Jumbo Mortgages Don't Feel the Relief

Bloomberg posted an article today that effects many home owners in major US markets (read: New York, LA, San Francisco). While conforming mortgage rates have been dropping and mortgage applications are way up (45% or so in the last week), jumbo rates (for mortgages above $417,000) have stayed high. The spread between conforming and jumbos is more than 200 basis points, which is 10 xs above normal. However, there should be help on the horizon later in 2009. As more people refinance their conforming mortgages, banks will have increased liquidity, which they should be able to redeploy in jumbo land, which in turn should help to drive jumbo mortgage rates down. Also, as the Fed continues to buy Freddie and Fannie bonds, that too should help add liquidity to the market. So hold on all you New York jumbo mortgage holders...help should be on the way by late 2009!

By Kathleen M. Howley
Dec. 24 (Bloomberg) -- Jumbo mortgage shoppers in the most expensive U.S. housing markets such as New York and San Francisco aren’t getting much relief from lower borrowing costs.
The average 30-year fixed rate for home loans of more than $729,750 remains almost 2 percentage points above conforming rates and the spread between them may set a record this month, according to financial data firm BanxQuote.

Banks remain reluctant to lend after recording $678 billion in mortgage-related losses and writedowns in the past year and as house prices plunge. Jumbo mortgage rates may come down next year as more buyers refinance, helping banks improve liquidity, said Keith Gumbinger, vice president of mortgage-research firm HSH Associates Inc. in Pompton Plains, New Jersey.
“A guy in a low-cost market like Des Moines probably doesn’t care much about helping someone in New York buy a million-dollar apartment, but if he refinances his conventional loan, that’s exactly what he’ll be doing,” Gumbinger said. “He’ll be giving lenders the liquidity they need to rebalance their loan portfolios and compete for jumbo borrowers who typically are the best in terms of credit quality.”
The average 30-year fixed jumbo loan rate was 7.32 percent on Dec. 22, compared with 5.38 percent for a conforming loan, according to BanxQuote of White Plains, New York.

Wide Spread
The difference between them has averaged 2.13 percentage points in December, 10 times the average spread from 2000 to 2006 and above last month’s 1.95 percentage points that was the highest on record.

Jumbo borrowers New York, San Francisco, and Boston may see rates fall in 2009 because of Federal Reserve Chairman Ben Bernanke’s plan to buy at least $500 billion of agency debt, said Gumbinger.

The Fed’s mortgage-bond buying program, announced Nov. 25, also provides for the purchase of $100 billion in direct debt of Fannie Mae, Freddie Mac and the Federal Home Loan Banks.
Bernanke’s plan adds to previous government actions aimed at lower home-financing costs, including the September seizure of mortgage-finance companies Fannie Mae and Freddie Mac. As part of that takeover, the Treasury announced its own program to buy mortgage-backed securities to bolster the worst housing market in at least 70 years.

Loan Applications Rise
Mortgage applications in the U.S. jumped 48 percent last week as the lowest borrowing costs in five years promoted a surge in refinancing.

The Mortgage Bankers Association’s index of applications to buy a home or refinance a loan rose to 1,245.4, the highest since 2003, from 841.4 a week earlier. The group’s refinancing gauge rose 63 percent and purchases gained 11 percent.

While many homeowners are trying to lower their mortgage payments, buyers remain on the sidelines as prices fall.

The median U.S. home price plunged 13 percent in November from a year earlier, the largest drop on record and likely the biggest decline since the Great Depression of the 1930s, the National Association of Realtors said yesterday in a report.
Home prices are tumbling as foreclosure-related sales accounted for 45 percent of the month’s transactions, according to the Chicago-based trade group.

“The real elephant in the room is falling house prices,” Glenn Hubbard, former chairman of the Council of Economic Advisers under President George W. Bush who is now dean of the Columbia University Graduate Business School, said in an interview on Monday. “We can fix this by lowering mortgage interest rates.”
Prices Sink
Declining prices won’t be helped by the Federal Housing Finance Agency’s announcement last month that it will lower the size of so-called jumbo conforming mortgages that can be purchased by Fannie Mae and Freddie Mac. Congress authorized raising the conforming limit of $417,000 to as high as $729,750 in about 90 of the nation’s most expensive housing markets in 2008 as a temporary measure to support housing.

On Jan. 1 that cap drops to $625,500 following the formula set out by July’s Housing and Economic Recovery Act. The law, known as HERA, specified a loan limit of 115 percent of an area’s median home price, rather than the 125 percent limit approved for this year by Congress, said Andrew Leventis, an FHFA economist. The change means more buyers in high-priced areas will have to use jumbo mortgages, he said.

The Fed on Dec. 16 cut its benchmark interest rate target to a range of zero to 0.25 percent and said it will add to the announced $500 billion in mortgage bond purchases as needed.
“Over the next few quarters the Federal Reserve will purchase large quantities of agency debt and mortgage-backed securities to provide support to the mortgage and housing markets, and it stands ready to expand its purchases of agency debt and mortgage-backed securities,” the policy makers said in a statement.

My old hood

My wife and I lived on the upper west side until a year or so ago, and there are MANY things that we miss about the neighborhood. We really like having all the room that we now have in Harlem, but we our new neighborhood still needs more restaurants, bars, coffee shops...

The NYTimes has a piece about Fairway and the changes to the UWS over the last 30 years. A very entertaining article.

By DAVID W. DUNLAP
Published: December 17, 2008
Calling Broadway the main street of the Upper West Side, Paul Goldberger wrote in “The City Observed: New York” (1978) that it was “like a child’s room that is permitted to remain in disorder by parents who feel that children should be permitted to have their own mess.”

“If you doubt the economic wisdom of letting a street be that way,” he continued, “count the empty storefronts: there are virtually none from Lincoln Center to Morningside Heights.”
The best single block to illustrate this jumbled vitality for Mr. Goldberger’s guidebook was between 74th and 75th Streets. In a 213-foot stretch were a celebrated fishmonger (Citarella), a well-known greengrocer (Fairway), a supermarket (D’Agostino), a clothing store (Pandemonium), a coffee shop and a popular bingo parlor called Broadway Hall.
Revisiting the block 30 years later, one finds Fairway and Citarella. Period.
The competing markets, which long ago expanded beyond their original specialties, now occupy all the street-level retail space.

This is a tribute to the West Side’s enduring character as a neighborhood where homegrown food businesses can thrive, cheek by jowl. But it also underscores the growing big-box monotony on Broadway, even when the boxes are, happily, one of a kind.

Fairway was founded in the early 1930s by Nathan Glickberg as the 74th Street Market, a fruit and vegetable stand. In the early ’50s, the Glickberg family turned it into a supermarket called Fairway, adding groceries, meat, dairy products and frozen food. After the business changed hands several times, Howard Glickberg, one of the founder’s grandsons, recreated it as a high-end produce shop in 1974. Fairway expanded into the coffee shop in 1997. Two years later, it took over D’Agostino’s space and the former bingo hall upstairs, which had more recently been a Bally’s Jack LaLanne Fitness Center. There, Fairway runs a cafe and steakhouse.
And there, Fairway’s irresistible force meets the immovable object of Citarella, which expanded into the Pandemonium space in 1993. The competitors are abutters, too.

Imagine a passer-by from the 1978 photograph — perhaps the man in the vest, flared trousers and mustard-colored shirt (just a guess) with four-inch collar points — propelled forward 30 years.

The time traveler recognizes Fairway and Citarella, of course, but the crowd looks younger, more prosperous and less diverse, and there are more children underfoot. The device in the woman’s right hand could be described to him as being akin to a Dick Tracy two-way wrist radio with a full keyboard and a computer monitor. But it might take all day to explain the phrase “www.fairwaymarket.com” on the awning, where it used to say “Farm Fresh.”

