By Richard Beales and Saskia Scholtes in New York
Published: February 27 2007 20:23 Last updated: February 27 2007 23:18
The market for home loans made to Americans with patchy credit histories suffered another blow on Tuesday as Freddie Mac, the US government-chartered mortgage finance group, said it would no longer buy several risky types of subprime mortgages.
The move, billed as a way of protecting borrowers from predatory lending practices, follows a sharp sell-off in the subprime mortgage world that threatens to spill over into the broader $8,000bn US mortgage market.
Defaults on home loans to subprime borrowers have spiked in recent months, exposing a loosening of lending standards in the past two years and forcing more than 20 small subprime lenders to close their doors.
Together with losses at big institutions, including HSBC and New Century Financial, this has prompted lenders to impose tighter criteria for risky borrowers. “The steps we are taking today will provide more protection to consumers and enhance the level of underwriting standards in the market,” said Richard Syron, chief executive.
Freddie Mac, which buys mortgages from lenders and guarantees bonds backed by pools of home loans, is traditionally seen – along with Fannie Mae – as a mortgage buyer of last resort.
But the company said that from September it would stop buying “no income, no assets” mortgages, in which borrowers are not asked to provide financial information; “stated income, stated assets” products, for which borrowers’ incomes are not easily verifiable; and certain kinds of mortgages offered with teaser rates.
The move could put further pressure on the battered subprime market. The ABX index tracking the credit risk on subprime mortgage-backed bonds rated BBB- has ballooned from 250 basis points about three months ago to about 1,400bp on Tuesday.
Jeffrey Rosenberg, head of credit strategy research at Bank of America, said that the “erosion” in the ABX had also “bled” into the highly rated AAA version of the index, suggesting investor concerns are broadening.
This indicator of less-risky mortgage credit risk has jumped from about 10bp at the beginning of February to approach 30bp.
Analysts say a tightening of mortgage-lending standards could damp any recovery in the housing market. Mr Rosenberg said: “Even a slight potential for housing-led weakness to grow into larger systemic concerns would lead spreads wider.”
Existing home sales data released on Tuesday suggested slightly stronger activity than expected last month. But the supply of unsold homes held steady at a high 6.6 months.
With this kind of turmoil in the housing market in the US and UK, stock market instability, a good place for cash right now is in Gold Bullion and the New Gold 4 Gold Trading Platform
Wednesday 28 February 2007
Thursday 15 February 2007
Real Estate for Dummies
Although this article and books were written in the US the simalarities are so striking that it has to be taken seriously. John Burke
By Susan Barretta
The publication of Real Estate for Dummies in November 2004 indicated that real estate has "arrived" in the public consciousness. The complete idiot’s guide to success as a real estate agent followed in 2006.
It was no longer a matter of buying a house to shelter yourself and your loved ones -- instead, it was about putting your money to work in "hard assets" by buying second and vacation homes, creating streams of income in rental properties, and fixing up properties for a quick flip.
What does the S&P 500's ascent mean?
In Wednesday's (Feb. 14) Short Term Update, editor Steven Hochberg noted that just because the S&P 500 climbed to 1455.33 on Wednesday doesn't mean that it's going to keep soaring: "Each time it appears that the S&P is finally set to confirm a reversal, prices turn up from trendline support." Yet each time this happens, the advance weakens, today's gain being the smallest. Learn more here.
The mania even reaches a point where speculators do not even have to put any elbow grease into a fixer-upper; they merely buy under-construction properties from a builder and sell 'em once they're built.
"Everybody should have the opportunity to own their piece of the American dream, no matter their income level, race, religion, or gender." On the other side of this is the haunting thought, "If I don’t get in now, I may never be able to afford it!"
"You’ve got to live someplace. They aren’t making more land!"
"[Comparable] houses have gone up ... Now I feel like we will never be able to afford a house."
Thwarted home buyer, Los Angeles Times, August 4, 2002
"We've got -- home ownership rate is at an all-time high. And a particularly important part of that statistic is minority home ownership rates are at an all-time high ... When I'm talking about ownership, I'm talking about ownership for all people, not just -- not just a certain type of person. We want ownership to be a part of every neighborhood."
