Nomura Gets 6 Years Free Rent For London HQ - Canadian Pensioners Probably Not Happy......

The landlord is Oxford Properties ( the property arm of the Ontario pension fund in combination with UBS )....The 365,000 active and retired members of one of the biggest Canadian pension funds are probably not happy....... The unfavourable CAD/GBP Chart isn´t making things better..... And with stories like this it is only going to get worse...... For more "good" news on the pension front i recommend the blog Pension Pulse.....Unfortunately the situation in Germany isn´t any better.....I have listened to the latest conference call from Thyssen Krupp ( one of the largest steel producers and close to a junk rating ) & the CFO ( former CFO from überlevereged CONTI..... ) said the ( analogous ) following ( and he was not kidding! )..... "Good that our pension plan is still underfunded by over € 6 billions..... If we would have funded it in the past few years the deficit would be much bigger".... Probably the best spin attempt i´ve heard so far... CHUZPAH!

Der Vermieter ist in Kombination mit der UBS der Immobilienarm des Pensionsfonds von Ontario.....Keine guten Nachrichten für 365,000 Mitglieder einer der größten kanadischen Pensionskasse...... Wenn man jetzt auch noch die nicht gerade vorteilhafte Währungsentwicklung hinzunimmnt ( siehe CAD/GBP Chart ) dürfte der Ärger nicht geringer werden..... Und dank Nachrichten wie diesen ist eine Besserung nicht in Sicht...... Wer mehr "gute" Nachrichten zum Thema Pensionskassen hören möchte dem empfehle ich Pension Pulse oder die letzte Telefonkonferenz von Thyssen Krupp ( demnächst höchstwahrscheinlich mit einem Junkrating )..... Sinngemäßes Zitat CFO ( kommt von Conti.....) " Gut das wir zur Zeit mit über 6 Mrd unterfinanziert sind ...." Nach dem Motto je größer das Defizit desto weniger können wir mit unseren Einlagen verlieren..... So verkauft man grotesk schlechte Nachrichten noch als Erfolg.....PS: Überflüssig zu erwähnen das solch geringe Summen in der Präsentation die fleißig den Aufbau der flüssigen Mittel abfeiert vollkommen fehlt....CHUZPE!

Let´s at least hope they have viewed this deal from the start as "opportunistic"........

Bleibt zu hoffen das der Deal von Anfang an als "Opportunistisch" angesehen worden ist........

> From the 2007 press release when the deal was anounced......

> Aus der Pressemitteilung vom Sommer 2007

"The Watermark Place development is another important step in the expansion of Oxford's global investment platform,demonstrating the skills, capabilities, and reach of Oxford and its investment professionals. We are excited about our relationship with UBS - a world-class investment manager and a great like-minded partner." Andrew Trickett, Vice President of Corporate Development & Investment, added "this development represents a unique investment opportunity for Oxford and an outstanding addition to London's office market.

LONDON, Aug 31 (Reuters) -

Japanese investment bank Nomura has secured a rental deal on its new London headquarters allowing free rent for almost six years, the Financial Times reported, citing the terms of a deal to be announced on Tuesday.

The FT said the bank will confirm plans to move its UK business, including the staff taken on as part of the Lehman Brothers acquisition, into a new office development on the Thames.

Up to 4,000 banking staff will move into the 12-storey Watermark Place next year, many relocating from the former Lehman Brothers building in Canary Wharf.

The landlord, Oxford Properties, is the property arm of an Ontario pension fund and UBS

UPDATE via German FT Mietfrei im Londoner Hybrisbau

The term of the leasing contract is 20 years and the price is 40 british pound per square meter ( peak boomtimes 70 british pounds )

Der über 20 Jahre laufende Mietvertrag sieht nämlich vor, dass die Japaner in den ersten sechs Jahren kostenlos (!) in dem Glaspalast an der Themse residieren dürfen. Für die verbleibende Zeit verlangen die Eigentümer - ein Konsortium aus der Schweizer UBS und einem kanadischen Pensionsfonds - 40 Pfund je Monat und Quadratmeter. Zu Boomzeiten waren 70 Pfund üblich.

> With news like this no wonder Canary Warf needs a bailout......

> Dank solcher Nachrichten ist es wenig verwunderlich das Canary Warf in extremer Schieflage ist......

China invests in Canary Wharf with £880m bail-out of Songbird Telegraph

China is set to become the joint-largest shareholder in the owner of Canary Wharf after joining an £880m bail-out of Songbird Estates with its first major investment in UK property.

UK CRE Now Off 45 Percent From The Peak.......

According to IFD, UK commercial properties values have been declining fast with peak to current declines of around 45%, with major declines noted in all major segments - retail, offices and industrials

At the same time the amount of available floor space for occupation increased at the fastest pace since 1999 in all regions with the exception of London (Chart 2) and thevalues of inducements rose at its fastest pace since the survey’s history in 1999. Collectively this implies that an upward correction in prices in the foreseeable future is unlikely.

> I still would almost die to see a similar stat for Dubai ( see The Upcoming Skyscraper Tsunami..... )

> Ich würde immer noch liebend gerne eine ähnliche Statistik für den Markt in Dubai sehen ( siehe The Upcoming Skyscraper Tsunami..... )

> Only 6 years of free rent.......Cleary a sign that the bottom is near....... ;-)

> Lediglich 6 Jahre Mietfrei in einer Top Lage Londons......Klares Anzeichen das der Boden wie tagtäglich propagiert inzwischen erreicht ist.... ;-)

Update:

Stuy Town, Which Is On Verge Of Default, Costs Florida's Pension Fund Entire $250 Million Investment

For Commercial Real Estate, Hard Times Have Just Begun

Corporate Pension Fund shortfalls weigh on recovery

No Kidding....Mortgage trouble for the mortgage bankers association

You just cannot make this up..... Better than most of April Fools jokes i have heard this year.... SCHADENFREUDE !