CNBC gets it...

Nice work by Diana Olick at cnbc.com. She really summarizes what is happening today in the mortgage market and what it means to those looking to lock in a low rate.

Mortgage Rates: Just How Low Can They Go?
Posted By: Diana Olick

CNBC.com
That’s the question everyone is asking today, as the Fed’s announcement Tuesday that it would buy more mortgage-backed securities sent the Fannie Mae bond prices soaring and the yields in turn plummeting.

Supposedly that’s what lenders look to in setting interest rates on the 30-year fixed. After the announcement, that rate repriced to around 5 percent. It had already dropped quite a bit after the Fed made its initial Fannie and Freddie MBS purchase plan announcement a few weeks ago.
Mortgage brokers I talked to this morning said the floodgates are open, and it’s mostly refis. In fact, the Mortgage Bankers Association’s weekly applications survey showed that last week, with rates historically low, 77 percent of applications were for refis, not new purchases. One broker I spoke with said he’s got so many refi clients that he’s having a hard time finding the time to speak to potential new home purchase clients, because that takes far longer than current clients who already know him and just want him to lock in a rate.

But another broker cautions, when we’re talking about these low low rates for the 30-year fixed, and this morning it was around 4.875 percent, it’s with no points, and the borrower must have a 740+ FICO score, not to mention at least 20 percent to put down on the home. If it’s a refi, especially cash-out, they want to see at the very highest a 75% loan-to-value ratio. And this is only for old-fashioned $417,000 conforming loans.

No, I didn’t forget about the new conforming loan limit of $625,000 in certain high-end markets, as set by the Housing and Economic Recovery Act last summer. Trouble is that the interest rates on those puppies are a bit higher, not as high as jumbos mind you, but higher than you might thing.

And one more item the brokers are telling me: If a major bank drops its rates in a major way and then gets inundated with applications, it likely won’t be able to handle the onslaught and will be forced to raise rates a tad just to slow the tidal wave. Of course, if they don’t get the kind of response for which they had hoped, they might drop rates even lower. Seriously, stay tuned.

The Optimism Index

From New York Magazine. Though the New York City coop market should hold up better than the condo market, tThis sounds a bit optimistic to me....


The Optimism Index, Part II

Two weeks ago, we called upon Streeteasy.com’s data team to gauge whether condo sellers were growing less hopeful. That is, we plotted asking (as opposed to selling) prices in 2008 against those in 2007. The results were informative enough that we’re back with more—this time about co-ops, which tend to be a little less volatile than condos because their boards are stricter.
And what do we see? Co-ops’ asking prices are down slightly, too, but the drops are generally a little smaller than among condos. The only marked decrease is in Upper Manhattan, where asking prices fell 6.31 percent. (Note that the average price there is lower, so it takes much less of a dip to create a big percentage swing.) In traditionally high-demand downtown areas, the prices are even up a bit, by 1.36 percent.









As to optimism: We’ll know more when we can compare these asking prices with actual post-meltdown sales, which should begin to become evident around the end of the year.
Data provided by Streeteasy.com.

Speaking of sleaze...Trump in the news

From New York's Crains. The Donald is on the skid. No big suprise here. He is the king of riding real estate up, and also the king of riding it down....

Donald Trump has had a rough few weeks.
He went to court in an effort to avoid paying off a $640 million construction loan on his struggling condo/hotel project in Chicago, and was countersued by his lender. Meanwhile, rating agencies downgraded Trump Entertainment Resorts Holdings' bonds after the casino company said it would miss a $53 million interest payment. Over the past year, a number of other developments bearing the Trump name have been halted, named in lawsuits, or both.
Mr. Trump insists that this string of events isn't a replay of his travails in the early 1990s, when the collapse of the real estate market nearly drove him into bankruptcy. He has learned his lessons, he says, and is much more financially conservative. Many of his deals are licensing arrangements, under which he is paid simply for the use of his name.
“I have a lot of cash,” says Mr. Trump. “I am not in trouble.”
Financially, maybe not. But the Trump brand—a major source of his earnings—has seen better days. His woes may tarnish his all-important image as a business genius. In addition, his brand is looking decidedly dated, standing as it does for over-the-top luxury at a time when the recession is driving conspicuous consumption out of style.
“Donald Trump is kind of like Hugh Hefner,” says Brenda Smith, managing partner at Brenda Smith + Associates, a branding agency. “He has this anachronistic feel.”
The shift in Mr. Trump's stature comes after more than two decades in which his brand had been golden. The developer has reaped revenues from Trump-branded condominium towers and casinos, from ties, shirts and cuff links, and even from vodka.
His aura led Tampa builder SimDag/RoBEL to fork over a $2 million licensing fee and 50% of its proposed luxury condo's net sales profits for the right to use the Trump name, according to a lawsuit.
However, given the crumbling Florida real estate market, the project was never built, and Mr. Trump sued SimDag/RoBEL to force it to hand over unpaid fees. Adding to the mess, the buyer of one of the units in the planned Tampa project sued Mr. Trump, alleging that buyers were led to believe that Mr. Trump was part of the management team rather than involved only through a licensing deal.Meanwhile, Michael Mikelic says he is considering suing Mr. Trump to get back a deposit he made on a stalled condo project in Mexico that bears the famous name but has yet to be built. Mr. Mikelic, president of real estate company King Penguin Properties, says he has made money buying and reselling condos in other Trump projects. But he now doubts that he would ever buy another, because he has lost confidence in the name.
Mr. Trump says the overall strength of his reputation overrides any negative press generated by soured deals. He adds that the problematic licensing deals don't affect his bottom line because he doesn't commit any of his own cash.
The developer adds that 2008 has brought many triumphs, including the sale of his home in Florida for nearly $100 million and the purchase of a posh New Jersey country club out of foreclosure at a bargain-basement price.
Those successes may be dwarfed by the problems with his 92-story Chicago project, Trump International Hotel & Tower, which bears his name and uses his money. About 30% of the units are still unsold, sources say. Meanwhile the legal battle with his lenders is just beginning, leaving Mr. Trump's money and his brand on the hook.
The lawsuit he filed in November against his Deutsche Bank-led lenders, cites numerous reasons why he should not be required to repay the loan immediately. These include a breach of fiduciary responsibility on the part of the bank, which then countersued. Given the dire state of real estate markets everywhere, it isn't surprising that some Trump projects are struggling, developer Dean Geibel says.
“Everyone is having trouble,” says Mr. Geibel, who licensed the Trump name for a residential building in Jersey City.
Nonetheless, he estimates that the Trump name added 20% to the prices of his apartments.
In Atlantic City, though, the Trump magic has faded in recent years along with rest of the gambling industry. Mr. Trump says that he is unhappy that his name is on Trump Entertainment, the floundering casino company—though he quickly adds that he doesn't have anything to do with the firm's management. He also notes that his 26% stake represents just 1% of his net worth.
Nonetheless, Mr. Trump says he is considering either taking his name off the company or stepping in to help manage its plush holdings.
The financial fallout from the casino operation may prove to be small. The big question is whether the Trump brand can withstand the multiple blows at a time when the developer's rococo image is at odds with the current climate.

Madoff and funds of funds=Sleaze

This whole ordeal w/ Madoff really is becoming sleazier and sleazier. Not only did he screw his investors out of their money.... others were collecting huge fees for doing nothing more than marketing Madoff's services. Funds of funds have a fiduciary duty to conduct due diligence on behalf of their clients...what the hell were they looking at? They saw the fees they could collect, and stopped their homework there. Madoff often times did not charge his clients a management fee (which should have set off alarm bells), instead, he processed all of the trades himself. Who know the commissions he charged on these trades and the size of the spreads!! All of this on top of the rest that Wall Street has put us through. Happy Holidays economy!



