Sales Stir Hope for Housing Market

Sales of previously owned homes rose in December for the third straight month, bringing the supply of homes listed for sale to the lowest level since 2006.

Office-Building Recaps Surged in 2011

Some of the nation’s biggest real-estate investors took stakes in major office properties in 2011, a year that registered a record amount of recapitalizations for that sector, according to Real Capital Analytics.

“There were a lot of white knights coming to help recapitalize” buildings that had mortgage loans coming due last year, said Dan Fasulo, managing director at real-estate data firm Real Capital. Recapitalizations in 2011 were at the highest level since RCA started tracking them in 2001.

Such deals usually involve an investor buying a big stake in a property by injecting additional equity or taking over a loan and restructuring borrowing terms. The sheer volume of $13.3 billion in office recapitalizations last year underscored the massive amounts of debt office landlords had accumulated on their buildings during the boom times. This recapitalization volume also surpassed the last peak of $11 billion in 2007.

The number of recapitalizations is “the function of the market fixing itself,” Mr. Fasulo said. To be sure, each property owner’s decision to recapitalize could be driven by a number of factors outside of maturing loans.

The largest recapitalization in 2011 was Paramount Group and Beacon Capital’s purchase of a 49% stake in a New York building, 1633 Broadway, from a Morgan Stanley joint venture. The deal valued the building at $1.62 billion and the interest at $793.8 million. The next largest recapitalization was by Vornado Realty Trust’s acquisition of a 49.5% stake, valued at $646 million, for 666 Fifth Ave in New York. (Eight of the 10 largest deals were in New York; the other two were in Houston.) Paramount and Vornado officials were not available for comment Wednesday.

Real-estate companies, especially publicly traded real-estate investment trusts, have been raising massive amounts of capital over the past year via equity raises and debt issuance in order to pounce on these kinds of acquisitions, which are expected to continue to rise this year.

In general, private investors have been less successful at raising debt and equity over the past six months amid concerns that Europe’s debt crisis could filter down to hurt U.S. credit markets by raising the cost of capital.

Behind the Numbers: Optimism Builds for Builders

Associated Press

By Dawn Wotapka and Alan Zibel

The National Association of Home Builders said its closely watched housing market index rose to 25 from 21 in December, reaching its highest point since June 2007. This was the fourth-straight monthly increase.

Sound improbable? Well, there’s more: the results were better than expected. Economists polled by Dow Jones Newswires had forecast a smaller gain of 22.

While the housing market is not out of the woods — foreclosures remain a persistently stubborn issue, while home prices have yet to stabilize and mortgages lenders remain picky — this reading comes amid other positive signals for the hard-hit sector. Builders say traffic and orders are increasing, while the NAHB’s Improving Markets Index boasted 76 markets in January, up from 41 in December.

Shares of home builders have risen dramatically in recent weeks, buoyed by the so-called “hope trade” that bets stocks will rise ahead of the spring selling season. Those gains continued Wednesday, with Hovnanian Enterprises climbing 5.6%, while building giant Pulte gained 4.3%.

Helping fuel today’s increase is that all three components of the builders’ index increased. Builders’ assessment of traffic from potential buyers and current sales conditions both struck their highest level since June 2007, while builders’ expectations for sales over the next six months rose to the highest point since September 2009.

Here’s what industry watchers had to say:

Joshua Shapiro, economist, MFR: “The next few months will be critical in determining to what degree home builders follow their more optimistic talk with action in terms of significant gains in single-family housing starts. While some improvement seems likely, we continue to believe that the massive supply overhang of existing homes will present brutal competition to the new home market for the foreseeable future.”

Michael Gapen, economist, Barclays Capital: “While the absolute level of the home builder index remains low by historical standards, the improvement since September is encouraging … We still view inventories of single-family homes as elevated relative to the pace of new home sales and believe that these inventory levels will have to be reduced further before a persistent rise in single family starts is in store.”

Ian Shepherdson, economist, High Frequency Economics: “This is not another false dawn; it’s the real deal. Mortgages are much easier to obtain now, with average down payments about 23% compared to nearly 28% at their high. Rates have dropped sharply in recent months, too, and with layoffs down and payrolls improving, people clearly are more willing to take the plunge into housing.”

Follow Dawn @dwotapka

Builder Confidence Index At 54 Month High

Home builder confidence rose in January
for the fourth consecutive month as builders saw more buyer traffic and
anticipated higher sales.  The National
Association of Home Builders (NAHB)/Wells Fargo Housing Market Index (HMI) rose
four points to 25
in January to reach its highest level since June 2007.  Each of the three components of the HMI also
increased for the fourth month and the improved confidence was evident across
every region of the country.

