Toll Brothers, a luxury homebuilder, has posted a smaller loss of $40.8mn, or $0.25 per share, for its first quarter that ended January 31, 2010; this compares to a loss of $88.9mn, or $0.55 a share, a year earlier. The first quarter saw a $33.4m in pre-tax write-downs, including a $22.5m write-down on account of operating communities, $9mn on account of owned land and $1.6mm due to land for future communities. The company also reported a 129% increase in the value of its net contracts signed, and a more than 30% drop in cancellation rate, compared to the quarter a year-ago. “A year ago at this time we feared for the stability of the nation’s economic system. That worry seems to be behind us,” said chairman and CEO Robert Toll. “The housing market took several years to recover following the downturn of the late 1980’s and early 1990’s. We expect this recovery to follow a similar pattern.” A temporary change in tax law allowed the company to net a $16mn tax refund under the net operating loss carry back provision. Analysts continue to be concerned about a lack of sustained revenue growth and profitability for homebuilders. “There is still not a lot of visibility as to when they will book the revenue in the contracts they’ve received,” said Merrill H. Ross, an analyst at BGB Securities.

Freddie Mac has reported that delinquency rate on its single-family loans rose to 4.03% in January, from 3.87% in December; a year ago, the delinquency rate was 1.98%. In volume terms, Freddie’s total mortgage portfolio dropped at an annualized rate of 1.7% in January. The agency’s refinance-loan purchase and guarantee volume was $22.6 bn in January, down from $27.3bn in December. The total guaranteed purchase coupons and structured securities issued decreased at an annualized rate of 0.5% in January. Freddie reported $36.6bn of purchases and issuances for January, including $7.2bn of guarantees under the Housing Finance Agencies initiative. Freddie Mae and Fannie Mac have announced they will buyout delinquent loans over a period of the next few months, amounting to “a significant portion of the current delinquent population.” Moody’s Investors Service, a rating agency, warns that investors in mortgage backed securities issued by Freddie and Fannie are likely to witness a decline in their investment value on account of delinquent loan buyouts. Linda Lowell, principal of Offstreet Research, said the buyout — which is principal repayment at par — means “any investor who carries their MBS positions at market value (and that’s the vast majority) will take a loss on every dollar that prepays, one that averages to about 4%. Ouch.”

The Oracle of Omaha, in his annual letter to shareholders of Berkshire Hathaway Inc., has written, “Within a year or so, residential housing problems should largely be behind us. Prices will remain far below ‘bubble’ levels, of course, but for every seller or lender hurt by this there will be a buyer who benefits.” The decline in the U.S. housing market has led to record foreclosures and an over-supply of housing. Buffett thinks it will take another year before housing demand catches up with supply. Buffett said reduction in new housing starts is the best way to reduce inventory overhang, and joked that the only other options are to destroy existing homes in a “tactic similar to the destruction of autos that occurred with the ‘cash-for-clunkers’ program” or “speed up householder formations by, say, encouraging teenagers to cohabitate, a program not likely to suffer from a lack of volunteers.” Berkshire, which owns companies in the real-estate space, has suffered on account of the housing slump. Clayton Homes, the pre-fab housing company owned by Berkshire, saw a drop in profit by about 9% last year, while earnings at Shaw Industries, a carpet manufacturer, dropped 30%. Buffett decried the “punitive differential” in mortgage rates between factory-built homes and site-built homes. While buyers of site-built homes obtain a 30-year loan at a little over 5% on account of guarantees offered by Fannie Mae and Freddie Mac, buyers of homes built by Berkshire companies such as Clayton pay as high as 9% on their mortgage since “very few factory-built homes qualify for agency-insured mortgages.”

Feb. 24 (Bloomberg) — Sales of new homes in the U.S. unexpectedly fell in January to the lowest level on record, a sign that an extension of a government tax credit may not be enough to rekindle demand.

The report underscores Federal Reserve Chairman Ben S. Bernanke’s comments today that the economy is in a “nascent” recovery still in need of low interest rates. Homebuilders face competition from foreclosed properties that have driven down prices at the same time companies are reluctant to create jobs.

“The foreclosure flow is robbing demand from the new-homes market, and that process seems to be strengthening,” said Julia Coronado, a senior economist at BNP Paribas in New York. “The new-homes market just can’t get off the floor. If new homes suffer, construction suffers and jobs suffer.”