Fairfield Sent Madoff $7.3 Billion as Funds Took Fees


By Katherine Burton
Dec. 15 (Bloomberg) -- Walter Noel’s Fairfield Greenwich Group would have collected about $135 million in fees this year for peddling Bernard Madoff’s investing acumen to clients from South America, the Middle East and Asia.
The $7.3 billion Fairfield Sentry Fund invested solely with Madoff, taking a cut of 1 percent of assets and 20 percent of gains, which averaged about 11 percent annually in the past 15 years, according to data compiled by Bloomberg. Fairfield Greenwich is one of at least 15 hedge-fund firms and private banks, including Tremont Holdings Group Inc. and Banco Santander SA, that earned similar fees for sending customers’ cash to the 70-year-old money manager.
“It’s mind-boggling that people like Tremont and Fairfield Greenwich had been doing this for so long,” said Brad Alford, who runs Alpha Capital Management LLC in Atlanta, which helps clients choose hedge funds. “It’s the job of these funds of funds to be doing due diligence. That’s why they get paid.”
Madoff was arrested Dec. 11 after he allegedly confessed to running a “giant Ponzi scheme” that may have bilked investors of $50 billion. That fraud escaped the notice of Fairfield Greenwich, Tremont and other funds of funds that had at least $17 billion invested with Madoff. Hedge-fund investment adviser Aksia LLC said the managers should have seen “red flags,” such as Madoff’s use of a little-known, three-person auditing firm.
Hedge funds that have disclosed holdings with Madoff were due at least $290 million in fees this year, based on reported assets, fees and Bloomberg data. The calculations don’t include fees of as much as 5 percent that clients paid for some funds when they first invested. Madoff didn’t assess fees for his money-management services, getting paid instead through commissions from his brokerage business for trading the stocks in the accounts.
Worldwide Web
Investors ensnared by Madoff include Fred Wilpon, the owner of the New York Mets baseball team, clients of private bankers in Geneva, wealthy Jewish families in New York and Palm Beach, Florida, and institutions including BNP Paribas SA in Paris that loaned investors money to increase their bets. Losses have been reported by a pension fund in Fairfield, Connecticut, New York hospitals and a charity in Salem, Massachusetts.
While Madoff didn’t run a hedge fund, his alleged crime may accelerate investor defections from the $1.5 trillion industry, already hit by its worst losses since at least 1990 and redemptions that may reach $400 billion this year, according to estimates by Morgan Stanley. In a Ponzi scheme, returns to early investors are paid with money from later ones, until there isn’t enough cash to go around. Madoff’s alleged scam unraveled when he received $7 billion in redemption requests that he couldn’t meet.
In the Middle
Funds of hedge funds such as Fairfield Greenwich act as middlemen, raising money from investors and farming it out to other managers that they vet. The go-betweens manage 44 percent of hedge-fund assets, according to data compiled by Hedge Fund Research Inc. Their investments lost 19 percent on average through November, a little more than a percentage point more than single-manager funds, the Chicago-based firm says.
Institutions including New York State’s $154 billion retirement system and the endowment of Baylor University have been cutting back their investments in funds of funds to save the extra layer of fees -- generally 1 percent of assets and 10 percent of profits -- that they charge on top of the underlying managers’ take. Last year, for the first time, more than half of the hedge-fund assets of the 200 largest U.S. pension plans were invested directly with individual managers, according to data compiled by Pensions & Investments magazine.
‘Shocked and Appalled’
Funds of funds say they earn their fees by discovering the best managers and assembling a diversified group of investments. They also are supposed to conduct ongoing due diligence to avoid frauds or other dangers, such as managers straying from their core investment strategy.
Fairfield Greenwich is the biggest loser to emerge so far from the Madoff scandal. It had more than half its $14.1 billion in assets with him, according to a company statement.
“We are shocked and appalled by the news,” said founding partner Jeffrey Tucker in a Dec. 12 statement. Tucker was an attorney in the enforcement division of the U.S. Securities and Exchange Commission before starting Fairfield Greenwich with Noel in 1983. Thomas Mulligan, a spokesman for Fairfield Greenwich, declined to comment.
Noel built a marketing machine that covered the globe. His son-in-law, Yanko Della Schiava, is based in Lugano, Switzerland, and is responsible for selling Fairfield Greenwich funds in Southern Europe, according to the firm’s Web site. Another son-in-law, Andres Piedrahita, is head of Fairfield Greenwich’s European and Latin American businesses and is based in London and Madrid. A third son-in-law, Philip Toub, markets the group’s funds in Brazil and the Middle East.
Tremont, Manzke
Three months ago, the firm acquired Banque Benedict Hentsch, a deal that the Swiss private bank said today it has reversed.
Tremont, founded by Sandra Manzke in 1985, also was an early Madoff investor. The Rye, New York-based firm, a unit of Massachusetts Mutual Life Insurance Co.’s OppenheimerFunds Inc., has yet to disclose how much money it had invested with Madoff. It sold Madoff-managed investments since 1997 under the Rye Select Broad Market name, charging 2 percent of assets, according to a marketing document. Monteith Illingworth, a spokesman for the firm, declined to comment.
Manzke now runs Darien, Connecticut-based MAXAM Capital Management LLC, which marketed a $280 million fund that was invested solely with Madoff. Manzke told the Wall Street Journal she was wiped out. Manzke didn’t return calls or e- mails.
Swiss Connection
Another Madoff investor is London-based FIM Ltd., whose Kingate Europe and Kingate Global funds had about $3.5 billion in assets as of the end of November, according to reports sent to clients. The firm, run by Carlo Grosso, marketed the funds to many wealthy Italian families. Kingate collected a 5 percent fee to get into the funds and a management fee of 1.5 percent of assets.
Access International Advisors LLC, a New York-based investment firm, charged a 5 percent fee up front, a 0.8 percent management fee and a 16 percent performance fee on its LUXALPHA SICAV-American Selection fund, according to Bloomberg data.
Spain’s largest bank, Banco Santander, said its clients invested with Madoff through its Optimal Strategic U.S. Equity fund. Those investors paid 2.15 percent of assets in fees.
Swiss private banks also sent money to Madoff. Union Bancaire Privee, the largest investor in hedge funds, had a managed account called M-Invest that was a direct conduit into Madoff, people familiar with the situation said. Benbassat & Cie, another Swiss bank, had $935 million invested in Madoff on behalf of clients, according to Le Temps.
Warning Signs
When Aksia researched Madoff last year, it learned the firm’s books were audited by accountants Friehling & Horowitz, operating out of a 13-by-18 foot location in an office park in New York City’s northern suburbs. One partner, in his late 70s, lives in Florida. The other employees are a secretary, and one active accountant, Aksia said.
Other details that made Askia nervous included the “high degree of secrecy” surrounding the trading of the feeder fund accounts, which provided capital to Madoff Securities, and its use of a trading strategy that appeared “remarkably simple,” yet “could not be nearly replicated by our quant analyst,” Aksia wrote in a Dec. 11 letter to its clients.
To contact the reporter on this story: Katherine Burton in New York at kburton@bloomberg.net

Fannie is no longer kicking out renters

Fannie Mae is doing the right thing and not kicking out renters of homes that it owns via foreclosure.

Fannie Mae Lets Renters Stay Despite Foreclosures

New York Times

By CHARLES DUHIGG

Published: December 14, 2008

In a move that provides relief to thousands of renters who face eviction but draws the federal government even deeper into the housing market, the loan giant Fannie Mae said Sunday that it would sign new leases with renters living in foreclosed properties owned by the company.