Das kann man sich wirklich nicht besser ausdenken... Das stellt selbst die besten Aprilscherze die ich dieses Jahr gehört habe in den Schatten.....Ich hoffe das die Lobbygruppe der US Hypothekenbänker noch richtig lange auf der "Ruine" sitzen bleibt. Die Saat für zukünftig jahrelangen Leerstand hat nicht zuletzt die MBA selber in einer unsäglichen Art und Weise selber gesät. Selten war die Schadenfreude so angebracht wie in diesem speziellen Fall.


Mortgage trouble for the mortgage bankers association FT Alphaville !

A year ago the Mortgage Bankers Association - the lobbying group representing US mortgage lenders - started scouting around for new headquarters.

It found 1331 L St, Washington: “state of the art” office with a “superb” location near Franklin Park and Thomas Circle.

… [with] more than 170,000 square feet of space–approximately 65,000 square feet of which MBA will initially occupy–on 10 above-grade levels, including retail on the first floor.

The office even has its own fancy website, which you can view here.

…a crystalline glass tower element dominates the front corner, complete with crown, and is offset by a reveal, which connects to French limestone at the retail level. The white mullion and glass facades allow for an abundance of natural light and panoramic skyline views of the city.

Unfortunately, though, as the Washington Post reports, things haven’t quite worked out for the Mortgage Bankers Association. It’s having trouble with its mortgage:

The lobbying group is about to sign the final papers to buy the 12-story building on L Street NW for about $100 million. Like many of the companies it represents, the organization is facing a triple whammy of woes: Its financing costs are up, its income is down, and the leasing market is slow, leaving it, so far, without a single tenant.

The association is faced with a deposit 10 per cent higher than it had previously thought, with greatly increased interest charges to boot. “We’re looking at cutting expenses across the board” the MBA’s communications VP told the WaPo.

Some irony, of course, that all of this has been caused by the reckless lending orchestrated by the mortgage lenders the MBA represents and has stridently defended.

On the off chance that you are actually interested in leasing any Washington office space from the MBA (N.B. “the stunning entrance lobby exudes quiet elegance and warmth”), you can contact them here.

Commercial property "View from the top" / Economist

More on the topic Commercial property "Dizzying heights" UK / Economist , So Many Deals, So Much Debt ( The rise and possible fall from Harry Macklow in just 6 month) & Commercial Real Estate Prices May Drop 15% in Next Year

I also want highlight some excellent posts from Toro´s fine blog Am I Wrong About REITs? & REITs - What are Institutional CIOs Thinking? and from Mish Commercial Real Estate Abyss

Mehr zum Thema Commercial property "Dizzying heights" UK / Economist , So Many Deals, So Much Debt ( Die Geschichte eines Immobilienmoguls der binnen 6 Monaten alles zu verlieren droht) & Commercial Real Estate Prices May Drop 15% in Next Year

Zudem möchte ich noch auf diese beiden fundierten Posts von Toro hinweisen Am I Wrong About REITs? & REITs - What are Institutional CIOs Thinking? sowie von Mish Commercial Real Estate Abyss

View from the top It looks a long way down from the peak of the global market for office space

BANKING crises and property crashes often go hand in hand. That is one reason why America's housing bust has so troubled investors and policymakers recently. Commercial property, too, has a history of boom and bust that has brought havoc to the financial markets: think of the Japanese property slump during the 1990s, or Britain's secondary-banking crisis of 1973-74, when too much lending to property developers helped cause the London stockmarket's worst year of the 20th century.

Even though commercial and residential property do not necessarily move together, the same factors associated with the American housing market—tighter lending standards and slower economic growth—should hurt business demand for office and retail space as well. Like residential mortgages, loans for offices and shops have been bundled up and sold to investors. So could some swanky offices and shopping centres eventually suffer the subprime fate?

Until early this year there was plenty of evidence of hubris. In February the $39 billion paid by Blackstone, a private-equity firm, for Equity Office Properties, a big landlord, was a record price for a buy-out—and the seller, Sam Zell, has a reputation for shrewdly judging the top of the market.

> More details on the deal and why it is no wonder that this deal marked the top.....commercial property madness / numbers on the blackstone-eop manhatten sale

> Hier mehr Details zum Deal der gleichbedeutend mit dem Top gewesen ist.....commercial property madness / numbers on the blackstone-eop manhatten sale

In Britain, the share prices of property firms had surged ahead of the government's decision, after years of dithering, to introduce the tax-efficient Real Estate Investment Trust (REIT) structure in January. During part of 2006, more than half the money flowing into British mutual funds was invested in property.

For whatever reason, investors have since taken fright. “The market has had a bucket of cold water poured over it,” says Tony Horrell, head of European capital markets at Jones Lang LaSalle, a commercial agent. Shares in property companies took a battering over the summer, making the sector the worst performer in the American market in May, June and July, according to Lipper, an information group.