President George W. Bush, July 2, 2004
The real surge in home ownership came in the post war years. Between 1960 and 1990 ownership rates were between 60% and 65%. Even with the push to improve home ownership rates for even the most disadvantaged groups, one would think that the rates would have surged past 75% by now. In 2004, when President Bush made those remarks, the home ownership rate stood at 69%. It declined slightly in 2005 to 68.9%. Perhaps slick lending tricks have been run to exhaustion.
Even children are part of the audience in the real estate sales pitch. Some realty agencies have sponsored school essay contests for students to write about what the word "home" means. One national home builder offered coloring books to the kids while the parents were in the sales gallery of the latest condo development. The subject of the coloring book? Moving into a new house, of course.
"Did you see the movie about those crazy home buyers?" Not content to just live in a house, we experience real estate through games, books, comics, TV shows, and movies.
Monopoly, the classic real estate game first released by Parker Brothers in 1935, is still the most popular board game on the planet. In the United States, city specific editions started appearing around 1994. A Mega edition, released in 2006, takes players back to the game’s origin (Atlantic City, NJ) and now has players erecting skyscrapers. The properties in the United States Here and Now edition, also released in 2006, cover the entire United States, ranging from Jacobs Field in Cleveland to Times Square in New York.
For Sale signs resembling Monopoly game boards have been spotted. The California Department of Real Estate has a link on its website directing children to a Monopoly page, to teach children about real estate.
In the amazon.com book listings, not only are there scores of published books on real estate speculation, but the number of books scheduled for future publication is climbing.
In 2006, David Lereah, chief economist of the National Association of Realtors (NAR), released Why the real estate boom will not bust – and how you can profit from it. Other books published in 2006 are:
Titles due out in 2007 include:
All real estate is local: why understanding the housing trends in your area is essential to building wealth (also by NAR’s economist)
Successful real estate investing in a boom or bust market
Nothing down for women: the smart woman’s quick-start guide to real estate investing An insider’s guide to real estate hot spots
Rent to own: use your rent money to get started owning real estate
The real estate entrepreneur
Be a real estate millionaire: secret strategies to lifetime wealth today
If residential housing is not your cup of tea, you can always wait until 2008 for the release of How to retire fast investing in commercial real estate.
In June 2005, the nationally syndicated cartoon Cathy ran a humorous but truthful story arc in which the characters got hit with "sticker shock" while looking for a new home, and then went through the stressful process of buying a house.
Characters in the role of real estate professionals have appeared in movies and television series since these entertainment genres have come into existence. But few television programs or movies have focused on the buying, improving, and selling real estate as its central theme.
Until recently, that is. There is a real estate glut on the airwaves and in film.
Among the crop of reality TV shows are The Apprentice (2004), in which contestants seek the opportunity to work for real estate icon Donald Trump; Extreme Makeover, Home Edition (2003), in which volunteers remodel or rebuild the house of a family facing hardship; The Adam Carolla Project (2005), in which the comedian fills in as contractor and carpenter on a housing project; Flip This House (2005), in which real estate developers rapidly turn eyesores into "profitable beauties"; House Hunters International (2006), in which buyers and their agents try buying real estate overseas; and one show not yet aired as of this writing but in the works is Real Estate Confidential (2007), which presents stories on successfully buying or selling a house.
Some recent documentaries and movies on the subject include House Hunters (1999), which "focuses on the emotional experience" of buying a home; Crazy Like a Fox (2004), in which victims wage war against evil real estate speculators; and Closing Escrow (2006), a comedy about real estate in which different couples try outbidding each other for the same property. If one wants to go back far enough, Glengarry Glen Ross (1992) is about the lives of high-pressure of real estate salesmen.
An acquaintance from a family of realtors recently joked that he was hoping this market bubble would pop, "so these TV shows will go away."
"I guess it's going pretty good…I love California."
Homeowner whose house value has tripled since 1997, L.A. Times, November 12, 2006
It’s time for a trend change. In the next article, we’ll look at what kind of behavior we would expect to see as the housing bubble deflates.
By Susan Barretta
The publication of Real Estate for Dummies in November 2004 indicated that real estate has "arrived" in the public consciousness. The complete idiot’s guide to success as a real estate agent followed in 2006.
