” followed by “get a second mortgage” — the two things that got many people in over their heads in the first place. Among the other tips are: “Baby sit,” “Sell plasma,” “Ask for raise,” “Get off the station before your usual stop and walk,” “Cut down your drinking,” “Drink tap water,” “Buy frozen.”
Nationwide Asset is less known than Credit Solutions. Doreen and Barry Melton, a retired couple who live in Lewiston, N.Y., became clients in 2007. They had about 13 credit cards, Mrs. Melton estimates. After Mr. Melton had back surgery, then eye surgery, then heart surgery, the bills got out of hand.
“I thought settlement was an answer to my prayers,” said Mrs. Melton, who appeared Tuesday at a news conference with Mr. Cuomo in Buffalo. “They were going to take care of all my debt in a year and a half.”
Before she knew it, however, she had paid Nationwide $1,400, and then was paying $56.65 monthly. The company told her not to answer the phone, which only redoubled the creditors’ zeal. “Our phone was ringing constantly from morning to 9 or 10 at night,” she said.
A few bills were settled, and each time Nationwide charged her another fee. Most were not settled. Now, she said, “our credit is destroyed.”
Is Buying a House Catching a Falling Knife or a Practically Foolproof Inflation Hedge?
Astute reader Peter B. recently offered a "devil's advocate" case for buying a house now at popped-bubble prices. As he put it, Is Buying a House Catching a Falling Knife or a Practically Foolproof Inflation Hedge? It's an important question, for while it is easy to say "just wait for the bottom in 2014" not everyone is willing to wait that long. Children are born and parents want to have their own home even if prices continue down, etc. Here's Peter's commentary:
I agree that we still have a long, and perhaps a very long way to go price wise on housing, but in spite of that, it may be time to buy a house, at least in a sensible area.
Here’s how it might play out.
You put 10% down and take out a 30 year loan at 5%. A $200,000 dollar home would cost you $20,000 down, $1000 a month P&I, $100 a month PMI and say $500 a month in taxes and other costs $1600 a month, about the same as it would cost to rent a similar house.
Now four things can happen in the order of predictability:
1. The world doesn’t come to an end. Housing drifts down for the next down for the next few years then stagnates for ten. You missed the bottom, but have the pleasure of home ownership, don’t lay awake regretting your purchase or agonizing whether to buy or rent.
2. Inflation reaches 100% or more over some period of time. Home prices keep up with inflation as folks seek safe harbor in tangible assets. Your home is still worth $220,000 in 2009 dollars but $440,000 in 2015 dollars, you come out ahead by having an inflation hedge and paying off your loan $.50 on the dollar.
3. Inflation reaches 100% or more over some period of time. Rising interest rates and demographics keeps house prices more or less level, your house is still worth $220,000 in 2015 dollars but only $110,000 in 2009 dollars, you break even by paying that off in 2015 dollars.
4. Throwing the bankers and other assorted capitalists under the bus, the government lets the depression play out. Everything unwinds. Deflation ensues; your house is now worth $110,000 in cold hard cash. You walk away and buying a similar house for cash or obtain a loan under some program where people who were caught in the "housing crisis of 2010" get a pass. Sure you lose your 20 grand, but that’s almost exactly what you’d pay in rent for a year.
Thank you, Peter, for a thought-provoking argument for buying. I especially like the tongue-in-cheek reference to the bailout of those caught by the housing crisis of 2010.... Unfortunately, we can expect just such bailouts of lenders and borrowers until no one is willing to loan the Federal government or its various agencies another few trillion dollars to squander on risky debt.
In the spirit of devil's advocacy, here are my comments on these plausible scenarios.
First, let's grant that ownership does have potentially significant rewards--not necessarily financial. If you own a piece of land, then you can plant what you want on it, and build what you want (unless you live in a subdivision ruled by Covenants and Restrictions, of course). You don't have to worry about getting evicted if a landlord goes broke. If you can afford the home or own it free and clear, it's yours, and there is a unique sense of security in that ownership.
If you have a fixed rate mortgage, then you also know how much your monthly "nut" will be, and you won't get any surprise rent increases.
On the other side of the ledger, if foreclosures keep inventories of "homes for sale" high, then a house can be a capital trap, i.e. an illiquid asset you can't sell to extract your capital. Practically speaking, that means you can't move to another locale for a better job (or job, period) because you can't sell your house. That's a potentially severe limitation in a mobile society.
Financially, the costs of ownership vs. renting are complex and not readily generalized. Whenever I comment on this topic, I receive a blizzard of pursuasive arguments: did I calculate the benefits of the mortgage interest deduction, depreciation, etc.?
If you're blessed with a left-coast sized mortgage with $4,000/month in interest and you have one child, then that $50K/year in deductions certainly impacts your tax bill. But if you have a household of four and mortgage interest of $18,000/year and no other significant deductions, then you're better off taking the standard deductions--so the mortgage interest deduction is essentially worthless.
A lot of folks enamoured of straightline financial calculations often forget that a house is a living, decaying structure which can cost a lot of money to maintain. Such costs are not easily predicted, though they are easily underestimated.
They also tend to forget that condo association fees are often high to start with and only move higher as the usual litany of structural problems and multiple lawsuits (filed just before expiration, natch) jack up association dues.
We can also anticipate that revenue-starved municipalities will start raising property taxes unless Prop-13-type laws are in place to restrict such increases. I would be wary of buying property in any state without strict caps on property tax increases, for the simple reason that the local governments will inevitably turn to the taxpayers who can't leave or close down--property owners--to cover their revenue shortfalls.