Skip to next paragraph

Carol T. Powers/Bloomberg News

John Taylor, a consumer advocate, said banks should follow Fannie Mae’s example.

It is the first nationwide effort to provide widespread relief to renters ensnared by the unfolding mortgage crisis, and it will effectively transform Fannie Mae — a government-controlled mortgage finance company — into a national landlord. It may also increase pressure on private lenders to establish similar programs and on lawmakers to pass renter relief.

“There are renters all around the country who have been holding up their end of the bargain and paying their rent faithfully, but the landlord got into trouble, and so the renter is now unfairly facing eviction,” said John Taylor, president of the National Community Reinvestment Coalition, a consumer advocacy group. “It’s really good news that Fannie Mae is doing this. Now the question is whether private sector will follow suit.”

In recent months, skyrocketing foreclosure rates have exposed as many as 70,000 renters to evictions, even though many never missed rent payments, according to analysts who track housing data. In many cities and states, renters can be evicted after their home goes into foreclosure, regardless of how long their lease stretches into the future.

Many financial institutions — including JPMorgan Chase and Bank of America — have policies to evict renters after foreclosure, company representatives said.

Fannie Mae’s initiative is expected to initially benefit as many as 4,000 renters living in foreclosed homes owned by the company. Fannie Mae has traditionally only bought and sold mortgages. But when a loan held by the company goes into foreclosure, Fannie Mae gains ownership of the underlying property until it is resold to new investors.

Fannie Mae owned 67,500 properties in foreclosure at the end of September, according to the company’s most recent filings. Most of those were owner-occupied. Under the new policy, former owners will most likely not be eligible to rent homes they lost in foreclosure.

Last month, both Fannie Mae and Freddie Mac, the other government-controlled mortgage giant, temporarily suspended foreclosures and evictions until early January. Fannie Mae will now offer renters in foreclosed properties month-to-month leases until the property is resold. A company representative said program details were still being worked out.

“While it may be sometimes tougher for us to sell a property when people are in it, we understand that lots of people are in tough situations right now,” said Chuck Greener, a Fannie Mae spokesman. “If a renter wants to stay in their home, we’ll make that happen. And if they want to move out, in many cases we’ll help them pay for the move.”

A spokesman for Freddie Mac said that the company was looking at a number of options, including a program similar to Fannie Mae’s, but that no decisions had been made.

The companies’ regulator, James B. Lockhart of the Federal Housing Finance Authority, issued a statement on Sunday saying that he expected both companies to update their policies shortly regarding renters living in foreclosed properties. Both Fannie Mae and Freddie Mac were taken over by Mr. Lockhart’s agency this year and now operate in a conservatorship.

Representatives of some major banks said it was unclear if Fannie Mae’s new policy would prompt their institutions to change theirs.

“We’re not in the business of managing rental properties, and we’re not in the business of being a landlord,” said Thomas Kelly, a spokesman for JPMorgan Chase, which owns about two million loans. “Clearly the renter is caught in the middle in cases like this. When a property is in foreclosure, we follow the law.”

Some lawmakers and housing advocates say such policies are unjust.

“If your loan is owned by Fannie Mae, you get to stay in your home. If your loan is owned by someone else, you’re on the street,” said Mr. Taylor of the National Community Reinvestment Coalition. “These banks need to realize they’re in the property management business now, whether they like it or not.”

Some lawmakers have complained that evicting renters is unfair. In November, the Los Angeles City Council voted to draft a law that would bar financial institutions from evicting renters living in foreclosed homes.

Last year, the House passed a measure that would require the new owner of a foreclosed property to inform renters at least 90 days before an eviction. That bill failed to pass the Senate. Law enforcement officers in some states have refused to evict residents of foreclosed properties.

But Yadilka Torres, who rents a home in New Haven, Conn., for $775 a month, had no such protection. Fannie Mae took possession of her house in September, when it went into foreclosure. Even though she was current on her rent, she received an eviction notice saying that she and her two young children would have to leave.

She looked for another apartment but could not find anything affordable. Under Fannie Mae’s new policy, she will now be allowed to stay.

“I was feeling so nervous,” Ms. Torres said. “I’ve tried very hard to pay the rent and to pay all my bills, and it seemed unfair this was happening. I’m very grateful we won’t have to move.”

New Condos are not selling like they use to

Just a few months ago, new developments in New York City were selling sight unseen. Now, developers are happy if they get a couple of contracts signed each month.

What I find interesting in the article, and what I am also seeing with my own business, is that more purchases are being made by first time buyers. Those who do not need to sell first are in a much better position to buy.

NYTimes article

Job cuts in NYC moving beyond Wall Street

Well, we had to see this coming. As the New York Time reports, workers outside of Wall Street are now getting laid off in New York. This is when the city will start to feel the pain. Wall Streeters live large and their spending in places like restaurants and high end clothing stores and on such things like domestic help and black cars has created many jobs for those lower on the economic food chain. (and their spending and income also adds millions of dollars to the city's tax rolls). While most Wall Streeters have at least some of a nest egg left these days (or maybe not after the dismal performance of the equity markets in 2008) to see them through after they have been laid off. But blue collar and many white collar types are not as fortunate. New York City is in for some econmoc pain, and I think that it is just beginging to show in the job numbers.

By Patrick McGeehan, The New York Times |

Well-paid professionals like lawyers, accountants and architects are joining the rapidly expanding unemployment rolls in New York City, as the effects of the financial crisis have spread beyond Wall Street not only to other white-collar industries but also to the construction and retail trades, a new report shows.

The number of white-collar workers outside the financial industry receiving unemployment checks was up by more than 40 percent in October from the same month last year, and the

number of college graduates collecting benefits was up by 50 percent, according to the report by the Fiscal Policy Institute, a nonprofit research group.

“Unemployment is starting to shoot up in New York City, and it’s affecting a spectrum of workers, both professionals and blue-collar,” said James Parrott, the institute’s chief economist and author of the report. “It’s hitting young workers and older workers, and it’s poised to rise dramatically in the weeks and months ahead.”

The report comes amid continued bad news in the financial industry. On Thursday, Bank of America said it planned to cut 30,000 to 35,000 positions over the next three years as it digests its acquisition of Merrill Lynch.

The report, based on state and federal unemployment statistics, provides hard data confirming a trend that was until now best understood anecdotally. It also showed that New York entered the recession much later than the rest of the country, largely because hiring by law and accounting firms, media companies and tourism-related industries remained strong through the first half of the year.

As recently as July, the number of new claims for unemployment benefits in the city was onlyabout 10 percent higher than it had been a year earlier. But since employment peaked in August, the city has lost about 10,000 jobs. And in the 12 weeks between late August and late November, first-time unemployment claims increased by more than 40 percent over the same period the year before, the sharpest year-over-year increase since February 2002.

Mr. Parrott said that the figures understate the severity of unemployment because many laid-off workers have not started collecting checks and many others do not qualify for benefits. In October, fewer than one-third of the 225,000 unemployed residents of New York City were collecting benefits, he said.

That portends an upsurge in the city’s unemployment rate for months to come, Mr. Parrott said. Most forecasts project that the city will lose more than 150,000 jobs during this recession. The Fiscal Policy Institute report estimates that job losses will average about 10,000 a month from November 2008 through the end of 2009.

The city’s unemployment rate was 5.7 percent in October, up from 5.2 percent in October 2007. The national unemployment rate was 6.5 percent, up from 4.8 percent the year before.

The growth in New York’s ranks of the well-educated unemployed seems to parallel a national trend, said Lawrence Mishel, the president of the Economic Policy Institute in Washington. Since March 2007, the number of college graduates who are unemployed has risen at a faster rate, 75 percent, than has the number of all unemployed Americans who are 25 and older, 62 percent, Mr. Mishel said.