Sales were projected to climb to a 354,000 annual pace from an originally reported 342,000 rate in December, according to the median estimate in a Bloomberg survey of 72 economists. Forecasts ranged from 325,000 to 386,000.

Stocks advanced after Bernanke repeated in Congressional testimony that borrowing costs can remain low for an “extended period.” The Standard & Poor’s 500 Index gained 1 percent to 1,105.24 at 4:28 p.m. in New York.

Three Regions Drop

Three of the four U.S. regions showed declines in new-home sales last month, led by a 35 percent plunge in the Northeast. Purchases fell 12 percent in the West and 9.5 percent in the South. They rose 2.1 percent in the Midwest.

The median price of a new home in the U.S. decreased to $203,500 in January, the lowest since December 2003, from $208,600 in the same month last year.

The supply of homes at the current sales rate increased to 9.1 months’ worth, the highest since May 2009.

Housing, the industry that spawned the sub-prime mortgage meltdown and triggered the worst recession in seven decades, appeared to be recovering in 2009 after a three-year decline.

Purchases of new homes have declined from an all-time high of 1.39 million reached in July 2005. They have declined 6.1 percent from January 2009.

New-home purchases, which account for about 6 percent of the market, are considered a leading indicator because they are based on contract signings. Sales of previously owned homes, which make up the remainder, are compiled from closings and reflect contracts signed weeks or months earlier.

Rising Foreclosures

Rising foreclosures are the main threat to a sustained housing recovery. A record 3 million U.S. homes will be repossessed by lenders this year as unemployment and depressed home values leave borrowers unable to make their house payments or sell, according to a RealtyTrac Inc. forecast last month. Last year there were 2.82 million foreclosures, the most since the Irvine, California-based company began compiling data in 2005.

The lack of jobs is another hurdle. Consumer confidence in February fell to its lowest level since April 2009 and a gauge of current conditions declined to the lowest level in 27 years on concerns about the labor market and the economy, the Conference Board reported yesterday.

Bernanke told Congress today that there are “tentative” signs of stabilization in the labor market, including fewer job cuts, a rise in factory employment and stronger demand for temporary help.

Job Market ‘Weak’

“Notwithstanding these positive signs, the job market remains quite weak, with the unemployment rate near 10 percent and job openings scarce,” Bernanke said in testimony to the House Financial Services Committee.

Economists surveyed by Bloomberg at the beginning of this month forecast unemployment this year will average 9.8 percent, just a percentage point below the historic post-war peak of 10.8 percent reached in November 1982.

The end of Fed purchases of mortgage-backed securities, aimed at keeping borrowing costs low, represents another challenge for the housing industry. The program is scheduled to expire at the end of March.

“The housing market took several years to recover, following the downturn of the late 1980s and early 1990s,” Robert Toll, chief executive officer of Toll Brothers Inc., said in a statement today.

Toll Brothers, the largest U.S. luxury-home builder, said its first-quarter loss narrowed. The Horsham, Pennsylvania-based company’s new orders almost doubled in the three months ended Jan. 31 as the housing market showed signs of stabilizing.

Home buyers hoping to snag a really good deal on a foreclosed home are finding it increasingly difficult because supply is shrinking.

The number of foreclosures that are available for sale nationwide fell to 617,000 in December, down from 845,000 in November 2008, reports Barclays Capital.

Not only have attractive homes in popular neighborhoods already been snapped up, but also government help for distressed buyers is delaying more foreclosures.

Demand is driving up prices. Investors say typical prices have climbed from 75 percent of appraised value to 85 percent or higher when there are bidding wars.

Source: The Wall Street Journal, James R. Hagerty (02/23/2010)

Daily Real Estate News | February 23, 2010

Although the economy has been growing lately, fallout from the recent recession continued to negatively impact commercial real estate sectors in the fourth quarter, but there is hope for some improvement next year, according to the National Association of REALTORS®.

Lawrence Yun, NAR chief economist, said commercial real estate almost always lags the economy. “Because of the lingering impact from the deep recession over the past two years, vacancy rates will trend higher and many commercial property owners will need to make rent concessions,” he said.

“With the job market expected to turn for the better later this year, we’ll see rising demand for office and warehouse space, but that isn’t likely before 2011,” Yun said. “At the same time, improved consumer confidence would help sustain the retail sector and encourage more people to enter the rental market.”