There is a tendency when making the "rent vs buy" calculations to form a bias which skews the calculations. Thus if you've already decided to buy, then your estimates for repairs and maintenance might be very light, as a way of justifying the "low cost of ownership."
Other readers have pointed out that the low interest rates now available somewhat offset the probable declines in home values which lie ahead. In other words, if interest rates rise 20% in the near future (as I expect), then buying now at low rates is roughly equivalent to buying the same house few years from now for 20% less than today's price. That is certainly a valid point for anyone planning to carry a 80% LTV (loan to value) mortgage.
But will housing decline "only" 20% in your area? If prices drop 40%, then waiting still makes financial sense. How can anyone tell how much more decline may be in the works? There is no sure way, of course, but we can use "reversion to the mean" as a rough guide. All bubbles tend to revert to their starting point. Thus we can expect housing to fall back to the vicinity of its value (adjusted modestly for the decade's low inflation) in the late 1990s before the bubble mania took hold.
If housing has nearly completed the "round trip" back to pre-bubble valuations, then buying now at low interest rates in anticipation of higher rates makes financial sense. If local housing has only completed half the "round trip" back to pre-bubble prices, then caution may well be warranted. That $600K house looks like a "bargain" at $375K only if you don't anticipate it being $250K next year.
I agree that we still have a long, and perhaps a very long way to go price wise on housing, but in spite of that, it may be time to buy a house, at least in a sensible area.
Here’s how it might play out.
You put 10% down and take out a 30 year loan at 5%. A $200,000 dollar home would cost you $20,000 down, $1000 a month P&I, $100 a month PMI and say $500 a month in taxes and other costs $1600 a month, about the same as it would cost to rent a similar house.
Now four things can happen in the order of predictability:
1. The world doesn’t come to an end. Housing drifts down for the next down for the next few years then stagnates for ten. You missed the bottom, but have the pleasure of home ownership, don’t lay awake regretting your purchase or agonizing whether to buy or rent.
2. Inflation reaches 100% or more over some period of time. Home prices keep up with inflation as folks seek safe harbor in tangible assets. Your home is still worth $220,000 in 2009 dollars but $440,000 in 2015 dollars, you come out ahead by having an inflation hedge and paying off your loan $.50 on the dollar.
3. Inflation reaches 100% or more over some period of time. Rising interest rates and demographics keeps house prices more or less level, your house is still worth $220,000 in 2015 dollars but only $110,000 in 2009 dollars, you break even by paying that off in 2015 dollars.
4. Throwing the bankers and other assorted capitalists under the bus, the government lets the depression play out. Everything unwinds. Deflation ensues; your house is now worth $110,000 in cold hard cash. You walk away and buying a similar house for cash or obtain a loan under some program where people who were caught in the "housing crisis of 2010" get a pass. Sure you lose your 20 grand, but that’s almost exactly what you’d pay in rent for a year.
Thank you, Peter, for a thought-provoking argument for buying. I especially like the tongue-in-cheek reference to the bailout of those caught by the housing crisis of 2010.... Unfortunately, we can expect just such bailouts of lenders and borrowers until no one is willing to loan the Federal government or its various agencies another few trillion dollars to squander on risky debt.
In the spirit of devil's advocacy, here are my comments on these plausible scenarios.
First, let's grant that ownership does have potentially significant rewards--not necessarily financial. If you own a piece of land, then you can plant what you want on it, and build what you want (unless you live in a subdivision ruled by Covenants and Restrictions, of course). You don't have to worry about getting evicted if a landlord goes broke. If you can afford the home or own it free and clear, it's yours, and there is a unique sense of security in that ownership.
If you have a fixed rate mortgage, then you also know how much your monthly "nut" will be, and you won't get any surprise rent increases.
On the other side of the ledger, if foreclosures keep inventories of "homes for sale" high, then a house can be a capital trap, i.e. an illiquid asset you can't sell to extract your capital. Practically speaking, that means you can't move to another locale for a better job (or job, period) because you can't sell your house. That's a potentially severe limitation in a mobile society.
Financially, the costs of ownership vs. renting are complex and not readily generalized. Whenever I comment on this topic, I receive a blizzard of pursuasive arguments: did I calculate the benefits of the mortgage interest deduction, depreciation, etc.?
If you're blessed with a left-coast sized mortgage with $4,000/month in interest and you have one child, then that $50K/year in deductions certainly impacts your tax bill. But if you have a household of four and mortgage interest of $18,000/year and no other significant deductions, then you're better off taking the standard deductions--so the mortgage interest deduction is essentially worthless.
A lot of folks enamoured of straightline financial calculations often forget that a house is a living, decaying structure which can cost a lot of money to maintain. Such costs are not easily predicted, though they are easily underestimated.
They also tend to forget that condo association fees are often high to start with and only move higher as the usual litany of structural problems and multiple lawsuits (filed just before expiration, natch) jack up association dues.
We can also anticipate that revenue-starved municipalities will start raising property taxes unless Prop-13-type laws are in place to restrict such increases. I would be wary of buying property in any state without strict caps on property tax increases, for the simple reason that the local governments will inevitably turn to the taxpayers who can't leave or close down--property owners--to cover their revenue shortfalls.
There is a tendency when making the "rent vs buy" calculations to form a bias which skews the calculations. Thus if you've already decided to buy, then your estimates for repairs and maintenance might be very light, as a way of justifying the "low cost of ownership."