“This is very strong evidence that this recession is very hard on college grads, more than usual,” Mr. Mishel said.

Mr. Mishel’s organization works with Mr. Parrott’s to promote the concerns of organized labor and low-wage workers.

Kenly Lambie, an architect who lives in Brooklyn, joined the ranks of the unemployed this summer after she was laid off by a firm where she had worked for a year. The dismissal caught her by surprise, but she said other firms have also cut back as construction loans have dried up.

“It’s really grim, and almost everyone I know who was at my level is unemployed,” Ms. Lambie, 29, said. She said she hopes to land at another firm in the city, but added, “If a really interesting opportunity came along in, say, Argentina, I’d jump on it.”

In the meantime, Ms. Lambie is trying to get by on a weekly unemployment check of $405, which she said is “definitely not enough.”

(Video: Possible layoffs at Yahoo)

A separate report released on Thursday by the city comptroller’s office echoed the central findings of Mr. Parrott’s study, doubling the city’s projection of the number of people who will lose their jobs by August 2010, to 170,000.

The comptroller’s report also estimated that total Wall Street bonuses this year will be less than half what was paid last year, making it the smallest amount since 2002. Largely as a result, city tax revenue will fall by 4.3 percent in the next half year, the comptroller concluded.

The layoffs in New York are following a traditional recessionary pattern by radiating out from the big financial companies to other professional services and to lower-paying businesses like

retailing, according to the report, which uses the latest data available from the state’s Labor Department.

In October, 6,428 people who had worked in professional, technical and scientific services were receiving unemployment benefits, up 42 percent from October 2007. That total — which includes the fields of law, accounting, consulting and engineering — exceeded the 5,935 people from the finance and insurance industries who were receiving benefits, the report showed.

The number of blue-collar beneficiaries was up 50 percent, driven mainly by a jump in laid-off construction workers.

Among those collecting benefits in the city, the smallest increases have come in management and from the fields of health care and social services and arts, entertainment and recreation, the report found. Health care and businesses that benefit from tourism have helped to bolster the city’s economy as the financial crisis has worsened.

But with the dollar strengthening against other currencies and foreign economies faltering, tourism has already begun to decline, threatening employment in that sector.

Not every unemployed person has a tale of woe. Lynne Figman, a real estate lawyer, said that she was given only about five minutes to clean out her desk at Phillips Nizer when she was laid off on Nov. 5. Her boss said he was letting her go because the firm expected its real estate practice to plummet next year, she said.

But Ms. Figman, who is receiving unemployment benefits now, has already begun setting up her own practice from her Upper West Side apartment and expects to have a healthy list of small businesses and homeowners as clients. On Sunday, she turns 50.

“I’m still going through with the plan to party,” Ms. Figman said. “My parents insist.”

Christine Haughney contributed reporting.

Copyright © 2008 The New York Times

Does Zell know more about real estate than publishing?

Sam Zell, who has made a fortune buying when everybody else is selling, was quoted in Tel Aviv saying that he thinks Us real estate will start to rebound in the spring of 2010. As they say in the Promised Land...from his lips to G-d's ears....

Sam Zell on www.CNBC.com

Once again, the most dangerous words in investing.."This time is different"

For all those who thought that Dubai, Miami, Las Vegas or New York for that Matter....

Is Dubai’s Party Over?

The glitzy facade shows some cracks.

Christopher Dickey with Vivian Salama in Dubai and Nick Summers in New York

NEWSWEEK

From the magazine issue dated Dec 15, 2008 - click here to link to Newsweek

In her classic account of World War I, Barbara Tuchman sets the scene for the passing of the prewar era with a vision of epochal pomp, the funeral of Britain’s King Edward VII. Nine monarchs rode in the procession and the pageantry evoked “gasps of admiration,” wrote Tuchman. But when it was over, one British peer reflected that “all the old buoys which have marked the channel of our lives seem to have been swept away.”

In Dubai last month, a very different kind of pageant was held, but if Tuchman were still around she’d have been taking notes. This triumph was billed as a world-beating blowout, a $20 million star-smacked extravaganza with the likes of Charlize Theron, Lindsay Lohan, Michael Jordan, and Robert De Niro in attendance. The fireworks display was so enormous it could only truly be appreciated from the heavens (literally—it was visible from space). The occasion was the opening of the $1.5 billion Atlantis resort complex on an enormous artificial archipelago shaped like a palm tree. The point of the party, its promoters explained, was to show the world that Dubai is a land of fantasies come true, an over-the-top destination for good times. But among many of the guests, the mood was funereal. As the fireworks exploded, the global economy was imploding. Many of Dubai’s overleveraged fortunes were crumbling, and no one was sure where to turn. The old buoys seemed to have been swept away.

“It’s a tragedy in the making,” said a senior executive with one of the city’s biggest real-estate-development companies as he peered into his champagne. “A lot of people are going to get hurt. A lot of dreams are going to be shattered,” he said, referring not only to the erstwhile rich and the speculators. Imported workers are already being exported, jobless, back to their homes. Skyscrapers are standing unfinished, baking in the sun. “Have you seen all those ships lined up on the horizon?” he said, gesturing toward the open gulf. “They’re stuck out there full of steel and concrete nobody wants anymore.”

While it may be an exaggeration to say that as goes Dubai, so goes globalization, it has become hard to imagine one without the other. More than any other place on earth, this city-state in the United Arab Emirates is the creation of worldwide commerce, a specialty-built magnet for the kind of hot money that seeks the quickest, highest profits and then moves on when they disappear. A lot of that cash comes from nearby Arab oil powers, most notably the adjacent emirate of Abu Dhabi, which has 90 percent of the UAE’s crude. But many billions more have flowed in from Iran, India, China, Russia, Europe, the United States, and indeed just about every other corner of the world.

For the past decade at least, real-estate speculation has been the national sport. The price of houses and apartments, many not yet built, rose by 43 percent in the first quarter of this year alone. Mortgage money was easy to get and speculators commonly flipped properties for substantial profits in a matter of weeks, sometimes even days, before the first monthly payments came due. Everybody wanted in on the game. “Employees didn’t focus on their work anymore,” complains the chairman of a regional transport company. “They all wanted to go buying property for 10 percent down, if that.” As of June, Dubai had 42 million square feet of office space under construction, more than any other city in the world, even Shanghai. What was a flat desert 20 years ago is today an urban canyon. Such is the frenzy that the Hard Rock Café, built among vacant lots in 1997, is now surrounded by skyscrapers—and plans to tear it down for another high-rise are being debated as if the Hard Rock were a heritage site.

But Dubai wasn’t just a receiver of world capital. It was also an important global investor. In 2006, its DP World acquired the management of six major U.S. container ports—until an explosion of xenophobic protest in Congress made the deal politically untenable. Today, among many other holdings, Dubai owns a 43 percent share in NASDAQ OMX and a 20.6 percent share in the London Stock Exchange. Its wholly owned subsidiaries include Travelodge in Britain, Mauser in Germany, and Barney’s and Loehmann’s in New York. By early 2005 the “liquidity gift,” or windfall profit, created by rapidly rising oil prices started to look like it would last, and Dubai’s boom really picked up steam. Some of the city’s top financial officials started warning privately that a bubble was forming and so sought to keep diversifying their holdings as widely as possible. But as oil prices continued to climb, more and more fresh cash poured into Dubai’s freewheeling economy and the public started to feel protected from global shocks. Nobody was ready for the plunge in prices over the past four months, which has taken oil down to less than a third of its price last summer. Dubai turned out to be “insulated but not isolated,” says Mary Nicola, an economist with Standard Chartered Bank.

