A Runaway Truck
The Paragould Daily Press reports from Arkansas. “Dr. Michael R. Pakko, state economic forecaster with the University of Arkansas at Little Rock, addressed the Paragould Chamber of Commerce, telling the audience that Arkansas was dragged into the recent recession by the rest of the country. He said Arkansas has farerd fairly well in the recovery in part because of the housing market. ‘We never really saw the big run up in housing prices during the early part of the decade, so we never saw the subsequent crash afterward, and it didn’t bring the stress on our banking system,’ he said.”
Arkansas Business. “Condo and townhome developers have embraced tenants as the next best thing to buyers in a market long on supply and short on demand. Better to have a rent-generating unit than an empty, unsold one. Two years ago, eight projects in Little Rock and North Little Rock were home to 434 residential units, backed by more than $140 million in bank loans, accounted for 120 units sold through September 2009, mostly in the 300 Third project, one of the first to open.”
“Since then, the developments have attracted 55 more sales and reduced the overall inventory to about 60 percent. To improve the cash flow of projects, owners have turned to leasing unsold units and often offering residents a rent-to-own option. Rett Tucker, partner in the 20-story project at 315 River Market Ave., said five of these deals were now under contract to become sales. ‘It certainly isn’t like it was before the bubble burst,’ Tucker said of the market.”
“Entry-level condos on floors 6-11 at the River Market Tower, the largest condo project in town, start at $239,000 for one-bedroom units and $349,000 for two-bedroom units. These white-box units have plumbing, electric and heating/cooling in place along with all walls and doors but await flooring, painting and other finish-out details. From these units, the prices ascend and top out at the 19th floor, where a 2,946-SF unit sold for $1 million. Prices for Riviera condos range from $185,000 for 695-SF units on floors 2-4 to $879,000 for 2,850-SF units on the 11th floor.”
The Oklahoman. “Gary Gregory was talking about the sky falling before most people were — or at least before most folks willing to talk where I could hear them — five years ago. Gregory, commercial realty broker and managing director of Colliers International-Oklahoma, recalled those days. Q: Well before most people were talking about a potential housing bust and recession, around 2005 or so, you talked about seeing signs of trouble ahead. What did you see?”
“A: I began to bring to the market’s attention the real possibility of a significant bubble building in real estate driven by easy money. In a presentation to the Oklahoma Affordable Housing Conference I suggested that increased liquidity in the form of subprime and relaxed lending standards would create a problem. I also presented a supply-and-demand study showing overbuilding in subdivisions and large single-family homes. …”
“My goal was to tap the brake on a runaway truck. The lender’s toolbox had grown from a simple box to a wall-sized Snap-On rolling cabinet. This was created by both Wall Street money looking for a home in mortgages and banking regulators overwhelmed by the volume and more than two years behind on audits. I felt the market was on the knife’s edge from 2006.”
The Times Picayune in Louisiana. “The federal government was able to halt the cascading 2008 financial crisis by acting with “overwhelming force and speed,” and regulatory reforms enacted over the past three years have given economic policymakers better tools to analyze systemic risk and deal with future crises, the Treasury Department official in charge of the Troubled Asset Relief Program said on a visit to New Orleans.”
“‘The actions we took to stabilize the crisis worked. We really did arrest the panic,’ Timothy Massad, assistant secretary for financial stability at the U.S. Treasury Department, said in an interview and speech at Tulane University’s Freeman School of Business. ‘The key lesson of this crisis is you have to act with overwhelming force and speed.’”
“The cost of TARP and other federal actions in the crisis will cost less than the 1980s savings and loan crisis as a percentage of gross domestic product, Massad said. Massad said in an interview that regulators can’t force banks to lend, and demand for loans declined in the recession, but TARP’s financial cushion helped banks to withstand losses during the economic hard times. There’s more work to be done to loosen credit, he said.”
The Houston Chronicle in Texas. “Despite a volatile stock market and tight lending standards, Rockspring Capital president and CEO Jim McAlister IV is optimistic about the market for undeveloped land. Q: What trends are you seeing in land transactions, especially in the Houston area? A: Since 2008 the amount of land transactions has been down generally 90 percent. It’s been a huge drop off a cliff because of the illiquidity in the marketplace. We’re seeing it’s harder to get a loan for a house. Before the downturn, it was too easy. Now it’s too hard.”
“Q: What’s happening to prices? A: Land prices are still holding on. Houston never had the artificial bubble in pricing, so most of the sales that are occurring are occurring at good pricing, not much different than the downturn. The really good buys are being made when someone is leveraged and needs to dump a property, and there aren’t a lot of people who can close quickly with cash. It’s only if somebody is in a tough situation or a bank foreclosure and the bank wants it off their books.”
“It’s been to the surprise of everybody the current policy from Washington on down has been to extend and pretend. There are a lot of nonperforming notes banks could have foreclosed on, but they continue to extend them.”
“Q: Does that mean we’ll see a slew of foreclosures at some point or that borrowers are getting more time? A: I think it’s buying them time. A lot of borrowers will get through and never see foreclosure. Because there are no mass-foreclosed land sites on the market trying to be dumped, they’re not bringing the market down at all.”
“Q: What will it take to get back to normal? A: There’s good news and bad news. The good news is that Texas is leading the nation in population growth and employment growth, and not just leading a little bit but by a massive amount. On the other hand, illiquidity was created by the housing bubble and bust. It basically busted all the lenders, and so even in Texas or Houston, developers should be able to get loans based on today’s supply and demand. But they’re still not able to.”
The Coeur d’Alene Press. “Recently, the Federal Housing Finance Agency (FHFA), the U.S. Treasury Department and the Department of Housing and Urban Development (HUD) announced they would seek new options for selling single-family real estate owned (REO) properties held by Fannie Mae, Freddie Mac and the Federal Housing Administration (FHA).”
“Now, according to the recent article in Inman News, ‘The government is looking for approaches that achieve a reduction in foreclosure volume but also for current renters to become homeowners - and to assist former homeowners with affordable rentals in a cost-effective manner. There have been examples that have worked. For example, from 1986 to 1988, one-third of all Fannie Mae’s national REO inventory was situated in five Houston-area counties. The sheer volume of localized foreclosures and the severity of the absolute value decline rivaled the worst financial performance in U.S. history.’”
“‘Working with Fannie Mae in Washington, D.C., a group conceived a plan to brand ‘Fannie Mae as the Best Housekeeper in Houston,’ celebrating the like-new condition of restored Fannie Mae-acquired properties. Offered with below-market, fixed interest rates, a maximum of a 97 percent loan-to-value for owner-occupants, reduced closing costs, 30-day closings, and refurbishment to a like-new condition, Fannie Mae homes were extremely popular in the Houston residential real estate market for several years.’”
“‘To accelerate the rehabilitation process, Fannie Mae’s Houston office operated like a consolidated real estate disposition and construction company. A contractor/builder partner bought carpet, paint and roofing material by the container load directly from the warehouse, reducing the costs of refurbishing the foreclosed homes.’”
“It worked once and with the government likely to become the largest landlord in America, perhaps it is time to get creative once again.”