It was no longer a matter of buying a house to shelter yourself and your loved ones -- instead, it was about putting your money to work in "hard assets" by buying second and vacation homes, creating streams of income in rental properties, and fixing up properties for a quick flip.
What does the S&P 500's ascent mean?
In Wednesday's (Feb. 14) Short Term Update, editor Steven Hochberg noted that just because the S&P 500 climbed to 1455.33 on Wednesday doesn't mean that it's going to keep soaring: "Each time it appears that the S&P is finally set to confirm a reversal, prices turn up from trendline support." Yet each time this happens, the advance weakens, today's gain being the smallest. Learn more here.
The mania even reaches a point where speculators do not even have to put any elbow grease into a fixer-upper; they merely buy under-construction properties from a builder and sell 'em once they're built.
"Everybody should have the opportunity to own their piece of the American dream, no matter their income level, race, religion, or gender." On the other side of this is the haunting thought, "If I don’t get in now, I may never be able to afford it!"
"You’ve got to live someplace. They aren’t making more land!"
"[Comparable] houses have gone up ... Now I feel like we will never be able to afford a house."
Thwarted home buyer, Los Angeles Times, August 4, 2002
"We've got -- home ownership rate is at an all-time high. And a particularly important part of that statistic is minority home ownership rates are at an all-time high ... When I'm talking about ownership, I'm talking about ownership for all people, not just -- not just a certain type of person. We want ownership to be a part of every neighborhood."
President George W. Bush, July 2, 2004
The real surge in home ownership came in the post war years. Between 1960 and 1990 ownership rates were between 60% and 65%. Even with the push to improve home ownership rates for even the most disadvantaged groups, one would think that the rates would have surged past 75% by now. In 2004, when President Bush made those remarks, the home ownership rate stood at 69%. It declined slightly in 2005 to 68.9%. Perhaps slick lending tricks have been run to exhaustion.
Even children are part of the audience in the real estate sales pitch. Some realty agencies have sponsored school essay contests for students to write about what the word "home" means. One national home builder offered coloring books to the kids while the parents were in the sales gallery of the latest condo development. The subject of the coloring book? Moving into a new house, of course.
"Did you see the movie about those crazy home buyers?" Not content to just live in a house, we experience real estate through games, books, comics, TV shows, and movies.
Monopoly, the classic real estate game first released by Parker Brothers in 1935, is still the most popular board game on the planet. In the United States, city specific editions started appearing around 1994. A Mega edition, released in 2006, takes players back to the game’s origin (Atlantic City, NJ) and now has players erecting skyscrapers. The properties in the United States Here and Now edition, also released in 2006, cover the entire United States, ranging from Jacobs Field in Cleveland to Times Square in New York.
For Sale signs resembling Monopoly game boards have been spotted. The California Department of Real Estate has a link on its website directing children to a Monopoly page, to teach children about real estate.
In the amazon.com book listings, not only are there scores of published books on real estate speculation, but the number of books scheduled for future publication is climbing.
In 2006, David Lereah, chief economist of the National Association of Realtors (NAR), released Why the real estate boom will not bust – and how you can profit from it. Other books published in 2006 are:
Wise women invest in real estate
The insider’s guide to tax-free real estate: retire rich using your IRA
Weekend warrior’s guide to real estate
Titles due out in 2007 include:
All real estate is local: why understanding the housing trends in your area is essential to building wealth (also by NAR’s economist)
Successful real estate investing in a boom or bust market
Nothing down for women: the smart woman’s quick-start guide to real estate investing An insider’s guide to real estate hot spots
Rent to own: use your rent money to get started owning real estate
The real estate entrepreneur
Be a real estate millionaire: secret strategies to lifetime wealth today
If residential housing is not your cup of tea, you can always wait until 2008 for the release of How to retire fast investing in commercial real estate.
In June 2005, the nationally syndicated cartoon Cathy ran a humorous but truthful story arc in which the characters got hit with "sticker shock" while looking for a new home, and then went through the stressful process of buying a house.
Characters in the role of real estate professionals have appeared in movies and television series since these entertainment genres have come into existence. But few television programs or movies have focused on the buying, improving, and selling real estate as its central theme.
Until recently, that is. There is a real estate glut on the airwaves and in film.