Yun notes that commercial vacancy rates remain high in most market areas and are depressing rents.

The Society of Industrial and Office Realtors, in its SIOR Commercial Real Estate Index, an attitudinal survey of more than 700 local market experts, suggests a flattening level of business activity in upcoming quarters with 55 percent of members expecting the market to improve in the second quarter.

The SIOR index rose 0.2 percentage point to 35.5 in the fourth quarter, compared with a level of 100 that represents a balanced marketplace. This is the first gain following 11 consecutive quarterly declines. Although some indicators show that a decline in commercial property values is beginning to flatten, 86 percent of respondents report prices are below replacement costs.

Nearly nine in 10 survey participants said new commercial development is virtually nonexistent in their market areas, and rent concessions are reported almost everywhere.

A Long Way To Go
An independent survey earlier this month showed a couple dozen banks are willing to expand commercial credit this year, which is critical. The lending expansion is aided by the Federal Reserve’s Term Asset-Backed Loan Facility (TALF), which is encouraging issuance of commercial mortgage-backed bonds. In addition, regulators are prodding lenders to extend terms for many existing commercial loans.

“We have a long way to go for satisfactory levels of commercial credit, but these are important first steps,” Yun said. “Given that about $1.4 trillion in commercial debt will come due over the next three years, more extensive action is needed and the Fed needs to more actively help resuscitate commercial mortgage-backed securities. The credit improvement will mean more commercial property sales in 2010, even some at deeply discounted prices.”

Looking at the overall market, commercial vacancy rates generally will stay at elevated levels, according to NAR’s latest COMMERCIAL REAL ESTATE OUTLOOK. The NAR forecast for four major commercial sectors analyzes quarterly data in the office, industrial, retail and multifamily markets. Historic data were provided by CBRE Econometric Advisors.

Office Market
With a lot of sublease space currently on the market, vacancy rates in the office sector are forecast to rise from 16.3 percent in the fourth quarter of 2009 to 17.6 percent in the fourth quarter of this year; the longer term outlook is for vacancies to average 17.4 percent in 2011.

Annual office rent is projected to decline 7.2 percent in 2010, following a drop of 12.7 percent last year. In 57 markets tracked, net absorption of office space, which includes the leasing of new space coming on the market as well as space in existing properties, should be a negative 27.3 million square feet in 2010.

Industrial Market
There is proportionately less industrial sublease space on the market than in the office sector, but obsolescence remains a factor. Industrial vacancy rates will probably rise from 13.9 percent in the fourth quarter of last year to 14.9 percent in the closing quarter of 2010; they could average 14.5 percent next year.

Annual industrial rent is likely to fall 9.6 percent this year, after declining 10.9 percent in 2009. Net absorption of industrial space in 58 markets tracked is seen at a negative 93.5 million square feet in 2010.

Retail Market
Retail vacancy rates are expected to edge up from 12.4 percent in the fourth quarter of 2009 to 12.7 percent in the same period of this year, and may hold at that level in 2011.

Average retail rent is forecast to decline 2.4 percent in 2010, following a drop of 4.0 percent in 2009. Net absorption of retail space in 53 tracked markets should be a negative 3.4 million square feet this year.

Multifamily Market
The apartment rental market – multifamily housing – is poised to gain from a rise in household formation. Multifamily vacancy rates are likely to decline from 7.4 percent in the fourth quarter of last year to 6.6 percent in the fourth quarter of 2010, and possibly edge down to 6.1 percent next year.

Average rent is projected to decline 3.4 percent this year, following a decline 3.6 percent in 2009. Multifamily net absorption is expected to be 115,000 units in 59 tracked metro areas this year.

By Ken Sweet and Peter Barnes
FOXBusiness

The White House is considering changes to its mortgage modification plan that could include a freeze on home foreclosures, sources tell FOX Business.

According to industry officials who have been briefed on the plan, the administration is considering changes that would require home-loan servicing companies to push delinquent borrowers into the Home Affordable Modification Program before they consider foreclosure.

Lenders, investors and mortgage-service companies would be prevented from foreclosing on a homeowner while a home buyer is solicited, responds and eventually goes through a trial period under HEMP.

Analysts tell FOX Business that the possible changes, if adopted, effectively prevent virtually all foreclosure action in the country for an extended period.

