We know that numerous factors that are influencing our life are not great this beginning of the year, however, there are positive sings for 2009. The first positive news of 2009 is that capital is getting circulated in the economy. While credit is going to continue to be difficult to obtain the different investments programs that have been created at the end of 2008 are moving forward. We are just now starting to see the effects of these programs and as we enter 2009 we are going to see more effects of these investments.
A New president. While, I don’t like to talk about politics it is important to note that Mr. Obama has been aggressive in working on the economy. It seems, from what we know so far, that he is ahead of the curve and has gathered a strong team of financial and economic advisors. It appears that within a few days of taking office he will take actions and launch a new economic program that will help employment and liquidity. Most likely we should start seeing the positive effects of the program in Q3 and Q4.
The bottoming out of the real estate market. In 2008 we were hoping that the markets will bottom out at some point. It appears based on initial numbers that we are starting to see that bottoming out. It may take some markets until the end of the year to see this bottoming, however, it is clear that other markets are now reaching the bottom. The media is always late in recognizing trends and thus you should no see stories on that subject for another 6 months. However, looking at numbers then we are seeing the right signs, which allow us to anticipate the future.
Recognition of the problems. It took, I believe, more than a year for both the private sectors and the different levels of government to realize that we had problems. 2009 may still be a difficult year, but once problems have been acknowledged then they are possible to solve.
From a lending and a Hard Money lending perspective this means that money is going to be tight in 2009. Demand for capital is going to be higher than availability thus increasing the costs of borrowing. However, we should hopefully see some improvements in the second part of the year.
Monday, January 5, 2009
Wednesday, December 31, 2008
Happy New Year!!
While 2008 Has Been Difficult Lets look forward to 2009 as a year of opportunities. Have Happy and Prosperous 2009.
How Much More Decline Are We Going To See?
This will be the last post of the year and I wish the news were more positive than what we are seeing. Today was release the latest S/P Case-Shiller update on home prices. The report provides additional information on how values of real estate markets have moved in the past year and it is not pretty. On average in the 20 major metropolitan areas prices have declined by 18%. I am expecting as we have discussed in a previous post to see a continuing decline in 2009 across markets.
If we look at the San Francisco market as a whole the market saw a decline of 31% on average. For a number of people that I know and who are in San Francisco, this may come as a shock as the San Francisco market has the reputation to be strong. As everything else, the real estate market reality is different from perceptions.
Where to go from here, from a commercial perspective, I believe that we are going to start seeing significant decline in values. Commercial real estate has not been affected the same way as residential. Most commercial properties were underwritten and lending was approved based on property’s income. This was providing the commercial real estate market a better sense of reality. However, due to businesses closing and companies going out of business more commercial properties will loose revenue and potentially go into default. In addition, the lack of financing available makes it more difficult to complete transactions. The commercial real estate market is going to go down and in areas where prices were not correlated to propertyies' income higher drop will be expected.
For residential markets its going to continue to go down, however, the biggest down turn is going to happen in area that are just starting to experience a slowdown. In areas such as the California Central Valley, the blue collar suburbs etc… where price have declined up to 80% maybe there will be a further decline but to a much smaller extent. In the middle to upper end of the market we can expect to see 15% to 20% further decline. In the blue collar markets maybe an additional 5%.
If we look at the San Francisco market as a whole the market saw a decline of 31% on average. For a number of people that I know and who are in San Francisco, this may come as a shock as the San Francisco market has the reputation to be strong. As everything else, the real estate market reality is different from perceptions.
Where to go from here, from a commercial perspective, I believe that we are going to start seeing significant decline in values. Commercial real estate has not been affected the same way as residential. Most commercial properties were underwritten and lending was approved based on property’s income. This was providing the commercial real estate market a better sense of reality. However, due to businesses closing and companies going out of business more commercial properties will loose revenue and potentially go into default. In addition, the lack of financing available makes it more difficult to complete transactions. The commercial real estate market is going to go down and in areas where prices were not correlated to propertyies' income higher drop will be expected.
For residential markets its going to continue to go down, however, the biggest down turn is going to happen in area that are just starting to experience a slowdown. In areas such as the California Central Valley, the blue collar suburbs etc… where price have declined up to 80% maybe there will be a further decline but to a much smaller extent. In the middle to upper end of the market we can expect to see 15% to 20% further decline. In the blue collar markets maybe an additional 5%.
Friday, December 26, 2008
Residential Values by Market Segments – Here it is!
A few months ago, we were looking at real estate property values and the state of the financial industry and thinking that values were going to continue to go down. In the past few weeks, we wrote about this subject again. Now, we are going to look at real estate values in terms of the different market segments. As the data is showing, property values are going down overall, but, looking at the numbers more closely, we are starting to see noticeably different trends in different market segments. Despite these differences, though, it is still the case that all markets and market segments seem still to be negatively affected, regardless of whether you are looking at the upper end or the lower end of the market.
The good news is that some markets have, I believe, reached the bottom. In a post earlier, we were mentioning an economist from UCLA’s Anderson School who said that some markets might have bottomed out. DataQuick’s numbers appear to confirm this trend and also show new ones. Although the entire country is showing some similar overall trends, regional markets still exhibit distinctive characteristics. For example, Detroit may be seeing far more severe problems than Boston as its primary industry is going through difficult times. Similarly, the New York City metropolitan area had held up fairly well compared to the rest of the country until the financial storm decimated local jobs, whereas the San Francisco area has experienced a more nuanced downturn.