Among the crop of reality TV shows are The Apprentice (2004), in which contestants seek the opportunity to work for real estate icon Donald Trump; Extreme Makeover, Home Edition (2003), in which volunteers remodel or rebuild the house of a family facing hardship; The Adam Carolla Project (2005), in which the comedian fills in as contractor and carpenter on a housing project; Flip This House (2005), in which real estate developers rapidly turn eyesores into "profitable beauties"; House Hunters International (2006), in which buyers and their agents try buying real estate overseas; and one show not yet aired as of this writing but in the works is Real Estate Confidential (2007), which presents stories on successfully buying or selling a house.
Some recent documentaries and movies on the subject include House Hunters (1999), which "focuses on the emotional experience" of buying a home; Crazy Like a Fox (2004), in which victims wage war against evil real estate speculators; and Closing Escrow (2006), a comedy about real estate in which different couples try outbidding each other for the same property. If one wants to go back far enough, Glengarry Glen Ross (1992) is about the lives of high-pressure of real estate salesmen.
An acquaintance from a family of realtors recently joked that he was hoping this market bubble would pop, "so these TV shows will go away."
"I guess it's going pretty good…I love California."
Homeowner whose house value has tripled since 1997, L.A. Times, November 12, 2006
It’s time for a trend change. In the next article, we’ll look at what kind of behavior we would expect to see as the housing bubble deflates.
Friday 2 February 2007
Property Investment at Any Price?
Who would buy an asset at the top of a market?, well most people buying in the South East of England actually. The only ones who are giving themselves a chance are those who buy property with potential for improvement, or expansion, or with planning gain possibilities.
Anyone else who is happy with a rental yield in the 3% range or lower is taking a huge gamble, even in the medium term. Not only are tenants getting harder to find, mortgage rates rising and bankruptsy rates rocketing, but if property values start to fall as in 1989-1992 then you are sitting on a "millstone".
When looking at a property investment (and assuming you are not buying outright, and with unlimited cash reserves) you have to look at the borrowing rates and rental yields. Even if you will not actually borrow against the property!. Why, becase they give a good rule of thumb as to the quality of an investment. At 3% yeild as above you may as well put your money in the bank!, at least you will not have the worries of finding tenats, getting the rent and re-furbishing.
With the market in the South East overheated, the risks of a downturn can turn an investment gain of a few %, into a loss of 10-15% on several hundreds of thousands! Therefore look at the attractions of the North, rental yeilds of 8-10% plus capital appreciation as they try to catch up with the North-South property gap.
Now at these yields it is OK to borrow against these properties. Because you can borrow at a rate below the rental yield, means that you are making money on the loan!. This is how we have built up our portfolio in the last 3 years. By a process of buying, renting, improving, re-mortgaging, we have about 50 properties.
So the moral is: treat property as an investment, seek out good investment returns, and be prepared to walk away from over priced property. In the process throw at the vendor an offer of 30% below the asking price. Once in a while you will get a YES!
Anyone else who is happy with a rental yield in the 3% range or lower is taking a huge gamble, even in the medium term. Not only are tenants getting harder to find, mortgage rates rising and bankruptsy rates rocketing, but if property values start to fall as in 1989-1992 then you are sitting on a "millstone".
When looking at a property investment (and assuming you are not buying outright, and with unlimited cash reserves) you have to look at the borrowing rates and rental yields. Even if you will not actually borrow against the property!. Why, becase they give a good rule of thumb as to the quality of an investment. At 3% yeild as above you may as well put your money in the bank!, at least you will not have the worries of finding tenats, getting the rent and re-furbishing.
With the market in the South East overheated, the risks of a downturn can turn an investment gain of a few %, into a loss of 10-15% on several hundreds of thousands! Therefore look at the attractions of the North, rental yeilds of 8-10% plus capital appreciation as they try to catch up with the North-South property gap.
Now at these yields it is OK to borrow against these properties. Because you can borrow at a rate below the rental yield, means that you are making money on the loan!. This is how we have built up our portfolio in the last 3 years. By a process of buying, renting, improving, re-mortgaging, we have about 50 properties.
So the moral is: treat property as an investment, seek out good investment returns, and be prepared to walk away from over priced property. In the process throw at the vendor an offer of 30% below the asking price. Once in a while you will get a YES!
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