While home prices have recovered and sales activity has picked up, the latest statistics show that the number of foreclosures nationwide continues to rise. Loans that have headed into the foreclosure process rose to 4.58% of all mortgages in the fourth quarter, the Mortgage Bankers Association said Friday. New delinquencies, however, declined.

The freeze on home foreclosures would be a new step for the Obama Administration, which has pushed banks towards mortgage modifications as part of a solution to solve the ongoing problems in the housing market.

President Obama has signed off on the bill approving an extension of the $8,000 new home buyer tax credit until April 30th 2010. Also, the new provisions in the extension are NOT retroactive. Here is a summary of the new and updated provisions and their impact on you if you have or are planning to buy a house. New IRS forms and claiming instructions are also provided.

- Qualification Period : First-time home buyers who bought after January 1, 2009 and before April 30, 2010 (with closing to take place before July 1 2010), would get the $8,000 home buyer tax credit. For the purposes of claiming the tax credit, the purchase date is the date when closing occurs and the title to the property transfers to the home owner. If you and your spouse claim the credit on a joint return (both of you must meet the income and past ownership criteria to qualify), each spouse is treated as having been allowed half of the credit for purposes of repaying the credit. So the total amount claimable is still only $8000 (up to April 30th 2010).
- Income qualification limits: The home buyers’ credit would be available to individuals with a modified adjusted gross income (MAGI) of up to $125,000, or $250,000 for couples, up from $75,000 for individuals and $150,000 for couples under the original rules. The higher income limits are only for homes purchased after Nov. 6, 2009. That is, the existing MAGI phase-outs of $75,000 to $95,000 or $150,000 to $170,000 for joint filers still apply to purchases on or before Nov. 6, 2009. Those with incomes higher than the above limits do not qualify for any part of the tax credit.
- *NEW* Current Homeowners looking for a replacement primary residence could also qualify for a $6,500 (up to $3,250 for a married individual filing separately) under the new “long-time resident” provision. They must have lived in the same principal residence for any five-consecutive year period during the eight-year period that ended on the date the replacement home is purchased. This new provision also only applies to homes purchased after Nov. 6th 2009. The IRS has stepped up compliance checks involving the home buyer credit for those with past homes and they must provide a mortgage Interest Statement, Property tax records or Homeowner’s insurance records, to prove compliance with past residency criteria.

- Claiming the new home buyer credit: For qualifying purchases, taxpayers have the option of claiming the credit on either their 2009 or 2010 return. A new version of Form 5405, First-Time Home buyer Credit, is now available on the IRS website. Taxpayers claiming the credit on their 2009 returns, will not be able to file electronically because of the added documentation requirements, but instead will need to file a paper return by using the new version of Form 5405. A taxpayer who purchased a home on or before Nov. 6 and chooses to claim the credit on an original or amended 2008 return may continue to use the current version of Form 5405.
In addition to filling out a Form 5405, all eligible home buyers must include with their 2009 tax returns one of the following documents in order to receive the credit:
A copy of the settlement statement showing all parties’ names and signatures, property address, sales price, and date of purchase. Normally, this is the properly executed Form HUD-1, Settlement Statement.
For mobile home purchasers who are unable to get a settlement statement, a copy of the executed retail sales contract showing all parties’ names and signatures, property address, purchase price and date of purchase.
For a newly constructed home where a settlement statement is not available, a copy of the certificate of occupancy showing the owner’s name, property address and date of the certificate.
The IRS expects to start processing 2009 tax returns claiming the home buyer credit in mid-February after it completes the updating and testing of systems to meet the law’s new requirements and to deter fraud related to the home buyer credit. Normally, it takes about four to eight weeks to get a refund claimed on a complete and accurate paper return where all required documents are attached. For those homebuyers filing early, the IRS expects the first refunds based on the homebuyer credit will be issued toward the end of March.
- The new $8000 credit can be used towards the down payment of a house bought in the credit qualifying period. You need to work with your lender to take advantage of this provision.