But is this really the start of another bust or simply some judicious profit-taking? Commercial property has been the asset to own this decade. Figures from the National Association of Real Estate Investment Trusts, an industry body, show that an investment in American property at the start of 2000 would have more than quadrupled in value by the end of last year. By comparison, the leading American share index, the S&P 500, returned just 8% over the same period.
This has not been just an American phenomenon. According to the Investment Property Databank, 16 out of the 21 national property markets it covers delivered double-digit returns last year. A global economic boom, allied with a desire by investors to diversify from equities and bonds, made property appealing.

Despite investors' enthusiasm, industry experts argue that the market has not seen some of the excesses that marked previous cycles. There has not been the kind of overbuilding of skyscrapers that usually spells severe trouble. The latest survey by Reis, a research firm, found that the vacancy rate in American offices was 12.5% in the third quarter, the lowest for six years. Rents grew by 2.4% between the second and third quarters, a slower rate than before but still a respectable one. Mr Horrell says that in most European markets the fundamentals for commercial property are good and that rents should continue to grow.

Andrew Jackson of Standard Life Investments, a fund-management firm, argues that commercial-property investors are not as dependent as their home-buying counterparts on borrowed money; the average gearing of the REITs he invests in is just 31%. As a result, tighter lending standards have not had the dramatic consequences that they have had in the residential sector. There has not, as yet, been the sharp rise in loan delinquencies that was seen in subprime mortgages.

The credit crunch has undoubtedly had an effect on confidence but so far it has not been catastrophic. “A number of transactions are on hold while investors wait to see how deals are repriced,” observes Jonathan Thompson, head of real estate at KPMG, an accountancy firm. “Debt is still available but the cost has gone up a bit and the loan-to-value ratio has fallen.”

Ken Cohen of Lehman Brothers says that the volume of new loans to finance property deals has fallen by half since May and June when credit was widely available. In turn, this has led to a sharp fall in the issuance of commercial mortgage-backed securities (CMBSs), the products that consist of repackaged loans which helped propel the structured-finance market before it seized up.

All spreads from B to AAA

That means property is likely to behave in a patchy fashion. Some markets that were overextended, such as Britain's, are already seeing a retreat for the first time in 15 years. Norwich Union, an insurance company, downgraded the valuation of one of its main property funds by 2-3% in September, while British Land, a leading property group, abandoned plans to sell a shopping centre in Sheffield in northern England. In other markets, investors may start to shun properties in poor locations or with low-quality tenants. But they will still be attracted by city-centre buildings that have been pre-let or by markets that are soaring, such as Asia's.

A lot may depend on whether the debt markets recover their confidence. In America, in particular, a healthy property market requires a revival in CMBS issuance. Mr Cohen of Lehman reckons that by the new year the market could be getting back to normal. Investors will be looking to make their allocations into property for next year, he believes, and it will help that they will not have been swamped with issuance in the second half of 2007.

Commercial property is no longer the bargain it seemed a few years ago, when rental yields were well above those on government bonds. But it will probably take a recession, in America and elsewhere, for the recent wobbles to turn into an outright crash.

> As my opening links suggest i´m more bearish than the Economist.....

> Wie Ihr evtl. anhand meiner Links feststellen könnt bin ich erheblich pessimistischer als der Autor vom Economist.....

Increasing Rate of Foreclosures Upsets Atlanta / NYT

If Atlanta is really a microcosm for broader national trends maybe things are not so "contained".......

Wenn Atlanta angeblich eine gute Vergleichsplattform abgibt ist die Lage evtl. doch nicht so "contained" wie Tag ein Tag aus gepredigt......

ATLANTA — Despite a vibrant local economy, Atlanta homeowners are falling behind on mortgage payments and losing their homes at one of the highest rates in the nation, offering a troubling glimpse of what experts fear may be in store for other parts of the country.

The real estate slump here and elsewhere is likely to worsen, given that most of the adjustable rate mortgages written in the last three years will be reset with higher interest rates...



A big reason the fallout is occurring faster here is a Georgia law that permits lenders to foreclose on properties more quickly than in other states. The problems include not just people losing their homes, but also sharp declines in property values, particularly in lower-income and working-class neighborhoods.

For example, a three-bedroom house near Turner Field, where the Atlanta Braves baseball team plays, fetched a high bid late last month of $134,000 at an auction by the bank that took possession of it. Almost three years ago, the new home was bought for $330,000.

While the surge in foreclosures in other big cities like Cleveland, New Orleans and Detroit can be attributed to local economic challenges, Atlanta more closely reflects the nation. Its unemployment rate, 4.9 percent in May, is low and close to the national average of 4.5 percent. And businesses here are adding jobs, albeit at a slower pace than they were last year.

Like others across the country, homeowners here took out aggressive mortgages in the last few years when interest rates were low and housing prices were soaring. Now many are falling behind — some have lost jobs or experienced other financial difficulties, but many others are not able to refinance because their homes are worth less than they paid for them and their credit is now too weak for them to qualify for another loan. ..

Atlanta also serves as a microcosm for some broader national trends: wages have been stagnant for much of this decade, homeowners have taken on record amounts of debt, and mortgage fraud has been on the rise.

An estimated 2.7 percent of all housing units in the region were in foreclosure at the end of last year, up from 1.1 percent in 2000, according to an analysis by the commission. Nationally, less than 1 percent of all housing units were in foreclosure, according to data from the Mortgage Bankers Association and the Census Bureau.

Though Atlanta has added jobs in recent years, they pay less than the jobs the region lost after the technology boom of the late 1990s ended. The median household income was only 7.6 percent higher in 2005 than in 2000, according to the Census Bureau. That is about half the rate of inflation during that period, and it mirrors what has occurred nationally.

