Real Estate News & Commentary by Chris McLaughlin, January 1, 2010

Happy New Year!

What’s up with the economy in 2010?

It’s just over a year since the near collapse of the U.S. financial markets, and
economists say 2010 will bring more stability, but joblessness will remain a
major obstacle to full recovery.  Like most things about the economy over the
past couple years, 2010 will turn on the consumer and housing sectors. The other
big factor this time around is unemployment.  With unemployment topping 10% and
little hiring on the horizon, Main Street will remain cautious.  “We think the
unemployment rate is going to keep rising through next summer, peaking at
10.6%,” said Marisa DiNatale of Moody’s Economy.com. “We think the extent of
unemployment is the greatest risk to recovery.  There is a lot of uncertainty
surrounding policy next year. Firms are reluctant to hire until they know what
fiscal policy is going to look like.”  A wind down of government stimulus
programs also presents a wild card of sorts for 2010.

Much of the economic growth of the past year has been a result of the billions
pumped into the economy by the government.  As those programs begin to wrap up,
economists say the economy could experience another dip. “You are going to get a
little bit of a drag on GDP when all of that stimulus money expires,” DiNatale
said. But there’s a shark in the water that wasn’t there before.  “The biggest
drawback, the big unknown, is the massive amount of debt households have,” says
Christian Weller of the University of Massachusetts and the Center for American
Progress. “A combination of employment and wage growth should help, but it’s an
unknown. We’ve never had this much debt before.”

What’s up with real estate in 2010?

According to Michael J. Malpede, of Easy Forex, the rebound in US housing market
is another potential positive for the outlook for the US economy. The US housing
market has improved and shows sign of stabilization. The housing market will
benefit because the inventory of new homes are at their lowest level in 17
years, but the outlook for housing remains uncertain.  A number of analysts
suggest that the housing market remains weak and that the recovery was driven by
foreclosures and short sales. The Fed announced plans to add additional support
to government mortgage agencies (Fannie Mae, Ginnie Mae, and Freddie Mac) and
the tax credit for first time home buyers has been extended to April 2010. This
could keep the recovery in US housing market going during the first half of
2010, but it’s uncertain what happens to the housing market when the Fed stops
buying mortgage-backed securities next year.  Still-rising mortgage
delinquencies signal more foreclosures. “Delinquencies are
  a precursor to foreclosures,” said Cameron Findlay, chief economist at
LendingTree.com, in an interview Tuesday. “We’re not seeing any decreases in
delinquencies, which is very concerning.” 

More people are falling behind on their monthly payments during the recession as
unemployment hovers around 10%, and this figure isn’t expect to do any wild dips
in the immediate future. Earlier this week, Fannie Mae (FNM) said serious
delinquency rates in its conventional single-family-home mortgage portfolio rose
to 4.98% in October from 4.72% the previous month. A year ago, the rate stood at
1.89%. A wave of foreclosures would only add to the inventory overhang of unsold
homes and delay a lasting recovery in residential real estate. In spite of all
this, Moody’s Investors Service upgraded its outlook on the U.S. home-building
industry to stable from negative. It cited strengthening indicators like housing
starts, sales, and improving home affordability.  “The industry’s recovery
remains precarious, however, given the sizable number of potential foreclosed
homes that might eventually come to market, as well as the anticipated continued
decline in home prices in 2010,” Moody
’s said. “The U.S. government’s support for the sector is a critical source of
strength.  A premature removal of government backing would put the industry’s
outlook at considerable risk of returning to negative.”

Mortgage rates up past 5%

According to a survey by Freddie Mac, interest rates on U.S. 30-year fixed-rate
mortgages, the most widely used loan, averaged 5.14 percent for the week ended
Dec. 31, the highest since the week ending Aug. 27 and up from the previous
week’s 5.05 percent.  The 15-year FRM averaged 4.54% with a 0.7 point, up from
4.45% last week and down from 4.83% a year ago. The 5-year Treasury-indexed
hybrid adjustable-rate mortgage (ARM) averaged 4.44% with an average 0.6 point,
a slight increase from 4.4% last week. The 1-year Treasury-indexed ARM averaged
4.33% this week with a 0.6 point, down from 4.38% last week, according to the
survey.”Although long-term mortgage rates rose for the fourth week in a row,
they still remain affordable by historical standards,” Frank Nothaft, Freddie
Mac vice president and chief economist, said in a statement.  Based on today’s
median loan amount of $138,000, monthly principal and interest payments for a
30-year fixed-rate mortgage are close to one-third
  less than a decade ago when rates peaked at 8.6 percent in May 2000, Nothaft
said.  “This translates into almost 50% less in interest payments over the full
30-year term,” he said.