Other readers have pointed out that the low interest rates now available somewhat offset the probable declines in home values which lie ahead. In other words, if interest rates rise 20% in the near future (as I expect), then buying now at low rates is roughly equivalent to buying the same house few years from now for 20% less than today's price. That is certainly a valid point for anyone planning to carry a 80% LTV (loan to value) mortgage.
But will housing decline "only" 20% in your area? If prices drop 40%, then waiting still makes financial sense. How can anyone tell how much more decline may be in the works? There is no sure way, of course, but we can use "reversion to the mean" as a rough guide. All bubbles tend to revert to their starting point. Thus we can expect housing to fall back to the vicinity of its value (adjusted modestly for the decade's low inflation) in the late 1990s before the bubble mania took hold.
If housing has nearly completed the "round trip" back to pre-bubble valuations, then buying now at low interest rates in anticipation of higher rates makes financial sense. If local housing has only completed half the "round trip" back to pre-bubble prices, then caution may well be warranted. That $600K house looks like a "bargain" at $375K only if you don't anticipate it being $250K next year.
Obama for Single-Payer Before He Was Against It
How Political Elites Have Made Single Payer “Politically Impossible”
In light of the White House’s big hand-holding session today with the pharmaceutical and health insurance industries today, let me take this moment to note that a cynic - or, perhaps, a realist - might look at President Obama’s statements on health care and see a politician moving farther and farther away from his progressive roots and closer and closer to the Washington/money Establishment.
In 2003, Obama said he supports a single-payer health care system, and that the only reason we “may not get there immiediately” is “because first we have to take back the White House, we have to take back the Senate, and we have to take back the House” - which, of course, we have:
“I happen to be a proponent of a single payer universal health care program…I see no reason why the United States of America, the wealthiest country in the history of the world, spending 14 percent of its Gross National Product on health care cannot provide basic health insurance to everybody. And that’s what Jim is talking about when he says everybody in, nobody out. A single payer health care plan, a universal health care plan. And that’s what I’d like to see. But as all of you know, we may not get there immediately. Because first we have to take back the White House, we have to take back the Senate, and we have to take back the House.” - Barack Obama, 2003
In 2006, I spent a day with Obama in the U.S. Senate, and he said he supports a “debate” on single-payer, but that he also bad started to have his doubts, now that he was in the Senate:
I asked him to give me some specific examples of what he meant. Is a proposal to convert America’s healthcare system to one in which the government is the single payer for all services revolutionary or reformist? “Anything that Canada does can’t be entirely revolutionary-it’s Canada,” Obama joked. “When I drive through Toronto, it doesn’t look like a bunch of Maoists.” Even so, Obama said that although he “would not shy away from a debate about single-payer,” right now he is “not convinced that it is the best way to achieve universal healthcare.”
By last week, it became clear that Obama and his allies in Congress will use their legislative leverage to prevent even a debate about single payer. Here’s the Associated Press: “Baucus and many others, including President Barack Obama, say single-payer is not practical or politically feasible.”
“Everything is on the table with the single exception of single-payer,” Baucus said.
My guess is that Obama still believes in what he originally says, because he knows the evidence about the supremacy of a single-payer system is irrefutable. But I’m also guessing that he’s afraid of being attacked by moneyed interests that enjoy the status quo, and he’s surrounded himself by Clintonites who, after the health care debacle of the early 1990s, aren’t interested in antagonizing the insurance industry.
However, let me just echo Ta-Neishi Coates who recently wrote that “while a good politician accomplishes what is possible, a great one expands the realm of possibility - he doesn’t simply accept the lines of argument as they’re drawn and hew to the side with the most soldiers, he tries to redraw those lines to benefit his ideals.”
The whole idea that single payer is the best option but politically “impossible” is simply unacceptable. Last I checked, electing an African American president was politically “impossible”…until Barack Obama went ahead and got himself elected president. The entire notion of “politically possible” and “politically impossible” is a canard that justifies the status quo. So while it’s certainly terrific that Obama is fighting for some sort of universal health care system, and one with a public option (which could ultimately become a single-payer system), let’s just remember: Nothing has been politically “possible” until it actually happened - and so if that’s the major argument against single payer, it’s not just a poor argument, it’s a fraud.
In light of the White House’s big hand-holding session today with the pharmaceutical and health insurance industries today, let me take this moment to note that a cynic - or, perhaps, a realist - might look at President Obama’s statements on health care and see a politician moving farther and farther away from his progressive roots and closer and closer to the Washington/money Establishment.
In 2003, Obama said he supports a single-payer health care system, and that the only reason we “may not get there immiediately” is “because first we have to take back the White House, we have to take back the Senate, and we have to take back the House” - which, of course, we have:
“I happen to be a proponent of a single payer universal health care program…I see no reason why the United States of America, the wealthiest country in the history of the world, spending 14 percent of its Gross National Product on health care cannot provide basic health insurance to everybody. And that’s what Jim is talking about when he says everybody in, nobody out. A single payer health care plan, a universal health care plan. And that’s what I’d like to see. But as all of you know, we may not get there immediately. Because first we have to take back the White House, we have to take back the Senate, and we have to take back the House.” - Barack Obama, 2003
In 2006, I spent a day with Obama in the U.S. Senate, and he said he supports a “debate” on single-payer, but that he also bad started to have his doubts, now that he was in the Senate:
I asked him to give me some specific examples of what he meant. Is a proposal to convert America’s healthcare system to one in which the government is the single payer for all services revolutionary or reformist? “Anything that Canada does can’t be entirely revolutionary-it’s Canada,” Obama joked. “When I drive through Toronto, it doesn’t look like a bunch of Maoists.” Even so, Obama said that although he “would not shy away from a debate about single-payer,” right now he is “not convinced that it is the best way to achieve universal healthcare.”