As with so much in the interconnected world economy, the ripple effects of the current crisis keep spreading, exposing some of the more unpleasant facets of the Dubai dream. Layoffs, which have already begun, will have an impact not just in Dubai but also in the working-class neighborhoods of Manila and Mombasa and Thiruvananthapuram that sent their workers to the gulf. Thousands are expected to leave when the holiday season is over, with little fanfare. The guest workers’ invitations can be revoked any time, so few complain—but bitterness is widespread. Meanwhile, prices for houses and apartments still on the drawing board have dropped almost 50 percent in some areas, mortgage money is simply frozen, and major projects are stalled or being scaled back. Rumors abound that Dubai may have to sell a substantial stake in Emirates Airlines, the national carrier that’s vital to keeping it connected to the outside world. And in a business culture built on inside dealing, the official denials of such a sale have had little credibility out on the street.

The sense of uncertainty and fear has grown so much that even in Dubai’s famous gold souk, which was a center of trade long before the word “globalization” was invented, there’s now a pall of confusion. “Not only are gold prices dropping,” says Firoz Merchant, the owner of one of the shops. “Everything is uncertain and moving in different directions.” As if to underscore the gloomy mood, last month the Dubai Marina suddenly started filling up with excrement. Apparently many buildings in the city can only dispose of their wastewater by having it trucked to a treatment plant. But the drivers got impatient with long lines and started pumping it into storm drains that led straight to the sea.

In an effort to restore confidence just days after the Atlantis resort blowout, Dubai announced the creation of an “advisory council” headed by Mohamed Alabbar, the chairman of Emaar Properties, which is building, among many other projects, the tallest skyscraper in the world in the heart of the city. Emaar’s stock price, it is worth noting, has plummeted more than 80 percent this year, and the sale price of luxury apartments in the hyper-high-rise has dropped by 40 percent.

“Here in Dubai we are realists, and we are also optimists,” Alabbar told a forum at the Dubai International Financial Center on Nov. 24. To reassure his audience and the world he promised transparency, a rare concept in Dubai, and addressed the question of the emirate’s debt, long rumored to be astronomical. Alabbar said the government and its many affiliated companies had obligations of $80 billion, but assets of $350 billion. “Let me therefore state categorically: the government can and will meet all its obligations going forward.”

Such semi-official figures have never been made public before and their details have still not been divulged. So neither the liquidity of the assets nor the basis for their valuation is clear, and it’s hard for analysts to judge just how realistic Alabbar’s optimism is. “The important thing is not to focus on Dubai’s assets and liabilities, it is about moving forward to rectify the situation,” says Mushtaq Khan, an economist at Citigroup who authored a recent report on the Gulf.

If there is good news, it’s that Dubai’s leaders were quick to take some corrective measures in the earlier stages of the crisis. In September and October, the Central Bank implemented a $32.7 billion plan to support the country’s financial institutions. Alabbar announced last month that the two main home-mortgage lenders, which had run out of money, would in effect be nationalized. And he promised that the three largest developers in Dubai, which control about 70 percent of the supply on the real-estate market, would work together to keep it under control. The crash of the moment is really “a healthy correction,” he said.

Perhaps. Certainly many Dubai residents say they’d like a chance to catch their breath, and there are ample signs the city needs to catch up with itself. Just 50 years ago, the place was a dusty outpost of a few thousand people on a forgotten corner of the Arabian Peninsula. Forty years ago, one of its biggest businesses was smuggling gold to India. After British forces withdrew in the early 1970s from what were called the Trucial States, the seven local sheikhdoms became the United Arab Emirates. Abu Dhabi had the greatest share of wealth because it had by far the greatest share of oil. But Dubai had entrepreneurial spirit.

In the 1980s, under Sheik Rashid bin Saeed Al Maktoum and then his son Sheik Mohammed bin Rashid Al Maktoum, Dubai developed its enormous free port—even as Iran and Iraq fought a war on the horizon. Golf courses that were kept green with millions of gallons of desalinated water started changing the landscape, and by the 1990s, Dubai was building landmark resorts like the sail-shaped Burj Al Arab Hotel. It also started cashing in on new technologies with special Internet and media “cities” built to make it as important a hub for communications as it was for shipping and air traffic. In just five years, from 1995 to 2000, Dubai’s population grew 25 percent, and now stands at about 1.6 million people. The vast majority are expatriates coming to work at every level of society, from menial labor to senior management. In 2007, the Emirates as a whole counted only 864,000 citizens, compared with 3.6 million foreign workers. “While infrastructure development was rapid, the number of expats flocking to the city overwhelmed it,” says Citigroup’s Khan.

But even if Dubai needs an enforced breather, it’s not likely to get through the downturn unscathed. Abu Dhabi, after many years of quietly helping to fund Dubai’s growth and watching Dubai develop a reputation for innovation and excitement, is now looking to take a bigger share of the action. “A formal statement is unlikely,” says Khan, “but strategic assistance from Abu Dhabi is likely.” And so is increasing control. Abu Dhabi dominates the UAE’s federal government and last week the federal constitution was pointedly amended to bar the prime minister (Dubai’s Sheik Mohammed), his deputies and federal ministers from “any professional or commercial job” and to prohibit them from any business transactions with the federal or local governments. How this can be enforced is an open question—to a large extent, Dubai isMohammed Al Maktoum—but the message was clear enough: Abu Dhabi is now in charge.

Meanwhile, the Emirates are literally taking some time off, first for Muslim holidays and then for Christmas. Few big new initiatives are likely to be announced before the beginning of the year, if then. But the cracks continue to show. Take the new Atlantis resort, for example. It is a joint project between South African developer Sol Kerzner’s group and Nakheel, the Dubai development company that built the Palm Jumeirah island and other even more extravagant real-estate follies up and down the coast. Days after the grand opening, Nakheel announced it was laying off 500 people, or roughly 15 percent of its global workforce. “The people with Nakheel spend $20 million on fireworks and don’t have money to pay their own people,” says a Lebanese businessman with extensive interests in Dubai. “It’s a disaster.”

Meanwhile, even the rich are feeling the pinch. Last week the owner of a Mediterranean-style villa on one of the Palm Jumeirah’s beachy fronds facing the Atlantis dropped his asking price from $4.9 million to $3.6 million and then $3.13 million, and offered to throw in his Bentley as well. “Our client has his money stuck in the markets and he desperately needed it to run his business,” says real estate agent Anthony Jerish. “Still, nobody bought it. Maybe we will sell the Bentley separately. I don’t know.” No, this isn’t the old Dubai at all.

Good post from Noah at Urban Digs

Chasing A Moving Target

from Manhattan Real Estate: New York City Real Estate Tips by Noah Rosenblatt

A: A post for the sellers out there after getting some calls recently about this topic. If I had one piece of advice to Manhattan sellers, especially those who own properties that have few special resale features to offer (amazing park or river views, large outdoor space, fireplace, roof rights, amazing location, etc..), it would be to fight denial, resist the urge to anchor to peak prices, and to price your property aggressively at the outset. The hope is to be ahead-of-the-curve and to sell the property before you are forced to chase a moving target. The target of course are the buyers and the bid they may be willing to submit for your property. When I say 'chasing a moving target', I refer to any property that has reduced their asking price 3,4, or even 5 times over the course of the listing in the desperate hopes to find out where "market value" is. This type of seller is chasing a moving target, a target of buyers that seem to be running away ahead of them; finding themselves behind the curve chasing the market as it falls. As the buyers run away due to declining confidence and deteriorating economic fundamentals, the seller's are chasing them down with the hopes of catching up. The result tends to be counterproductive because it ultimately can lead to fierce sell side competition and even a further depression of buy side confidence. Let's say you are a buyer and you find an apartment that meets your needs. Now lets say that this property's asking price was reduced from $2,000,000 to $1,950,000, to $1,900,000, to $1,825,000, and is now asking $1,795,000; from original asking price to current asking price. As a savvy buyer in a market that is clearly pressured, with inventory clearly rising, with sales volume clearly way down, what are you going to be thinking about a potential bid? Chances are you will say to yourself something like this..."well, the seller is obviously eager to sell because they keep reducing the asking price, so why not bid lower and see what type of response I get". This is the kind of psychology that occurs out in the field. Denying this exists, well, is to deny that psychology plays a role in the buyers mind during the buying process. This buy side psychology is everywhere right now! Arguing this is to be an eternal optimist, and to see the silver lining in every situation; which is fine, but it may get you into trouble if you strategize a property sale in this manner. I'm not saying deals are not happening, they are, but deals that are happening are from buyers that are bidding cautiously! Even the Fed's beige book quoted Jonathan Miller's appraisal firm as telling us this:

"A major residential appraisal firm reports substantial deterioration in New York City's housing market over the past two months: prices of Manhattan co-ops and condos are reported to have fallen by 15 to 20 percent since mid-summer, though it is hard to get a clear handle on prices due to thin volume--much of the recent activity is reportedly from desperate sellers."