We own GMAC now

The U.S. taxpayer now owns a majority interest in GMAC Financial Services, which
this week received a capital infusion of $3.79bn from the US Treasury
Department. The latest government-led effort to bolster GMAC’s capital base
comes as part of a year-end effort to close a capital shortfall, per government
stress tests conducted in May 2009.  The additional aid means that the U.S.
goverment now owns 56 percent of GMAC, totaling $16.3 billion. Much of the aid
comes as the financial services giant continues to reel from mortgage losses in
its Residential Capital (ResCap) unit. ResCap has lost $2.7 billion through the
first three quarters of 2009, and lost $9.96 billion in 2008 and 2007.  “By
protecting the financial performance and strength of our core automotive finance
operations, we expect to increase the pace at which we can fully repay the U.S.
taxpayer,” said GMAC CEO Michael Carpenter, in a statement. “These actions will
also allow GMAC to pursue strategic alterna
tives for ResCap and the mortgage business.”

Retail sales up

Retail sales surged 8.8% during the week that included Christmas, although foot
traffic was down slightly, according to ShopperTrak, a sales and traffic
tracking firm.  “As expected, pent-up demand following the snowstorm on Super
Saturday (Dec. 19) pushed consumers to spend heavily last week,” Bill Martin,
co-founder of ShopperTrak, said in a statement.  Shoppers bought even more the
day after Christmas than they did during the week leading up to the holiday,
most likely because the major cities in the Northeast were dumped on by a huge
snowstorm.  Spending totaled $7.9 billion on Dec. 26, up from $7.8 billion last
year, making it the second best shopping day of the holiday season. Foot traffic
climbed 7.7% compared with the previous Saturday, but dropped 6.6% from the same
day last year.  Nov. 27, Black Friday, was the best performing day of the
season, with sales of $10.7 billion; Dec. 19, the Saturday before Christmas,
ranked third with sales of $6.9 billion; and Dec. 23,
  a Wednesday, was fourth on the list.  Based on the positive retail sales
results last week, ShopperTrak said it’s on target to meet its prediction for
November and December of a 1.6% rise in sales and 4.2% traffic decline.

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Friday File - Hot Spots for Luxury Short Sales

Searching for a sophisticated short sale sure to be the envy of friends and
family? Try out these hot spots for luxury short sales to find bargain basement
prices on some of the most select properties in the nation.

Make a Move to Malibu - Condo’s for a quarter million and entry level homes for
less than a half million might not sound inexpensive to most Americans but
anyone familiar with Malibu is sure to be pleasantly surprised. According to the
data, 2009 was the worst year for real estate in Malibu history. Case in point,
Zuma beach townhouses formerly selling in the $1 million range have dropped to
only $450,000…with only one sale.  Three bedroom homes selling in the $2
million plus range have dropped by half making it a buyer’s market in Malibu.

Rocky Mountain High - Noting one of the largest price drops in 2009, Aspen
Colorado has a long history of quiet luxury for the environmentally minded.
Boasting a 45% price decline, if you have been aching for Aspen, now is the time
to strike.
Feel the Heat - If a vintage villa in Coral Gables is more your style then you
are in luck. Nestled near the border of Miami/Dade county, Coral Gables presents
warm weather with historic charm. Tight zoning regulations forbid most new
construction in the area so Coral Gables did not experience a dramatic building
boom like most of Florida.

Curious about other expensive areas of the nation? Check out these luxury zip
codes when searching for your next short sale - it might be the perfect
opportunity to move in next door to the rich and famous without breaking the
bank:

1.  07620 Alpine, N.J.      $4,139,041 
2.  94027 Atherton, Calif.      $3,849,133 
3.  10014 New York, N.Y.        $3,521,514 
4.  91008 Duarte, Calif.        $3,444,773 
5.  90210 Beverly Hills, Calif. $3,367,167 
6.  92067 Rancho Santa Fe, Calif.   $3,362,493 
7.  93108 Santa Barbara, Calif. $3,284,652 
8.  94024 Los Altos Hills, Calif.   $3,277,500 
9.  10065 New York, N.Y.        $3,176,534 
10. 07926 Brookside, N.J.       $3,121,115