By last week, it became clear that Obama and his allies in Congress will use their legislative leverage to prevent even a debate about single payer. Here’s the Associated Press: “Baucus and many others, including President Barack Obama, say single-payer is not practical or politically feasible.”
“Everything is on the table with the single exception of single-payer,” Baucus said.
My guess is that Obama still believes in what he originally says, because he knows the evidence about the supremacy of a single-payer system is irrefutable. But I’m also guessing that he’s afraid of being attacked by moneyed interests that enjoy the status quo, and he’s surrounded himself by Clintonites who, after the health care debacle of the early 1990s, aren’t interested in antagonizing the insurance industry.
However, let me just echo Ta-Neishi Coates who recently wrote that “while a good politician accomplishes what is possible, a great one expands the realm of possibility - he doesn’t simply accept the lines of argument as they’re drawn and hew to the side with the most soldiers, he tries to redraw those lines to benefit his ideals.”
The whole idea that single payer is the best option but politically “impossible” is simply unacceptable. Last I checked, electing an African American president was politically “impossible”…until Barack Obama went ahead and got himself elected president. The entire notion of “politically possible” and “politically impossible” is a canard that justifies the status quo. So while it’s certainly terrific that Obama is fighting for some sort of universal health care system, and one with a public option (which could ultimately become a single-payer system), let’s just remember: Nothing has been politically “possible” until it actually happened - and so if that’s the major argument against single payer, it’s not just a poor argument, it’s a fraud.
Sunday, May 17, 2009
Most U.S. homeowners think a bottom has been reached
Most American homeowners believe their home's value has declined over the past year, but a majority also think a bottom has been reached, real estate website Zillow.com said on Thursday.
A majority, or 60 percent, believe their home lost value during the past 12 months, according to the Zillow Q1 Homeowner Confidence Survey.
In reality, 80 percent of homes across the country lost value during the past 12 months, according to Zillow's first-quarter Real Estate Market Reports.
Additionally, 18 percent believe their home gained value in the past 12 months, and 22 percent believe its value remained the same, according to the survey.
That resulted in a Zillow Home Value Misperception Index of five -- the lowest it has been since Zillow introduced the index in the second quarter of 2008 and down from 10 in the fourth quarter of 2008. A Misperception Index of zero would mean homeowners perceptions' were in line with actual values.
"The perception of American homeowners is finally catching up to reality, which is that 80 percent of all homes in the country lost value during this past year," Dr. Stan Humphries, Zillow's vice president of data and analytics, said in a statement accompanying the survey.
"While homeowners are now more realistic when looking backward, they are still pretty starry-eyed when looking forward, with three out of four homeowners believing that their own homes' prices will increase or be flat over the next six months. Unfortunately, there are few markets we expect to perform this well," he said.
Most homeowners -- 74 percent -- believe their home will not decline in value in the coming six months, effectively calling a bottom to their own home's housing slide, Zillow said.
Specifically, one in four homeowners, or 27 percent, think their home's value will increase in the next six months, while nearly half, or 47 percent, believe its value will remain the same. Homeowners were similarly optimistic when it came to predicting home values in their local markets, the survey showed.
About two-thirds of homeowners believe home values in their local markets will increase or stay the same, at 26 percent and 37 percent respectively, over the next six months. Thirty-seven percent believe home values will decrease, the survey showed.
It also showed a significant number of potential sellers are holding back due to the current market. When asked about future plans to sell, 31 percent of homeowners said they would be at least "somewhat likely" to put their homes on the market in the next 12 months if they saw signs of a real estate market turnaround, the survey showed.
"Also interesting is the information we have for the first time this quarter on the levels of 'shadow inventory' - homes that people would like to sell but that aren't currently on the market, and thus aren't captured in the official number of homes on the market," said Humphries. "With almost a third of homeowners poised to jump into the market at the first sign of stabilization, this could create a steady stream of new inventory adding to already record-high inventory levels, thus keeping downward pressure on home prices."
With a Misperception Index of 2 -- down from 13 in the fourth quarter -- the perception of homeowners in the West was closest to reality, along with that of homeowners in the Midwest. Northeastern homeowners' perception of their own homes' values was the farthest from reality, with a Misperception Index of 11, up from 3 in the fourth quarter, the survey showed.
A majority, or 60 percent, believe their home lost value during the past 12 months, according to the Zillow Q1 Homeowner Confidence Survey.
In reality, 80 percent of homes across the country lost value during the past 12 months, according to Zillow's first-quarter Real Estate Market Reports.
Additionally, 18 percent believe their home gained value in the past 12 months, and 22 percent believe its value remained the same, according to the survey.
That resulted in a Zillow Home Value Misperception Index of five -- the lowest it has been since Zillow introduced the index in the second quarter of 2008 and down from 10 in the fourth quarter of 2008. A Misperception Index of zero would mean homeowners perceptions' were in line with actual values.
"The perception of American homeowners is finally catching up to reality, which is that 80 percent of all homes in the country lost value during this past year," Dr. Stan Humphries, Zillow's vice president of data and analytics, said in a statement accompanying the survey.
"While homeowners are now more realistic when looking backward, they are still pretty starry-eyed when looking forward, with three out of four homeowners believing that their own homes' prices will increase or be flat over the next six months. Unfortunately, there are few markets we expect to perform this well," he said.