This is where deals are happening at, due to the illiquid nature of the marketplace right now! Sellers should learn from this real time information and price accordingly; but most are not. Most sellers are still anchored to previous sales in their buildings, even though the time & place of those sales were in an environment much less pressured than today. As far as I'm concerned, if you are going to use a comparable sale from 8-12 months ago, might as well plan on selling for 20% or so below that figure; calculating in a premium/discount for what floor you are on, light/view differences, layout differences, and renovation differences. There is a reason sales volume will be down significantly for the months of OCT-DEC 2008, and the reason is a disconnect between buyers & sellers. So, who's right? The buyers of course! The buyers are ALWAYS RIGHT! Umm, correct me if I am wrong, but that apartment you are trying to sell is ONLY worth as much as a buyer is willing & able to pay for it! Nothing more, nothing less. Just because your broker can't believe a buyer is not biting at a certain price, just because a seller can't believe no bids came in after a reduction or two, is proof that the market has changed and that the target is moving! As publisher of UrbanDigs.com for the past 3 years, I am outrageously lucky to have such a great readership, and active forum for people to openly discuss their thoughts on any topic of the day. But one side effect is that sellers call me for help after they mistakenly fell for the oldest trick in the book; signing on with a broker that excels at the sales pitch, promises an unrealistic price for their property, and sells themselves as an expert on their building with plenty of buyers waiting already in the wings. Of course, the high price puts the seller behind the curve and forces them to ultimately chase the moving target; and there never really were any serious buyers to begin with! So, these sellers call me because they want to know what price their property should be listed at given the real time conditions of the marketplace. I can't help these people because they are signed to listing agreements with their broker, and it would be unethical of me to interfere and give advice to somebody else's client. I don't care who you use to sell your property, but you need to be smart and acknowledge the world we are in RIGHT NOW! The world 6 months ago doesn't matter anymore. If you decide to price high because a broker promises that their business will get you that number, don't expect a quick sale! In fact, expect a long time on market with plenty of price reductions to re-stimulate traffic to your listing as time goes on. The reasons why I think the next 2-3 quarters in Manhattan will continue to be pressured are as follows: 1) JOBS - when the forced marriages of the credit crisis close, the re-organization, costs cuts, and job cuts will be announced. I believe Merrill alone is expected to announce up to 30,000 job cuts when their deal with Bank of America closes next quarter. Merrill will not be the only financial institution to announce layoffs. As it gets going in the financial sector, the slowdown will ultimately seap into the real economy here in NYC. The result will be layoffs at consumer driven business during the course of 2009. Its a very sad chapter of this crisis. To think that Manhattan real estate has seen the worst of the declines, as we enter a period of heavy job losses, is quite silly. Unfortunately, we must assume that X percentage of these jobs lost are from those that own a home here in Manhattan. Lets keep it real here as always, 2009 is likely to be the dark year for Manhattan's economy and it is certainly rational to expect this fundamental to continue to pressure the sell side of our real estate market. 2) APPRAISALS - NEGATIVE TIME VALUE - something that very few are discussing. Let us wake up the reality that the market has eroded and that the significant erosion in prices has not yet filtered through to closed sales. In comes 'negative time value' from the appraisal side. Now, when you do comps analysis on that property you are considering bidding for, you have to review comps from the past 6-8 months, which means the deal was signed into contract between 8-11 months ago or so. It's only when the deal closes that the purchase price is recorded as a matter of public record; and then used as a comp. Think about what will happen when NOV & DEC sales get recorded in JAN & FEB of next year! These fresh comps, that reflect the erosion I have been describing recently, will set the new hallmark for analysis! Jonathan Miller adds:

"Conditions this fall have been characterized by low sales activity and price erosion. We have been making negative time adjustments on most of our appraisals during this period to reflect the change in value between the date the “comp” sold and current value. Not one lender has expressed concern and in fact, continue to remind their approved appraisers to reflect current market conditions in their reports. The rapid change in this underwriting orientation is personally shocking to me since underwriting has been detached from reality for so long. In my view, restoring trust in the lending process begins with having correct valuations as a benchmark for informed lending decisions."

When these deals close, and are entered into the system as comps, it will set the new level for future analysis. The question then becomes, how much longer will the appraisers price in 'negative time value' into their #s? 3) MEDIA - I am telling you that the market is illiquid, sales volume down significantly, and that deals being done today are in the 15-25% down from peak range. It is likely that these contracts that are signed today, will close in the next 1-3 months. With that said, it appears Q1 of 2009, released April of 2009, could be an ugly report. If it is, and reflects what real time information I am discussing here, then the media is going to go overboard with it. The effects on buy side confidence and psychology from the media's take on the Manhattan market at that time, is likely to further dampen demand at a time when many sellers will probably have a time pressure to move the property. Time will tell if the media enhances this slowdown cycle. 4) POCKETS OF DISTRESS - feeds from #1. It is likely we see more pockets of distress as long as this market REMAINS ILLIQUID! That is the key phrase, illiquid! If this market remains illiquid, and there are few bids being submitted, trust me, you will eventually see those sellers that absolutely must move property. This may lead to some fierce sell side competition IF the market remains illiquid for a significant portion of 2009. I generally ask myself, what fundamentals will improve over the next few quarters that will lead to a wave of buyers entering this market with strong bids, adding liquidity to the market? I have trouble rationalizing an answer to this question right now. Sellers, price ahead of the curve for any hope of avoiding chasing a moving target!

Great article about New York Real Estate from 1968

Google has now made it possible to look at every single New York Magazine ever published. In an issue from 1968 there is an article about New York City real estate, what is takes to get into a coop on 5th Avenue, and the price of an apt on West End Avenue. A must read for anybody who has ever lived in New York.

New York Magazine Article from 1968

The Rules have changed....

New York Magazine has an article about the new reality for developers. Basically, if it ain't built, it ain't selling. And from I am seeing, in many neighborhoods around New York City, even if is built, it is not selling. Inventories are up across the board, and in places like Long Island City, parts of Brooklyn and Harlem, many new condos are turning into rentals.

They Might Come If You Build It

But not till you do: Almost nobody’s buying from floor plans anymore.

• By S.Jhoanna Robledo
• Published Dec 7, 2008

Illustration by Brian Rea

It feels as if it were long ago, but it’s really only been a few years since it was commonplace for buyers to make deals in a car, outside a construction site, looking at an unrolled blueprint. Fueled by a sense of urgency and afraid to lose on the next Tribeca or Williamsburg, buyers were willing to purchase condos in unproven neighborhoods, nearly sight unseen. “Everybody wanted to be first through the door,” remembers Corcoran Sunshine Marketing’s Beth Fisher, who oversees sales at Brooklyn’s On Prospect Park and many other condos. “People believed being first would guarantee steep appreciation.” If a big-name architect was involved, buying early almost guaranteed a profit if you decided to sell and move on. At 15 Central Park West, for example, one seventh-floor unit sold for $1.8 million, nearly twice what someone had previously paid for the exact same layout one floor below.