While wages have languished, average Atlanta families are shouldering more debt. As of March, residents had bigger credit card balances, mortgages and car loans relative to their income than average Americans, according to data compiled by Moody’s Economy.com. And the equity that Atlanta residents have in their homes — the value of their house minus what they owe — has dropped 14 percent since peaking in late 2005.

By comparison, in California — the state where mortgage lending was most aggressive, real estate prices climbed fastest and homeowners have the highest debt burdens — home equity values have dropped about 10 percent from their peak in 2005.

Georgia’s foreclosure laws have also accelerated a process that can drag on for months in legal proceedings in other states. Lenders can declare a borrower in default and reclaim a house in as little as 60 days.

That still would not explain why so many people fall behind on house payments in the first place.

At the end of March, 6 percent of all mortgages in Georgia were more than 30 days past due, the fourth-highest rate in the nation, according to the Mortgage Bankers Association. Mississippi, Louisiana and Michigan had more loans past due.

Rajeev Dhawan, an economics professor at Georgia State University, has started studying the characteristics of loans on homes that are in foreclosure. His preliminary analysis of data from April shows that nearly half were for adjustable rate mortgages and many were issued in the last two years.

Auctions for a dozen homes conducted one day in late June across the Atlanta area — from gritty inner-city neighborhoods to the affluent suburb of Marietta — provide a window into how the real estate slump is playing out here.

The most prized property on offer that day was a stately four-bedroom brick home in Marietta that sits on a tree-covered lot measuring three-quarters of an acre. It fetched a high bid of $646,000, about $60,000 more than the last mortgage on the property. More than 200 people turned up at the auction, and the winning bidders were a young couple, Cameron and Jamie Clayton, who are expecting a second child this year.

“I wouldn’t say it is a steal,” said Mr. Clayton, who is an executive at The Weather Channel. “We paid the same price we would have paid on the market, maybe more.”

But about 25 miles south, an auction for the three-bedroom home near Turner Field produced a starkly different result. Corey Neureuther, a 29-year-old accountant, was the winning bidder. He said it was his first real estate investment and he was surprised that others did not bid the price up at the auction, which drew about 30 people. Having recently moved to Atlanta from New York, he said he became interested in buying property after learning about foreclosures in the area.

“I thought for sure it would sell for $200,000 plus,” he said. Mr. Neureuther said he thought that he could make money by renting out the house.

Stephanie Calhoun, the former owner of the home, could not be reached for comment. Property records show she took out two loans to finance 100 percent of the purchase price. She borrowed the money from Ownit Mortgage Solutions, a California company that sought bankruptcy protection in December after many of its customers defaulted on their loans. Investors who bought bonds backed by Ownit loans will bear the loss on her home.

Economists say auctions are generally the most efficient way to determine prices. But only about 1 percent of residential real estate sold in the country last year by dollar value was auctioned.

Most sellers still list homes and wait until they get an offer close to their asking price. At the end of March, 2.8 percent of all owner-occupied homes nationally were vacant and for sale, up from 1.8 percent at the start of 2005. That is the highest vacancy rate in the 51 years the Census Bureau has been tracking it.

Mark Rollins bought a house southwest of downtown Atlanta for $78,000 at one of the Williams & Williams auctions. The property sold for $255,000 in summer 2004. Mr. Rollins, who is a Realtor, said he planned to live in the house for a couple of years, fix it up and resell it for $150,000 when the market recovered.

Why did the house sell for so much more in 2004? Mr. Rollins has a simple theory: “The market was hot, the interest rates were low, and they were giving all kinds of deals to people.”

Still Renting / PIMCO / Hall of Fame

once more excellent stuff from pimco. mark kiesel was right in the past and it his current outlook seems aslo be spot on.

einmal mehr eine tolly analyse von pimco. mark kiesel war einer der wenigen die in der vergangenheit richtig lagen und ich denke auch seine aktuelle beschreibung trifft ziemlich genau zu.


One question my friends and colleagues have asked me repeatedly over the past six months is: Are you still renting? Yes! I sold my house over a year ago and continue to rent.

Back in late 2005, I became anxious about my investment in the “American Dream,” after spending a considerable amount of time and effort researching several factors that I felt would influence housing prices. At the time, I was nervous about housing and ended up selling my house in early 2006 after owning for eight years, and then, upon closing, published For Sale, our U.S. Credit Perspectives, June 2006 publication. A year ago, I suspected housing prices were set to take a sharp turn for the worse and more “For Sale” signs were coming.

Based on the current outlook for housing, I will likely be renting for one to two more years. While many factors that influence housing prices have turned negative, I suspect we have not yet hit bottom. In fact, housing prices should head lower throughout the rest of this year and next year as well. Why? Housing inventories remain high, delinquencies and foreclosures are set to rise as homes purchased over the past few years by speculators and individuals with teaser-rate and adjustable-rate mortgages come back on to the market, affordability is low, and sentiment and risk appetite has shifted negatively. Most importantly, the availability of credit is set to take a turn for the worse as lenders tighten credit standards.

This is all great news for renters and buyers who are patient. Over time, housing prices and interest rates should decline, resulting in improved affordability. This adjustment, however, will take time and occur over a period of years, not months. Housing is illiquid and prices are sticky. As a result, potential buyers should exercise patience and not jump back into the housing market too early. A year ago, I described the state of the U.S. housing market as “the next NASDAQ bubble.” The NASDAQ took over 2 ½ years to go from peak to trough. I suspect that housing prices could display a similar pattern, and we are still over a year away from the bottom. Given these risks, I prefer renting versus owning, and an investment strategy which favors defense versus offense.