Most homeowners -- 74 percent -- believe their home will not decline in value in the coming six months, effectively calling a bottom to their own home's housing slide, Zillow said.
Specifically, one in four homeowners, or 27 percent, think their home's value will increase in the next six months, while nearly half, or 47 percent, believe its value will remain the same. Homeowners were similarly optimistic when it came to predicting home values in their local markets, the survey showed.
About two-thirds of homeowners believe home values in their local markets will increase or stay the same, at 26 percent and 37 percent respectively, over the next six months. Thirty-seven percent believe home values will decrease, the survey showed.
It also showed a significant number of potential sellers are holding back due to the current market. When asked about future plans to sell, 31 percent of homeowners said they would be at least "somewhat likely" to put their homes on the market in the next 12 months if they saw signs of a real estate market turnaround, the survey showed.
"Also interesting is the information we have for the first time this quarter on the levels of 'shadow inventory' - homes that people would like to sell but that aren't currently on the market, and thus aren't captured in the official number of homes on the market," said Humphries. "With almost a third of homeowners poised to jump into the market at the first sign of stabilization, this could create a steady stream of new inventory adding to already record-high inventory levels, thus keeping downward pressure on home prices."
With a Misperception Index of 2 -- down from 13 in the fourth quarter -- the perception of homeowners in the West was closest to reality, along with that of homeowners in the Midwest. Northeastern homeowners' perception of their own homes' values was the farthest from reality, with a Misperception Index of 11, up from 3 in the fourth quarter, the survey showed.
Decoupling From Reality
Back in the golden age of American Flyfishing -- say around 1913 -- when technical innovation in a prissy and recondite sport was joined by a new leisure class emanating from the white glove canyons of Wall Street, some new-minted guru of angling came up with method for whipping up action on a trout stream when no fish would rise to the fly. It was really lame. The idea was to artificially create the illusion of a mayfly hatch -- that moment when the larva of, for instance, Ephemerella subvaria, the Hendrickson mayfly, swims to the surface, molts, and dries its newly unfurled adult wings in the brisk spring air. This is famously the moment that drives trout crazy, and when it occurs en masse, with zillions of mayflies "hatching" off the water, a trout feeding-frenzy can ensue. The idea with the artificial hatch was to pitch a fake Hendrickson fly made of feathers and fur in so many furious, rapid casts that the dumb trout lurking below would get suckered into a feeding frenzy -- and, shortly, into the buttered frying pan, with a nice "tuxedo" of cornmeal and bacon.
In the annals of flyfishing, this gambit has been all but discredited, except among the mentally sub-normal who sometimes venture over from the lumpen realm of crank-and-plug fishing in search of improved social standing. But the tactic naturally transferred into the precincts of finance, where it reappeared in such disparate practices as Ponzi schemes and Keynesian "pump-priming." Now it is being employed at a scale never seen before, on an economy that is the equivalent of a great dead river poisoned by the toxic effluents of the same society that inhabits its banks (no pun intended). The dark secret of this river is that the fish who once ran there are all dead.
Much has been made in recent weeks of "animal spirits" and the "psychology of markets" in the hopes that mere attitudes might overcome the laws of thermodynamics. Math wizardry has now yielded to self-esteem building, an understandable sequence of events, since trafficking in the mutant spawn of Wall Street algorithms has ended up completely demoralizing the United States of America. Sadly, this is a little like subjecting a man who has just watched his house burn down to twelve segments of Oprah shows about the triumphal secrets of weight loss.
The Great Wish across America is to resume the life of comfort-and-convenience that seemed so nirvana-like just a few short years ago, when the very constellations of the heavens might have been renamed after heroic Atlanta realtors and Connecticut hedge fund warriors, and the boomer portfolios groaned with earnings, and millions of graying corporate salary mules dreamed of their approaching retirement to a satori of golf and Viagra, and the interior decorators grew so rich installing granite countertops that they could buy their own houses in the East Hampton, and every microcephalic parking valet in Las Vegas qualified for a bucket full of Ninja mortgages, and Lloyd Blankfein could dream of divorcing his wife to marry his cappuccino machine.
The choices now are stark and the kind of life on offer by the future is rather austere. The job of the current president, and the people who work with him, is to manage an epic contraction -- let's say, to land a very large, loaded defect-ridden airplane that has both run out of fuel and suffered grievous mechanical breakdown... and to bring down that vehicle in an unfamiliar country filled with angry savages. Sadly, the new president and his co-pilots just want to keep the plane up there, circling. The president's viziers are working round-the-clock to come up with some way, some toggle-switch, that might turn off the laws of gravity (which are not unrelated to the laws of thermodynamics). But all they seem to be able to come up with are mumbled prayers that are pale imitations of the algorithms once concocted by the Wall Street engineers who designed the aircraft they're riding in.
Well, that's enough conceits and metaphors for today.
We've digested the so-called "stress tests" for now with nary a burp and in a few weeks General Motors will step into the dark cave of bankruptcy. All the ancillary businesses linked to the US car-makers face contraction and annihilation. A couple of things occur to me which have not even entered the national debate on these matters: 1.) the US will still need to manufacture engines and chassis for military vehicles. Do we intend to send out to Mitsubishi for those things in the years ahead? 2.) the US will need rolling stock (i.e. choo-choo cars and engines) for a revived passenger railroad system. Do we intend to buy all that from the quaint peoples of other lands? (While the US workforce instead focuses on updated releases of Grand Theft Auto.)