Today? If it’s not built, very few are buying. At On Prospect Park (designed by Richard Meier) and Soho Mews (Gwathmey Siegel), the doors were thrown open months ago—when the buildings were incomplete—to sluggish sales. Last summer, Soho Mews was booking about twenty appointments per month. By October, though, everything had changed, with 60 percent returning for a closer look, sometimes with designers in tow. At the Meier project, roughly two apartments each week have gone into contract recently, and entire apartment lines are sold out. The difference? Both got out of the floor-plan stage to the point where buyers could walk through.

The economy, of course, is making people cautious, but so are rumors of poor construction and projects that have collapsed from the loss of credit. “The illusion was better than reality in the old days,” says Soho Mews developer Albert Laboz. “[Now] if you’re going to spend money, you have to make sure you love what you’re buying.” And that love usually comes only on first sight, says developer Paul Klausner, whose One Sunset Park in Brooklyn has lured visitors, largely because it’s a conversion of an existing rental and promotions didn’t begin in earnest until available spaces were really finished. “The speculative nature of the marketplace is completely gone,” says condo marketer James Lansill. “Now that people are skeptical about almost everything, you have to work that much harder to sell a building if it’s just a hole in the ground. The best evidence is the building itself.”

Thirty-Year Mortgage Hits 5.47%, a Four-Year Low

CNBC does a nice job of explaining why mortgage rates are currently so low. Too bad so many of our clients in New York have jumbos, which are still higher than normal.

Thirty-Year Mortgage Hits 5.47%, a Four-Year Low

Interest rates on the most common U.S. mortgages fell to their lowest level in over four years, a report on Thursday showed, as billions of federal dollars invested in the housing sector have begun to lower the costs of owning a home.

Thirty-year mortgage rates fell to an average of 5.47 percent in the latest week, the lowest since hitting 5.40 percent in March 2004, according to Freddie Mac.

Home borrowing rates have fallen sharply since the Federal Reserve promised in late November to buy up to $500 billion of mortgage investments from Freddie Mac
and Ginnie Mae. The three government-backed enterprises back most new home loans since Wall Street has turned its back on the sector.

The Fed has also promised to buy $100 billion in fresh debt issued by Fannie, Freddie and the twelve Federal Home Loan Banks in a further effort to grease the financial markets and coax potential homebuyers into the market.

"After Federal Reserve actions to increase liquidity in the mortgage market, interest rates for fixed-rate mortgages took a dive," Frank Nothaft, Freddie Mac vice president and chief economist, said in a recent statement.

U.S. 15-year mortgage rates also fell in the week to an average of 5.20 percent from 5.33 percent last week, the survey said. This was the lowest since they averaged 5.15 percent in early February.

Recovery of the housing market is seen as a key condition to restoring the broader economy to health and recent data suggests that lower mortgage rates have spurred potential home buyers.
Mortgage applications surged by the largest amount on record earlier this month in the wake of government action, the Mortgage Banks Association said.


On Wednesday, that volume was seen to slip a bit but many more homeowners are taking advantage of the rates as are current borrowers who want to refinance and lower their monthly payments.

Bad day for developers in New York City

First Vornado and now Forest City..

More from the Observer

Forest City: All New Development On Hold (Except Atlantic Yards)

by Eliot Brown 2:39 PM December 10, 2008

The word from the top brass at Forest City Enterprises, parent company of Brooklyn-based mega-developer Forest City Ratner, is the firm is suspending all new development. That is, except Atlantic Yards.

Forest City Enterprises president Chuck Ratner said in a conference call with investors and analysts that the financial crisis has forced the company to shift strategy from a development focus to a property operator focus.

“This strategy then says that we intend to put virtually all new development on hold until economic and market conditions improve meaningfully,” he said.

The company will not stop projects under construction already, Mr. Ratner said, nor will it halt Atlantic Yards, the more than $4 billion planned project that would build a new Nets basketball arena and more than 6,000 units of housing in Brooklyn.

Later in the call, he noted that over the last four years, the company has started an average of $800 million annually in new development projects. Those days are over. “With the exception of Atlantic Yards, we will start—in 2009, we do not expect to start more than one building,” he said.

Just how and when the company will be able to start the massive project, given the tumultuous economic climate, Mr. Ratner was unable to offer specifics.

“We continue to work with the public parties,” he said, doing some small preliminary work on the site (which apparently came to a halt last week). “I think we can successfully do that until we are prepared to start—I can’t tell you today when that day will be … it’s not a question of entitlement, it’s a question of the marketplace.”

Suffice to say, observers say financing for a $950 million arena would be a bit of a heavy lift in this market, to put it mildly.

Forest City has said it cannot try to secure financing for the arena until it closes on the rail yards, and in turn, it cannot close on the rail yards until it finishes litigation, which is due for a hearing in coming months.

Harlem not getting MLB project

My wife and I live in Harlem, so this one is personal. There are many residents of Harlem that seem to want to block progress at any cost. It is too bad that Vornado could not have gotten this building approved more quickly. Perhaps they would have been far enough along by now that the economy would not have halted the project. Now we will continue to have a nice trash filled empty lot on the corner of 125th and Park Avenue. Awesome.

Vornado Exec: 125th Street MLB Project ‘Shut Down’

From The Observer

by Eliot Brown | 3:42 PM December 10, 2008

The tower that might have been.

Another new development project canceled.

Speaking at an investor conference yesterday, Vornado CFO Joseph Macnow gave word that the company’s troubled plans for Harlem Park, an office tower on 125th Street, have been officially scuttled.

“We’ve shut down a couple of development projects,” Mr. Macnow said. “We were going to build the first office building in Harlem in 50 years on 125th Street and Park Avenue. We’ve shut that project down. The economics are not warranted today to do that job.”

Vornado had once wanted to build a 630,000-square-foot office building as a home for a Major League Baseball television network. The developers said they had tentative leases on only about one-third of the space, and thus Vornado couldn’t find financing to build the tower.

In preparation for the tower, Vornado had even gone to the community board and negotiated a concession package in order to gain an exemption from a planned rezoning that would have limited the height.

I bet this never happned to Neel at Goldman

Neel Kashkari Gets Grilled

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Photo: Getty Images

Bailoutmeister Neel Kashkari was grilled and filleted in front of the House Financial Services committee today. The Times' DealBook has a roundup of some of the more snippety quotables from Congress, including this arch little comment from Alabama Representative Spencer Bachus:

I wonder what [Treasury] Secretary [Henry] Paulson and Mr. Kashkari, back when they were still working for Goldman Sachs, would ever agree to a deal where billions of dollars changed hands based on a two-page application, without asking what the money was going to be used for or whether it was going to be paid back.

Do you? Do you really wonder, Congressman? Because it kind of sounds like you're just being rhetorical. Then Melvin L. Watt of North Carolina aired the conspiracy theory that, we imagine, he thought everyone was thinking but did not have the cojones to say.

"Is Goldman Sachs running this country? What are we doing giving $700 billion and there is this monopoly on who is controlling it. Nobody is accounting to anybody for it. And the perception, whether the reality is correct or not, the perception is that there is something sinister going on here."

Oh. You know that he spent the whole night before pacing around, muttering, "Something's rotten here. I'm just going to say it. I'm just going to come right out and say it." Also we think he maybe saw the trailer for that Clive Owen movie this weekend.