Unwinding the Housing Bubble
Housing was an asset bubble influenced by bullish sentiment, robust risk appetite and speculation, lack of fundamental analysis, cheap money, inflated appraisals and easy lending standards. These factors helped to drive housing prices up to new levels and the unwinding of these conditions is expected to drive housing prices down. Never before have we witnessed so many people lever-up real estate with so little money down or “skin in the game.” This growth in mortgage debt and risk appetite helped fuel consumer spending and corporate profits. As such, the unwinding of this bubble will have broad consequences for the overall economy.

As the housing bubble unwinds, what are the implications for the overall economy and credit spreads? The U.S. economy will likely experience sub-par economic growth for the next year as declining housing prices lead to weaker consumer spending, slower corporate profit growth, a decline in business investment and less job creation. This environment favors reducing credit risk, especially to cyclical industries and lower-quality sectors of the market. As lending standards tighten and risk appetite turns more conservative, housing prices are likely to face a further leg down.

What’s the big picture? Declining housing prices will lead to a pullback in job creation and a sharp slowdown in corporate profit growth, causing the Fed to lower short-term interest rates by the end of this year. Despite lower short-term rates, mortgage rates may not follow downward, because more cautious lenders will charge higher spreads relative to Treasuries. In addition, credit spreads should widen as consumers rein in their risk appetite for housing and investors turn more cautious on the outlook for the U.S. economy. We will now turn to an analysis of the supply and demand factors influencing housing. These factors should help to illuminate the future path of housing prices over the next year.

Inventory
On the supply side, the inventory of new and existing homes available for sale remains near all-time highs (Chart 1). The homebuilder industry helped contribute to today’s record inventories through its bullish sentiment and aggressive land purchases over the past several years. Unfortunately, homebuilders have little incentive to stop building once they have purchased land for development. In hindsight, homebuilders bought too many lots over the past few years, expecting that the run-up in land prices would continue for several more years. Given that undeveloped land is less valuable than developed land, homebuilders went through the process of getting zoning approvals on their land and started the build-out process in order to monetize their investments.

Even when prices appeared to have peaked over a year ago, homebuilders continued to commit to new developments and communities. Meanwhile, even in the face of large discounts and concessions, housing order rates have fallen more precipitously than most expected, resulting in inventories remaining stubbornly high. Undeveloped land cannot be monetized without a completed home. The cost of carry, including completion guarantees, provides strong incentives for builders to keep building. Unfortunately, housing is like a supertanker, which takes time to slow down. In addition, homebuilders have little incentive to stop building when a home is incomplete, even if economic conditions soften. All of these factors help to ensure that once projects are started, they are completed, and also help to explain why homebuilders’ inventories have remained elevated despite aggressive incentives such as –10% to –15% price discounts.

The housing market faces potential new supply from other sources as well. First, a large portion of incremental housing demand over the past several years has come from speculators and investors. With housing prices now falling in most of the markets where speculative activity was strongest, yesterday’s marginal buyer is becoming today’s marginal seller. Not surprisingly, the inventories in highly speculative regions such as Florida, California, Phoenix and Las Vegas, have risen sharply. In some of these over-heated markets, supply represents several years of demand. Not surprisingly, homeowner vacancies are soaring (Chart 2). This trend may even accelerate as recent speculators with low initial equity, and negative future equity, choose to walk away from paying monthly mortgage payments on a losing investment, especially factoring in the cost of 4-5% real estate commissions.

Another source of new supply will likely come from rising delinquencies which will eventually turn into more foreclosures. A growing segment of recent homebuyers have bought homes using teaser-rate, adjustable-rate, and no-money-down or low-money-down mortgages. As adjustable-rate mortgages reset upward, the housing market will likely see increased foreclosures involving individuals who can’t afford the new reset rate on their mortgage. The total inventory of homes in foreclosure has risen to 437,041 homes, a +39% increase over the past year.1 The problem is not only in the subprime category, as delinquencies for both prime and subprime loans are rising (Chart 3).

In fact, the market’s primary focus on subprime ignores a major issue, which is that Alt-A and prime borrowers will also face “sticker shock” when adjustable-rate mortgages reset upward. Lehman Brothers estimates $421 billion of ARMs will reset in 2007 ($308 billion subprime and $113 billion prime) and $542 billion of ARMs will reset in 2008 ($349 billion subprime and $193 billion prime).2 Clearly, this is not just a subprime issue, but rather an ARM reset issue as both subprime and prime borrowers potentially are forced to put homes back on the market with almost $1 trillion of ARMs resetting over the next two years. What impact will this have on housing? According to a study published last month by First American CoreLogic, a total of 1.1 million foreclosures with losses of about $112 billion will occur over a period of six years or more with roughly 500,000 homes going into foreclosure over the next two years.3

größer/bigger http://www.smugmug.com/photos/136440158-O.png

Rising foreclosures will result in homes coming back on the market not only at a time when current inventories are near record levels, but also when pent-up demand for housing is low. Easy lending standards and innovations in the mortgage market over the past several years brought forward future housing demand. People who would have qualified for a mortgage in the future were given a mortgage today. Why? Lenders, hungry for yield, relaxed their underwriting standards and provided cheap money. Naturally, consumers took the bait, and levered-up with record low down payments. In fact, 46% of homes purchased in the U.S. last year had less than a 5% down payment.4 Over time, homeowners with little capital at risk and negative home equity will likely walk away from homes under water. For all these reasons, housing inventories are likely to remain high over the next few years.