The lower market, considered the market for “blue collar” homes, had borne the brunt of the sub-prime market debacle, but it is now stabilizing in regard to prices in some places. These markets have lost up to 75% of their values. The good news is that these markets have started to see a significant increase in the number of transactions in some places. Numerous buyers (including some investors) are flocking to these markets and acquiring properties. However, this increased buying seems centered primarily in the surrounding areas of major metropolitan cities that have not experienced major economic problems. For example, in the San Francisco Bay Area’s Contra Costa and Alameda Counties, we are seeing increased buying, as indicated in the San Francisco Chronicle article.
The middle and upper markets have now been hit too, as illustrated by the article in the Boston Globe and the previous SF Chronicle article. Most of these markets were stable until late September and even early October, but with the repercussions of the financial crisis, they are now also suffering. These markets are going to experience sharp downturns within the next 6 to 9 months, because white collar workers are losing their jobs and the net worth of many of these individuals have been halved (partly because dramatic stock market losses have lead to major drops in 401k plan holdings or IRA portfolios).
Looking at 2009, there is hope because we are seeing the beginnings of a bottoming out.
The good news is that some markets have, I believe, reached the bottom. In a post earlier, we were mentioning an economist from UCLA’s Anderson School who said that some markets might have bottomed out. DataQuick’s numbers appear to confirm this trend and also show new ones. Although the entire country is showing some similar overall trends, regional markets still exhibit distinctive characteristics. For example, Detroit may be seeing far more severe problems than Boston as its primary industry is going through difficult times. Similarly, the New York City metropolitan area had held up fairly well compared to the rest of the country until the financial storm decimated local jobs, whereas the San Francisco area has experienced a more nuanced downturn.
The lower market, considered the market for “blue collar” homes, had borne the brunt of the sub-prime market debacle, but it is now stabilizing in regard to prices in some places. These markets have lost up to 75% of their values. The good news is that these markets have started to see a significant increase in the number of transactions in some places. Numerous buyers (including some investors) are flocking to these markets and acquiring properties. However, this increased buying seems centered primarily in the surrounding areas of major metropolitan cities that have not experienced major economic problems. For example, in the San Francisco Bay Area’s Contra Costa and Alameda Counties, we are seeing increased buying, as indicated in the San Francisco Chronicle article.
The middle and upper markets have now been hit too, as illustrated by the article in the Boston Globe and the previous SF Chronicle article. Most of these markets were stable until late September and even early October, but with the repercussions of the financial crisis, they are now also suffering. These markets are going to experience sharp downturns within the next 6 to 9 months, because white collar workers are losing their jobs and the net worth of many of these individuals have been halved (partly because dramatic stock market losses have lead to major drops in 401k plan holdings or IRA portfolios).
Looking at 2009, there is hope because we are seeing the beginnings of a bottoming out.
Sunday, December 21, 2008
Today’s Secret to Hard Money
Getting a hard money loan is evolving as the rest of the market is changing. What was considered a loan for a hard money lender 6 months or even 3 months ago is not the same today. Until recently, most loan officers and real estate professionals were considering hard money for people who could not document income, had bad credit and/or needed special consideration. As long as enough equity in the property was available then the loan was most likely funded.
In the last three months everything has changed, the economy has taken a sharp downturn and fewer banks are offering financing for both commercial and residential real estate. The lack of available capital to be lended and the economy have made hard money lending one of the primary sources of financing for real estate. Loans that were considered a perfect fit for hard money lenders a few months ago are not anymore. In addition, because of a significant increase in demand the cost of hard money loans has increased by at least one percent on the rate and one point. Were you had 3 points loans today a borrower will pay 4 points.
Due to the increase in demand for hard money, lenders are becoming more and more demanding in regard to the quality of the files they are looking at. For investment properties either commercial or residential property’s income is becoming crucial. Most lenders are now looking at a property real or potential income. Other factors that are going to make a difference are borrower strength you are starting to see more and more files with borrowers that have great credit sometimes above 700. In addition, a property location is going to be important, the better the location the better the LTV.
While, getting hard money is more difficult than it was it is not impossible. Borrowers are realizing that there is a cost for money and that they have to adjust to the new financial reality. The good news is that if you (loan officer, real estate professional) work with a lender that has experience and is flexible most likely you will have an increase chance to make a financing happen. Also, I would recommend for all the party involved to be flexible hard money lending has guideline, but everything is about flexibility.
In the last three months everything has changed, the economy has taken a sharp downturn and fewer banks are offering financing for both commercial and residential real estate. The lack of available capital to be lended and the economy have made hard money lending one of the primary sources of financing for real estate. Loans that were considered a perfect fit for hard money lenders a few months ago are not anymore. In addition, because of a significant increase in demand the cost of hard money loans has increased by at least one percent on the rate and one point. Were you had 3 points loans today a borrower will pay 4 points.
Due to the increase in demand for hard money, lenders are becoming more and more demanding in regard to the quality of the files they are looking at. For investment properties either commercial or residential property’s income is becoming crucial. Most lenders are now looking at a property real or potential income. Other factors that are going to make a difference are borrower strength you are starting to see more and more files with borrowers that have great credit sometimes above 700. In addition, a property location is going to be important, the better the location the better the LTV.
While, getting hard money is more difficult than it was it is not impossible. Borrowers are realizing that there is a cost for money and that they have to adjust to the new financial reality. The good news is that if you (loan officer, real estate professional) work with a lender that has experience and is flexible most likely you will have an increase chance to make a financing happen. Also, I would recommend for all the party involved to be flexible hard money lending has guideline, but everything is about flexibility.
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