At the moment, there is tremendous hoopla and jubilation over the start-up of so many "shovel-ready" highway projects around America -- as if what we need most are additional circumferential freeways to enhance the Happy Motoring lifestyle. How insane are we? Is this the only thing we know how to do?
I remain confident that the months ahead will introduce the American public and our leaders to a range of horrors that will begin to penetrate our addled collective imagination. We're far from done with the crisis of banking and money and the related fiasco in mortgages -- which translates into the very real situation of many people become homeless. It remains to be seen what may happen on the food production scene, but the current severe shortage of capital and the intense droughts shaping up around the world will resolve into a much clearer picture by mid-summer. The price of oil has resumed marching up and has now re-entered a range ($50-plus) that spun the airline industry into bankruptcy last time around. Enough carnage has already occurred on the jobs scene that the next act among many chronically jobless may tilt toward desperation, anger, and violence. The sporting goods shops around the nation are already rationing ammunition.
It's not just the stock markets that have decoupled from reality as we enjoy the fragrant vapors of spring -- it's the entire conscious consensus of everybody holding the levers of power and opinion. To put it as simply as possible, we're still sleepwalking into the future.
In the annals of flyfishing, this gambit has been all but discredited, except among the mentally sub-normal who sometimes venture over from the lumpen realm of crank-and-plug fishing in search of improved social standing. But the tactic naturally transferred into the precincts of finance, where it reappeared in such disparate practices as Ponzi schemes and Keynesian "pump-priming." Now it is being employed at a scale never seen before, on an economy that is the equivalent of a great dead river poisoned by the toxic effluents of the same society that inhabits its banks (no pun intended). The dark secret of this river is that the fish who once ran there are all dead.
Much has been made in recent weeks of "animal spirits" and the "psychology of markets" in the hopes that mere attitudes might overcome the laws of thermodynamics. Math wizardry has now yielded to self-esteem building, an understandable sequence of events, since trafficking in the mutant spawn of Wall Street algorithms has ended up completely demoralizing the United States of America. Sadly, this is a little like subjecting a man who has just watched his house burn down to twelve segments of Oprah shows about the triumphal secrets of weight loss.
The Great Wish across America is to resume the life of comfort-and-convenience that seemed so nirvana-like just a few short years ago, when the very constellations of the heavens might have been renamed after heroic Atlanta realtors and Connecticut hedge fund warriors, and the boomer portfolios groaned with earnings, and millions of graying corporate salary mules dreamed of their approaching retirement to a satori of golf and Viagra, and the interior decorators grew so rich installing granite countertops that they could buy their own houses in the East Hampton, and every microcephalic parking valet in Las Vegas qualified for a bucket full of Ninja mortgages, and Lloyd Blankfein could dream of divorcing his wife to marry his cappuccino machine.
The choices now are stark and the kind of life on offer by the future is rather austere. The job of the current president, and the people who work with him, is to manage an epic contraction -- let's say, to land a very large, loaded defect-ridden airplane that has both run out of fuel and suffered grievous mechanical breakdown... and to bring down that vehicle in an unfamiliar country filled with angry savages. Sadly, the new president and his co-pilots just want to keep the plane up there, circling. The president's viziers are working round-the-clock to come up with some way, some toggle-switch, that might turn off the laws of gravity (which are not unrelated to the laws of thermodynamics). But all they seem to be able to come up with are mumbled prayers that are pale imitations of the algorithms once concocted by the Wall Street engineers who designed the aircraft they're riding in.
Well, that's enough conceits and metaphors for today.
We've digested the so-called "stress tests" for now with nary a burp and in a few weeks General Motors will step into the dark cave of bankruptcy. All the ancillary businesses linked to the US car-makers face contraction and annihilation. A couple of things occur to me which have not even entered the national debate on these matters: 1.) the US will still need to manufacture engines and chassis for military vehicles. Do we intend to send out to Mitsubishi for those things in the years ahead? 2.) the US will need rolling stock (i.e. choo-choo cars and engines) for a revived passenger railroad system. Do we intend to buy all that from the quaint peoples of other lands? (While the US workforce instead focuses on updated releases of Grand Theft Auto.)
At the moment, there is tremendous hoopla and jubilation over the start-up of so many "shovel-ready" highway projects around America -- as if what we need most are additional circumferential freeways to enhance the Happy Motoring lifestyle. How insane are we? Is this the only thing we know how to do?
I remain confident that the months ahead will introduce the American public and our leaders to a range of horrors that will begin to penetrate our addled collective imagination. We're far from done with the crisis of banking and money and the related fiasco in mortgages -- which translates into the very real situation of many people become homeless. It remains to be seen what may happen on the food production scene, but the current severe shortage of capital and the intense droughts shaping up around the world will resolve into a much clearer picture by mid-summer. The price of oil has resumed marching up and has now re-entered a range ($50-plus) that spun the airline industry into bankruptcy last time around. Enough carnage has already occurred on the jobs scene that the next act among many chronically jobless may tilt toward desperation, anger, and violence. The sporting goods shops around the nation are already rationing ammunition.
It's not just the stock markets that have decoupled from reality as we enjoy the fragrant vapors of spring -- it's the entire conscious consensus of everybody holding the levers of power and opinion. To put it as simply as possible, we're still sleepwalking into the future.
Small-business credit card rates increase
Almost two-thirds of business owners say their credit card interest rate has gone up in the past year and 41% say their credit limit has been reduced, according to a new study from the National Small Business Association. (Click on image for a larger view.)