Affordability and Risk Appetite
On the demand side, housing affordability remains near 20-year lows due to a sharp run-up in housing prices (Chart 4). While mortgage rates have come down slightly over the past few quarters, housing remains unaffordable for a large group of new potential buyers. This buyers’ strike will continue until prices fall and/or mortgage rates decline. Given that homebuilders can’t control the absolute level of mortgage rates, we should expect buying incentives to remain elevated over the next several quarters. Given the strong incentives for buying a new home, owners of existing homes who are forced to sell will likely be forced to lower their asking prices.

We know from the NASDAQ bubble that once risk appetite changes, prices can shift violently in the other direction. Housing is different from equities because it is much less liquid; therefore price adjustments take more time. In a down housing market, the gap between buyers and sellers widens, and volumes fall. Buyers pull back and sellers take time to realize their listing prices are too high. Eventually, housing prices in entire neighborhoods will get reset downward by the weakest hand. Just as prices went up and everyone in the neighborhood applauded the newest neighbor who bought at the top, prices will likely start to fall as financially-stretched home owners and speculators sell, and are forced out of the market. As this process unfolds, risk appetite for housing should take a sharp turn for the worse. This year’s weak start to the traditionally strong spring selling season suggests we have indeed entered the “buyer’s strike” phase of the cycle.

Credit Availability, Lending Standards and Appraisals
A major headwind for housing in the near future will be more restrictive credit availability. Lenders are already increasingly asking for income verification and higher down payments. Countrywide changed their no down-payment lending policy last month, and is now requiring homeowners to have at least a 5% stake in their homes.5 Other lenders are following Countrywide’s lead, which will result in a smaller pool of potential homebuyers. The threat of increased government regulation and restrictive legislation is likely to cause lenders to reduce offerings of no-documentation loans, and to ensure that adjustable-rate borrowers can qualify at the higher reset rate. This trend will tighten credit availability for potential homebuyers.

As delinquencies and foreclosures rise, lenders will also suffer losses. This should reduce their willingness to take risk and cause credit spreads to widen, particularly for riskier borrowers. As lending standards tighten, less credit will be granted. And, credit that is granted will likely be offered at higher interest rates. In the long run, this will be a positive for the housing market, as only buyers who can afford to buy a house will buy one. However, in the short run, tighter lending standards will cause a reduction in demand for housing, and could cause the home ownership rate to fall. Given the significant increase in projected foreclosures mentioned above, an extended period of credit tightening could materialize.

As we discussed in Credit Innovation and Opportunity, our December 2006 U.S. Credit Perspectives, the mortgage industry’s ability to develop new products that kept initial monthly payments low enabled consumers to buy homes they could not otherwise afford, and was a major factor in driving the home ownership rate up 5% in the last 10 years to today’s level of 69%. With rising delinquencies and foreclosures, the downside of credit innovation will surface and may be met face-to-face with increased regulation. Innovation in the mortgage market, which has provided a huge lift to consumers and housing prices through growth in non-traditional products (Chart 5), is clearly at risk. Consumers will likely shift away from exotic mortgages, resulting in less overall stimulus for the housing market, particularly given the lack of pent-up demand for housing.

Lenders are not the only players in the real estate market who are turning more cautious. Real estate appraisers will also become more conservative in their evaluations of property. Some appraisers, who in hindsight probably inflated appraisals over the past several years, helped contribute to the housing bubble on the way up by helping to get marginal buyers and mortgages approved in order to “make the deal work.” Given heightened regulatory oversight, appraisers will turn more realistic. As lending standards tighten (Chart 6) and appraisals become more conservative, the pool of potential homebuyers will shrink. Why? A major problem in today’s housing market is not only sales to new home owners. The “move up” market, or existing owners who want to sell their current house to buy another house, is basically frozen. Outside of speculators exiting the market, this is a major reason why cancellation rates have risen. It isn’t only the speculators and investors backing away. Potential new homebuyers can’t sell their existing home to another buyer. As a result, they cannot move up. Changing buyer sentiment, more restrictive credit and less aggressive appraisals are all helping to restrict marginal buyers.

Where’s The ATM ?
Over the past several years, consumers leveraged rising housing prices and easy credit availability using their home as an ATM. Mortgage equity withdrawal (MEW) soared, allowing consumer spending to grow faster than income growth over the past several years. This process was facilitated by rising home prices and loose lending standards. As long as housing prices were rising, lenders were willing to lend, and consumers were willing to spend, as rising housing prices gave them the confidence to draw down on savings. Today, mortgage equity withdrawal appears tapped. Consumers have been accessing their homes as bank accounts, but housing prices are now falling in many areas, and credit is becoming more difficult to obtain. The slowdown in MEW has been remarkably swift. Over the past year, consumers tapped over $400 billion less equity out of their homes than the previous year. And, in looking at the four-quarter moving average of MEW divided by nominal GDP, the change in MEW as a percent of nominal GDP is now –1.8% (Chart 7). Slower housing price appreciation is causing mortgage equity withdrawal to fall sharply, and is set to detract from U.S. economic growth.