- Tax Credit Exclusions: Homes that cost more than $800,000 aren’t eligible for the credit and you must be over 18 years old to claim the credit (dependents are not eligible to claim the credit either). Those who sell their new home or stop using it as their main residence within three years would have to repay the credit. You cannot claim the credit if acquired your home by gift or inheritance OR if you acquired your home from a related person

- If two or more unmarried individuals buy a main home, they can allocate the credit among the individual owners using any reasonable method. The total amount allocated cannot exceed the smaller of $8,000 or 10% of the purchase price. Note: A reasonable method is any method that does not allocate all or a part of the credit to a co-owner who is not eligible to claim that part of the credit (I would go with 50/50 as a reasonable method if one person is not eligible for the credit)

- The purchase date is how you decide which credit you are eligible for. Only homes purchased from Jan 1 2009 to April 1st 2010 are eligible for the fully refundable $8000 credit. If you constructed your main home, you are treated as having purchased it on the date you first occupied it.
- Foreign or Overseas Homes: You are considered a first time home buyer when buying an American residence, even if you owned principal residence outside of the United States within the previous three years. Non-resident alien’s cannot claim the credit.

- Members of the Armed Forces and certain federal employees serving outside the U.S. have an extra year to buy a principal residence in the U.S. and still qualify for the credit. An eligible taxpayer must buy or enter into a binding contract to buy a home by April 30, 2011, and settle on the purchase by June 30, 2011.

REALTORS Optimistic for 2010… Despite Last Year’s Slow Market

Courtesy of LA Realtors.org

By most accounts, 2009 was not a banner year for real estate

in Louisiana and across the nation. However, REALTORS are

optimistic that the state has absorbed the worst of the housing

market downturn and poised for improvement this year.

“The national economic downturn caught up with Louisiana to

some extent in 2009,” said Michael Indest, President of the

Louisiana REALTORS Association (LR). “But despite the down year,

we continue to see stable home values in Louisiana and believe that

we will see overall improvement in 2010.”

Statewide in 2009, the number of residential sales was down

2.3% from the previous year, and total residential sales volume

down 3.9%. The average home sales price in Louisiana was

$180,643, representing only a 1.6% decrease from 2008, and the

average days on market increased from 95 to 100 for the year.

The most positive news comes from northeast Louisiana,

where the Monroe market showed a 32.3% increase in home

sales over the previous year. The state’s largest metro areas of

Baton Rouge (number of sales down 1.8%) and New Orleans

(down 2.5%) reflected the overall state numbers, while Lafayette

(down 4.1%), Shreveport-Bossier (down 4.1%), Houma-

Thibodaux (down 10.3%), Central Louisiana (down 10.8%), Lake

Charles (down 13.3%) were below the state average for the year.

Louisiana continued to show overall stability in home values, with

the average sales price increasing in Shreveport-Bossier (up 5.5%),

Houma-Thibodaux (up 1.3%) and Lafayette (up 0.4%).

Lower prices and the first-time buyer home credit boosted home sales in May for the first back-to-back monthly gain since September 2005, according to the National Association of Realtors.

Existing home sales – which includes single-family, townhomes, condos and co-ops – were up 2.4 percent to a seasonally adjusted rate of 4.77 million units last month, but still remained 3.6 percent below the 4.95 million units sold in the same month last year.

First-time homebuyers account for 29 percent of transactions, according to a NAR survey in May.

“Historically low mortgage interest rates clearly drew buyers into the market, and housing remains very affordable even with a recent uptick in rates,” Lawrence Yun, NAR’s chief economist said in a news release.

However, he added that the increase in sales is less than expected “because poor appraisals are stalling transactions.” And, some contracts are falling through as a result of faulty valuations that keep buyers from getting a loan, he said.

“In the past month, stories of appraisal problems have been snowballing from across the country with many contracts falling through at the last moment. There is danger of a delayed housing market recovery and a further rise in foreclosures if the appraisal problems are not quickly corrected,” Yun added.

Single-family home sales rose 1.9 percent to a seasonally adjusted annual rate of 4.25 million in May from a pace of 4.17 million in April, but are 3.0 percent below the 4.38 million-unit level in May 2008.

The median existing single-family home price was $172,900 in May, down 16.1 percent from a year ago.

Existing condominium and co-op sales increased 6.1 percent to a seasonally adjusted annual rate of 520,000 units in May from 490,000 in April, but are 8.9 percent below the 571,000-unit level in May 2008.

The median existing condo price was $173,800 in May, down 21.9 percent from a year earlier.

IHS Global Insight U.S. Economist Patrick Newport said he expects sales to sag over the next 12 months. But added: “In 2010, an improved economy and improved affordability will bring buyers into the market, and sales will start to rebound.”