The HMI is the result of a monthly
survey of NAHB has conducted for 20 years. 
The survey asks the Association’s home builder members their perceptions
of current single-family home sales and their expectations for such sales over
the next six months, each graded on a scale of “good,” “fair,” or “poor.”  The survey also asks builders to rate the
current traffic of prospective buyers as “high to very high,” “average,” or “low
to very low.”  Answers to each question
are used to calculate a component index and those comprise the composite
index.  For each index a number over 50
indicates more builders view conditions as good than as poor.

Each of the three component indices rose
three points in January.  The component
measuring current sales conditions is at 25 and the index measuring traffic of
prospective buyers is at 21, the highest point for each since June 2007; the
index reflecting expectations for the next six months rose to 29, the highest score
September 2009.

Bob Nielsen, NAHB chairman said of the
results, “This good news comes on the heels of several months of gains in
single-family housing starts and sales, and is yet another indication of the
gradual but steady improvement that is beginning to take hold in an increasing
number of housing markets nationwide. Policymakers must now take every
precaution to avoid derailing this nascent recovery.”

“Builders are seeing greater interest among potential buyers as employment
and consumer confidence slowly improve in a growing number of markets, and this
has helped to move the confidence gauge up from near-historic lows in the first
half of 2011,” noted NAHB Chief Economist David Crowe. “That said,
caution remains the word of the day as many builders continue to voice concerns
about potential clients being unable to qualify for an affordable mortgage,
appraisals coming through below construction cost, and the continuing flow of
foreclosed properties hitting the market.”

The HMI also posted gains in all four regions in January, including a
nine-point gain to 23 in the Northeast, a one-point gain to 24 in the Midwest,
a two-point gain to 27 in the South and a five-point gain to 21 in the West.

…(read more)

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Refinance Applications Surge 26.4% as Rates Set New Lows

Mortgage applications jumped 23.1
percent on a seasonally adjusted basis during the week ended January 13,
2012.  The increase in the Market
Composite Index, a measure of loan application volume maintained by the
Mortgage Bankers Association (MBA) reflected improvements in both the purchase
and refinance business following the traditionally slow Christmas and New Year
holiday period.  On an unadjusted basis
the index increased 38.1 percent.

The Refinance Index increased 26.4
percent
from the week ended January 6 to its highest point since August 8,
2011.  The seasonally adjusted Purchase
Index rose 10.3 percent, returning to pre-holiday levels.  The unadjusted Purchase Index was up 28.4
percent from the previous week and was 2.2 percent higher than during the same
week in 2011.

The four-week moving average for each
index also increased; the Composite Index increased by 5.99 percent, the
seasonally adjusted Purchase Index by 1.96 percent and the Refinance Index by
7.0 percent.

Refinancing took an 82.2 percent share
of all application activity, up from 80.8 percent the previous week and the
highest share since October 22, 2010.  Applications
for adjustable rate mortgages (ARMs) constituted represented a 5.6 percent
share of applications, up two basis points from the previous week.

Purchase Index vs 30 Yr Fixed

Click Here to View the Purchase Applications Chart

Refinance Index vs 30 Yr Fixed

Click Here to View the Refinance Applications Chart

 “Interest
rates
dropped last week due to continuing anxieties regarding the fragile
economic situation in Europe,” said Michael Fratantoni, MBA’s Vice
President of Research and Economics.  “With mortgage rates reaching
new lows, refinance volume jumped and MBA’s refinance index reached its highest
level in the last six months.  Purchase activity also increased as buyers
returned to the market after the holiday season.”

With
the exception of jumbo loans (with balances over $417,500) interest rates continued
their downward trend. Three of the rates, in fact, hit the lowest level in the
history of the MBA applications survey.  The
jumbo rate – for 30-year fixed-rate (FRM) loans – increased to 4.40 percent
from 4.34 percent with points decreasing to 0.37 from 0.47 point.  The effective rate also increased.

Thirty-year
FRM with conforming (under $417,500) balances hit a new low, decreasing to 4.06
percent with 0.48 point from 4.11 percent with 0.41 point. The effective rate
also decreased.

Rates
for FHA guaranteed 30-year FRM were
at 3.91 percent with 0.59 point, the lowest FHA
rate in the history of MBA’s application survey, down from 3.96 percent with 0.72 point.  The effective rate also decreased from the previous week.

The
third all-time low is the 3.33 percent rate with 0.39 point for the 15-year FRM. 
This was a drop from 3.40 percent with 0.37 point rate the previous week.  The effective rate also decreased.

The
average contract interest rate for 5/1
ARMs was unchanged at the record low 2.90 percent established the previous
week.  Points decreased to 0.45 from 0.49.   The
effective rate also decreased from last week.

All
rates quoted are for 80 percent loan-to-value originations and points include
the application fee.

 MBA’s covers
over 75 percent of all U.S. retail residential mortgage applications, and has
been conducted weekly since 1990.  Respondents include mortgage bankers,
commercial banks and thrifts.  Base period and value for all indexes is
March 16, 1990=100.

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