To understand why corporate profits may be at risk as a result of the slowdown in MEW, let’s turn our attention to consumer spending. Companies make money when consumers spend. And, consumers have been spending in part due to rising housing prices, which have allowed consumers to grow debt faster than nominal GDP. Why are corporate profits as a percent of nominal GDP at new highs? Some would argue the reasons are: (a) healthy productivity gains, (b) cost cutting, (c) strong global growth, and (d) low long-term interest rates due to robust global savings. Instead, I suggest turning the focus back to the consumer and housing. Thanks to rising housing prices, consumers have been able to grow spending significantly faster than income growth, through unprecedented increases in mortgage equity withdrawal. In fact, the growth in mortgage debt parallels the growth in corporate profits (Chart 8). As a result, corporate profits, and thus economic growth, are highly dependent on housing prices. As housing prices turn negative, corporate profit growth will eventually follow.

Housing Is Today’s Leading Indictor
Housing is today’s leading economic indicator. To quote our forecast from one year ago in For Sale, “with a softening housing market, we should expect tighter lending standards, a moderation in the willingness to take risk, a slowdown in the pace of asset price appreciation, less liquid markets, and rising volatility in financial markets.” On the economic front, I believe declining housing prices and tighter credit are set to unleash a sharp downturn in housing turnover and job creation. As housing prices fall, corporate profits are expected to be at risk as consumers pull back their spending.

Housing is a momentum market. Turnover rises when real housing prices, as defined as housing price appreciation (HPA) minus mortgage rates, are rising. Turnover slows when real housing prices are falling (Chart 9). Today, the growth in real housing prices is falling. We believe real housing prices will turn further negative in 2007, causing new and existing home sales to decline towards 5 million units per year, down from a peak of over 7.5 million units per year in 2005.

Housing starts and permits tend to be a good leading indicator of job growth. Through February 2007, housing starts are down –28% year-over-year. This type of decline in housing starts typically leads to a sharp slowdown in job growth, within roughly one year (Chart 10). As a result, I believe that job creation is set to slow, possibly materially. The U.S. economy created approximately 200,000 new construction jobs last year. It would not surprise me if we lost 400,000 construction jobs this year, as homebuilders complete their existing projects and then lay off workers. As corporate profit growth deteriorates with a slowdown in housing, business investment and consumer spending, layoff announcements across all sectors of the labor market will likely pick-up

here the link to the economic impact on the illegal immigrants

"Housing Slump Takes a Toll on Illegal Immigrants" http://tinyurl.com/22bv9l

The Fed should lower the Fed Funds rate as soon as we have confirmation that the employment situation is deteriorating. By that time, credit spreads will have already anticipated the fact that risk appetite is set to turn for the worse.......

For renters and potential homebuyers, my advice is to still rent. The housing market has turned for the worse but the unwinding of this bubble will take more time. Unfortunately, this is not good news for the U.S. economy, job creation or corporate profits. Nevertheless, investors who are patient and adopt a conservative investment strategy should prosper over the next few years.

spin, spin, spin.....

bonds are up, stock futures are up, everything is bullish...... except the $......

anleihen rauf, aktien rauf, alles bullish........ bis auf den $.......

U.S. housing starts down 23% year-on-year
U.S. building permits down 26% year-on-year
but still higher than expected…....thanks to

Starts increased 0.8 percent mom to a seasonally adjusted 1.518 million annualized rate following a rate of 1.506 million in February, downwardly revised from 1.525 million.

more on the bullish news from paper money http://tinyurl.com/29r2v5
U.S. March CPI up 0.6% vs 0.7% expected
U.S. March CPI largest gain since April 2006
U.S. March core CPI up 0.1% vs. 0.2% expected (see cartoon)

Core prices were up 2.5 percent in the 12 months ended in March, the smallest year-over-year gain since May. Overall prices were up 2.8 percent from the same time last year, compared with a 2.4 percent gain in February

thanks to http://www.wallstreetfollies.com/

UPDATE:

U.S. March median CPI up 0.3%: Cleveland Fed

U.S. median CPI up 3.5% in past year, vs. 3.6%

Michael Bryan and Stephen Cecchetti (from the cleveland fed) have found a measure that forecasts inflation better than either the CPI excluding food and energy or the all-items CPI: a weighted median of the CPI. The weighted median CPI is easy to calculate and has a higher correlation with past money growth than other inflation measures, resulting in improved forecasts of future inflation.

here the link to the cleveland fed http://tinyurl.com/2mraql

and when all the vacant housing units will lead to a softer "owners' equivalent rent" (makes 40% of the basket) they don´t need to spin that much in the future to "create" a low cpi number

und wenn in naher zukunft all die leerstehenden immobilien die "oer" drücken (machen 40% des warenkorbes aus) brauchen die sich zukünftig nicht mal sonderlich anstrengen um die inflation niedrig zu rechnen

please click on the labels for more on the often "unique" us cpi/inflation calculation.

für mehr infos zu der oft eigenwilligen cpi/inflationsberechnung bitte unter den labels nachlesen.

i highly recommend the post from mish / ich empfehle zudem den nachfolgenden link

"Inflation: What the heck is it?"

http://tinyurl.com/msno7

disclosure: long gold/goldbugs

us homeowner vacancy rate

after this construction frenzy no wonder........ nach dem bauwahn kein wunder..........