The change in terms for using credit cards comes at a time when small businesses are becoming more reliant on their credit cards to stay afloat, the NSBA 2009 Small Business Credit Card Survey found.
Separately, Advanta, which has focused exclusively on credit card lending to small businesses, has announced that it is cutting off all customer accounts on June 10 because of mounting losses. It has 1 million customers who charged $13 billion in 2008. CLICK HERE to read more.
One in five survey respondents is now paying 20% or higher interest on credit cards and another 28% is paying 15% to 19%
With the credit meltdown last fall cutting off virtually all conventional loans to small businesses, many owners turned to their credit cards, the survey found. In fact, credit cards were the most common source of business financing in the past year:
Types of financing used for business capital needs April 2008 through April 2009:
* Credit cards, 59%
* Earnings of the business, 51%
* Bank loan, 45%
* Vendor credit, 30%
* Private loan (friends or family), 19%
* Used no financing, 19%
* Leasing, 7%
* U.S. Small Business Administration-guaranteed loan, 5%
* Factoring (pledging accounts receivable, 1%
* Private placement of debt, 1%
* Private placement of stock, 1%
* Public issuance of stock, 0.5%
“Unfortunately, today’s entrepreneurs - unlike those of past recessions - are severely limited in their ability to finance a new business by leveraging the value of their home, borrowing from friends and family, or securing a traditional loan. This leaves one clear, often unattractive, option: credit cards,” said NSBA Chairman Keith Ashmus of Frantz Ward LLP in Cleveland, Ohio.
This fact is a problem for the United States, he added. “In previous recessions, economic recovery has been led by the creation of millions of new small businesses.”
The survey was conducted April 27 to May 5, just as the U.S. House of Representatives passed credit card reform legislation but excluded business credit cards. Senators Mary Landrieu, D-Louisiana, and Olympia Snowe, R-Maine, have introduced an amendment to the bill that would provide protection for small-business credit card holders.
Other survey finding:
* 33% of respondents said they had received their credit card statement after the due date
* 40% pay their credit card balance off monthly
* 16% carry a credit card balance of more than $25,000
* 23% have just one business credit card and another 23% have more than 4 cards
The change in terms for using credit cards comes at a time when small businesses are becoming more reliant on their credit cards to stay afloat, the NSBA 2009 Small Business Credit Card Survey found.
Separately, Advanta, which has focused exclusively on credit card lending to small businesses, has announced that it is cutting off all customer accounts on June 10 because of mounting losses. It has 1 million customers who charged $13 billion in 2008. CLICK HERE to read more.
One in five survey respondents is now paying 20% or higher interest on credit cards and another 28% is paying 15% to 19%
With the credit meltdown last fall cutting off virtually all conventional loans to small businesses, many owners turned to their credit cards, the survey found. In fact, credit cards were the most common source of business financing in the past year:
Types of financing used for business capital needs April 2008 through April 2009:
* Credit cards, 59%
* Earnings of the business, 51%
* Bank loan, 45%
* Vendor credit, 30%
* Private loan (friends or family), 19%
* Used no financing, 19%
* Leasing, 7%
* U.S. Small Business Administration-guaranteed loan, 5%
* Factoring (pledging accounts receivable, 1%
* Private placement of debt, 1%
* Private placement of stock, 1%
* Public issuance of stock, 0.5%
“Unfortunately, today’s entrepreneurs - unlike those of past recessions - are severely limited in their ability to finance a new business by leveraging the value of their home, borrowing from friends and family, or securing a traditional loan. This leaves one clear, often unattractive, option: credit cards,” said NSBA Chairman Keith Ashmus of Frantz Ward LLP in Cleveland, Ohio.
This fact is a problem for the United States, he added. “In previous recessions, economic recovery has been led by the creation of millions of new small businesses.”
The survey was conducted April 27 to May 5, just as the U.S. House of Representatives passed credit card reform legislation but excluded business credit cards. Senators Mary Landrieu, D-Louisiana, and Olympia Snowe, R-Maine, have introduced an amendment to the bill that would provide protection for small-business credit card holders.
Other survey finding:
* 33% of respondents said they had received their credit card statement after the due date
* 40% pay their credit card balance off monthly
* 16% carry a credit card balance of more than $25,000
* 23% have just one business credit card and another 23% have more than 4 cards
Cities brace for shutdown of auto dealerships
With struggling automakers expected to announce the shutdown of thousands of dealerships starting today, cities are bracing for a wave of blight.
The closings will dump thousands of large, oddly configured parcels into an already reeling commercial real estate market. Many are likely to remain empty for a long time, monuments to the decline of the U.S. auto industry and the intensity of this recession.
Used Cars from Japan
Great news for importers + dealers! Wide range of vehicles from Japan.
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Mercedes-Benz Specials
2009 MBCC Special Low Leasse Offers Worldwide Delivery 1-888-861-8080
FleetRates.com
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www.kinki-company.co.jp/
Chrysler told a Bankruptcy Court today that it will break its contracts with 789 dealerships nationwide.
General Motors Corp. will tell 1,000 to 1,200 dealers Friday that it will not renew their franchises. The automaker plans to eventually close a total of 2,600 operations.
In California, the moves will have far-reaching implications for dozens of cities, which depend on sales tax revenue from the dealerships to fund substantial portions of their budgets.
The dealerships join a growing list of retailers felled by the dour economy: Sites that once held Mervyn's, Circuit City and Linens 'n Things stores remain empty except for a few locations. And as difficult as it has been to sell or lease those properties, at least they can be easily adapted for other uses. Car dealerships, on the other hand, are special-purpose properties that are hard to adapt.
"There are not a lot of uses that can go right back into a dealership," said Jodi Meade, director of the automotive properties group at real estate brokerage CB Richard Ellis. "Usually they have to scrape it" and start over to make way for another business.
San Bernardino, for example, had 12 dealerships when the economy was booming. Now there are just seven -- and it's unclear whether more will be felled with the GM and Chrysler announcements.
At an abandoned Cadillac dealership, weeds poke through cracks in the asphalt. Vandals have painted graffiti over the Chevrolet logo at another site. Windows are broken and dead grass from a once-tended lawn covers the ground.
One of the car lots, now called Arrowhead Motors, is operating only because a credit union had so many repossessed vehicles that it decided to go into the auto business.
"The whole model of auto sales through dealership networks is open to question," said Jim Morris, chief of staff to San Bernardino Mayor Patrick J. Morris.
Finding a car seller for the Arrowhead Motors site was a coup for the city, which is struggling to figure out what to do with its empty car lots, Jim Morris said.
Auto dealership sites have lost a third to half of their value compared with the peak about three years ago, Meade said.
Battered by the poor market for new cars, 145 California dealerships closed last year, Meade said, dropping the total to about 1,590. Closures included dealers for imports such as Toyota and Kia, as well as the U.S. Big Three of Ford, Chrysler and GM.
Many of the sites are zoned for retail uses, which subtracts from their appeal at a time when most the nation's retailers are struggling to hold their ground or closing stores.
It's not clear how many GM and Chrysler dealers will close in California, but experts say the empty storefronts will most certainly be difficult to sell or lease.
"It's the worst time to sell," said commercial real estate lender Jeff Friedman, co-chief executive of Mesa West Capital. "The challenges are enormous."
Throughout the state, local governments are struggling to keep their auto dealerships alive, because most have become reliant on the big-ticket sellers to provide a steady stream of sales tax income.
Since Proposition 13 limited California property taxes in 1978, many cities have encouraged the construction of malls and other retail uses that bring in sales taxes to fund the municipal budget.
Car dealerships are now among the biggest generators of tax revenue.
The closings will dump thousands of large, oddly configured parcels into an already reeling commercial real estate market. Many are likely to remain empty for a long time, monuments to the decline of the U.S. auto industry and the intensity of this recession.
Used Cars from Japan
Great news for importers + dealers! Wide range of vehicles from Japan.
www.tradecarview.com
Mercedes-Benz Specials
2009 MBCC Special Low Leasse Offers Worldwide Delivery 1-888-861-8080
FleetRates.com
Japanese Used Car
Offering Japanese used car in low mileage and good condition.
www.kinki-company.co.jp/
Chrysler told a Bankruptcy Court today that it will break its contracts with 789 dealerships nationwide.
General Motors Corp. will tell 1,000 to 1,200 dealers Friday that it will not renew their franchises. The automaker plans to eventually close a total of 2,600 operations.
In California, the moves will have far-reaching implications for dozens of cities, which depend on sales tax revenue from the dealerships to fund substantial portions of their budgets.
The dealerships join a growing list of retailers felled by the dour economy: Sites that once held Mervyn's, Circuit City and Linens 'n Things stores remain empty except for a few locations. And as difficult as it has been to sell or lease those properties, at least they can be easily adapted for other uses. Car dealerships, on the other hand, are special-purpose properties that are hard to adapt.
"There are not a lot of uses that can go right back into a dealership," said Jodi Meade, director of the automotive properties group at real estate brokerage CB Richard Ellis. "Usually they have to scrape it" and start over to make way for another business.
San Bernardino, for example, had 12 dealerships when the economy was booming. Now there are just seven -- and it's unclear whether more will be felled with the GM and Chrysler announcements.
At an abandoned Cadillac dealership, weeds poke through cracks in the asphalt. Vandals have painted graffiti over the Chevrolet logo at another site. Windows are broken and dead grass from a once-tended lawn covers the ground.
One of the car lots, now called Arrowhead Motors, is operating only because a credit union had so many repossessed vehicles that it decided to go into the auto business.
"The whole model of auto sales through dealership networks is open to question," said Jim Morris, chief of staff to San Bernardino Mayor Patrick J. Morris.
Finding a car seller for the Arrowhead Motors site was a coup for the city, which is struggling to figure out what to do with its empty car lots, Jim Morris said.
Auto dealership sites have lost a third to half of their value compared with the peak about three years ago, Meade said.
Battered by the poor market for new cars, 145 California dealerships closed last year, Meade said, dropping the total to about 1,590. Closures included dealers for imports such as Toyota and Kia, as well as the U.S. Big Three of Ford, Chrysler and GM.
Many of the sites are zoned for retail uses, which subtracts from their appeal at a time when most the nation's retailers are struggling to hold their ground or closing stores.
It's not clear how many GM and Chrysler dealers will close in California, but experts say the empty storefronts will most certainly be difficult to sell or lease.
"It's the worst time to sell," said commercial real estate lender Jeff Friedman, co-chief executive of Mesa West Capital. "The challenges are enormous."
Throughout the state, local governments are struggling to keep their auto dealerships alive, because most have become reliant on the big-ticket sellers to provide a steady stream of sales tax income.
Since Proposition 13 limited California property taxes in 1978, many cities have encouraged the construction of malls and other retail uses that bring in sales taxes to fund the municipal budget.
Car dealerships are now among the biggest generators of tax revenue.
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