The number of vacant homes waiting to be sold surged 34% to 2.1 million at the end of 2006 compared with the end of 2005

The vacancy rate for owned units jumped to a record 2.7% from 2.0% a year earlier. From 1965 to 2005, the homeowner vacancy rate had never been above 2%

Homeownership rate unchanged near 69%

At the end of 2006, the firm clocked the national rental vacancy rate at 5.5%, up slightly from 2005's numbers.....

this glut should have an big impact on inflation. isn´t it ironic that the surge in houseprices didn´t have any effect on the upside in inflation ........thanks to the us statistics......here is an excelent piece on the topic "owner equivalent rent" from tim "Home Ownership Costs and Core Inflation"

http://themessthatgreenspanmade.blogspot.com/2005/10/home-ownership-costs-and-core.html

diese flut von immobililen wird einen massiven einfluß auf die inflationszahlen haben. komisch nur das während des booms der effekt kein effekt auf der plusseite vorhanden (bitte link oben lesen)war.... so sind sie halt..die us statistiken... wie auch bei den substitutionen hier im cartoon

with the owner equivalent rent making up over 40% of the cpi number one can imagine the effect on the "phony" inflation number. add to this others creative measures of inflation like the "substitutes" ............. and then you know that you can trust the official numbers........

thanks to http://www.wallstreetfollies.com/

da die miete (oder genauer gesagt die gefühlte miete) 40% des inflationskorbes ausmacht dürfte hier in nächster zeit ein gewaltiger entlastender effekt auf die (in der berechnung lachhaften) inflationszahlen zukommen. dürfte anlass für die fed sein die zinsen zu senken.

Expenditure category

---------------------------------

Food and beverages 15.7

Housing 40.9

Apparel 4.4

Transportation 17.1
Medical care 5.8

Recreation 6.0

Education/communication 5.8

Other goods & services 4.3

---------------------------------

Total, all items 100.0

more on this topic from mish, calculated risk and mike larson
http://globaleconomicanalysis.blogspot.com/2007/01/vacancies-soar-lending-standards-rise.html
http://calculatedrisk.blogspot.com/2007/01/record-homeowner-vacancy-rate.html
http://interestrateroundup.blogspot.com/2007/01/empty-homes-everywhere.html

Reit mania goes into extra innings.. vornado tops blackstone offer for eop

wow. an higher offer than the already very very high blackstone offer. but with lots of overvalued stocks (40%) making up a big portion of the new bid i would go with the blackstone offer. remember the days back in 1999 when all the big tech mergers were in stocks

wahnsinn. ein noch höheres angebot als das schon extrem teure from blackstone. da dieses mal ein großer teil (40%) in aktien daherkommt würde ich wohl immer noch die cashvariante von bs bevorzugen. bei mir kommen da unweigerlich erinnerungen an die großen aktienbasierten übernahmen 1999 hoch.


here is one more link that questioned the rational behind this mania / mehr zum wahnsinn

Vornado's Equity Office Bid Puts Onus on Blackstone to Counter

Jan. 18 (Bloomberg) -- Vornado Realty Trust's $21.6-billion bid for Equity Office Properties Trust, the biggest U.S. office landlord, puts pressure on Blackstone Group LP to increase its $20-billion offer for the company, investors said.

Vornado yesterday teamed with Starwood Capital Group Global LLC and Walton Street Capital LLC to offer $52 a share for Chicago-based Equity Office, topping Blackstone's $48.50-a-share offer, accepted by Equity Office's board on Nov. 19.

..... ``Both have provisions for a higher bid. What you're going to see is a battle of rhetoric.''

Blackstone lobbed the first verbal round late yesterday, calling Vornado's offer ``inferior'' because it's 40 percent in stock, whose value can change. Blackstone's offer is all cash......( in the blackstone the headache could be ahead for the bondholders, if vornado will succeed i think the stockholders will face the headache....../ sollte blackstone gewinnen könnten die anleihebesitzer kopfschmerzen bekommen, bei vornado wohl eher die aktieninhaber....)

Biggest in History
Blackstone officials declined to comment on the possibility the firm would revise its bid. Either offer for Equity Office, including assumed debt of about $16 billion, would be the largest leveraged buyout in history...... (with yields at all time lows that makes sense ..../ mit mietrendieten nahe allzeittiefs macht das wirklich sinn......)read this fantastic report from mike larson about the reits and the yields. bitte diesen bericht unbedingt lesen)
The value of Equity Office's assets is rising because demand is growing and space is scarce with little new construction in markets such as New York, Los Angeles and San Francisco. During the past four years, replacement costs for office buildings have soared from 50 to 100 percent on average in the six largest urban markets, (no wonder after the biggest run up ever in real estate overall..../nach dem größten run für immobilien im allgemeinen kein wunder....).

`Up Cycle'
``The office market is in the up cycle in terms of fundamentals,' ..... ``Demand is healthy, supply is limited, vacancy is coming down, rents are coming up and income is expanding.''

Yet another bidder may emerge, ...... ``Anything is possible. Everybody has money to put to work.''

Vornado's stock is 42 percent more valuable than it was a year ago. With dividends, it has returned 47.5 percent during the past 12 months, closing at $122.55 yesterday. Equity Office shares rose $1.09 to $50.94.

Vornado has a possible advantage in that its status as a public company may mean it doesn't have to redeem Equity Office's bonds, reducing its purchase price accordingly, Ostrower said. Today is the deadline for Equity Office bondholders to receive a consent payment as part of the Blackstone deal. ......

Less Debt
Vornado's part-stock offer also means the investor group won't have to borrow as much to finance its bid, .....

``The debt they're assuming is considerably less than in Blackstone's bid,'' ........

disclosure: will probably go short the reits during this week