Archive for June, 2010
New construction starts increased 3% from April to May, according to a monthly survey by McGraw-Hill Construction.
Month-over-month increases in the seasonally adjusted annual rate of new construction of residential and nonresidential buildings were offset by a decrease in the annual rate of nonbuilding construction, McGraw-Hill Construction said.
The seasonally adjusted annual rate of total construction starts was $406.3bn in May, up 3% from $392,988bn in April. For the first five months of 2010, the unadjusted value of total construction starts was $162bn, down 2% from $165bn during the same period of 2009.
“The recent pattern of construction starts indicates that activity has stabilized at a low level, with ups-and-downs on a monthly basis, but the transition to sustained expansion has yet to occur,” Robert Murray, vice president of economic affairs for McGraw-Hill Construction, said in the monthly report. “The good news with the May statistics is that nonresidential building rebounded after a very depressed April. However, the volume of nonresidential building remains quite low, and is likely to stay that way through 2010.
"Much of this year’s upward movement is expected to come from public works construction, which lost momentum in May after earlier gains," Murray added.
As seen in the chart above, McGraw-Hill Construction's Dodge Index was at a level of 86 in May, up from 83 in April. An index value of 100 reflects construction activity in the year 2000.
Residential building increased 1% to $133bn in May. In addition, for the first five months of the year, unadjusted total value of residential building starts was $52.7bn, up 30% from $40.4bn during the same period of 2009.
Multifamily housing increased 9%, the fourth straight month of increases. Two mixed-use developments in St. Louis contributed to May's increase, with the housing portions of the projects valued at $90m and $81m. Other starts in May include a $70m apartment facility in Bronx, NY, a $64m apartment portion of a mixed-use development in Honolulu and a $58m senior living center in Elmhurst, a suburb of Chicago. Construction starts for single-family housing decreased 1%.
Regionally, the Midwest declined 13%, the Northeast was down 3%, while the West, South Atlantic and South Central regions all increased 3%.
“The upward trend for single family housing at the national level seems to have paused for now, but it’s likely to resume later in 2010, helped by what’s expected to be the continuation of very low mortgage rates into the second half of this year," Murray said.
The chart above shows monthly and yearly changes in construction starts for residential and nonresidential buildings, as well as nonbuilding construction.
The annual rate of nonresidential building construction starts was $145.6bn in May, up 19% from April's rate of more than $122bn. However, the April rate of nonresidential building was down 21% from the March rate of $155.1bn. For the first five months of the year, nonresidential building construction totaled $56.7bn, down 16% from $67.5bn during the same time in 2009. Since peaking in 2007, nonresidential building construction starts are down 39%.
Amusement related construction starts jumped 62% in May, due to the $80m renovation and expansion of the Pauley Pavilion in Los Angeles and the $75m expansion of the Fantasyland section of the Magic Kingdom theme park at Disney World in Orlando.
Other monthly increases include a 31% increase in educational construction starts, including a $229m Army medical research facility in Maryland, a $122m university laboratory and science building in Massachusetts and a $100m performing arts center in Chicago.
In addition, starts for healthcare facilities increased 2% and church construction increased 11%. Public buildings like courthouses and jails were down 3% and transportation terminals declined 30%. The hotel sector also declined 11%.
Several commercial categories in May registered large percentage gains, relative to very low levels in April, McGraw-Hill Construction said. The office construction sector jumped 44% on the start of a $200m renovation project at the United Nations Conference Building in New York City. Stores and warehouses gained 26% and 28%, respectively in May. The manufacturing plant sector increased 33% on the start of a $96m solar technology semiconductor plant in Tennessee and a $95m lithium battery manufacturing plant in Florida.
Nonbuilding construction was at a seasonally adjusted annual rate of $127.7bn, down 8% from $139bn in April. The total unadjusted value of construction starts in the first five months of the year was $52.7bn, also down 8% from $57.1bn in 2009.
Highway and bridge construction dropped 22% in May, but year-to-date is up 15% in 2010 compared to 2009. The sewer and water supply system categories declined 13% and 51%, respectively.
Electric utility construction was down 14%, but it still up 22% from the monthly average for all of 2009. Construction starts in this segment include an $820m gas-fired power plant in Tennessee, a $360m wind farm in Illinois, and a $195m wind farm in Oklahoma.
The river/harbor development sector increased 29% on the start of several hurricane-reconstruction projects in New Orleans, including $238m for the Chalmette Loop Levee. The Kansas and Oklahoma portions of the Keystone oil pipeline project, valued at $1.1bn, helped the "other" public works category increased 64%.
Write to Austin Kilgore.
This past week, I received an email from one of my dearest friends that has really stuck with me. It illuminates perhaps one of the single largest shifts in borrower psychology likely to come from a push to short sales:
My neighbors are being foreclosed on. He is an civil engineer, and she is a retired banker. They are the most wonderful people I have ever met, and have been such sweet giving neighbors. She basically designed and built the house from scratch.
The house and land (1.3 acres) was valued at $1.8m a few years ago. Now, they are behind on payments and the bank wants to force a short sale for only $700k. She told me that she tried to modify the mortgage twice already, and has been turned down. She is willing and able to make payments on the $700k amount, but the bank is refusing and would rather sell to someone else.
The message paints an interesting picture of a potentially hidden angle to the recent short sale push by the Administration, banks, and Realtors: a renewed call for broad principal forgiveness.
It’s not too hard to see this sort of thinking quickly becoming the norm among many distressed homeowners, as a push for short sales grows ever stronger and many ask themselves why someone else is getting the better deal. More than 11 million borrowers currently owe more on their mortgage than it is worth, according to CoreLogic (CLGX: 14.56 +0.62%)—and this group of borrowers would love nothing more than to replace their current underwater mortgage with whatever the accepted “short sale price” is deemed to be.
I don’t know that such a response on the part of borrowers could be deemed irrational, either. Many will ask themselves why they have a mortgage at a higher amount, especially if the bank is willing to sell the house to another buyer for less money. Why does someone else get the lower purchase price? Isn’t easier for the bank to just give me that loan instead? I already live here.
It’s clearly a slippery slope, and not even a steep one, from a short sale push towards an outright push for the write down of mortgage principal to “short sale levels.” I suspect, in fact, that this is part of the reason some large commercial banks—Bank of America (BAC: 7.29 -0.14%) among them as of late—are working feverishly to get in front of this end game, announcing principal reduction programs that are great press exposure, and yet also protect their financial interests as much as possible.
Because the truth is that the bank and/or investor may not always have the luxury of defining their terms on principal write downs, especially not with elections looming this coming November. It’s only late June, after all.
Of course, reality is much more complicated. Generally speaking, the mortgage world can best be divided up into three sub-worlds: the GSEs, private-label securities, and whole loans. Depending on what class of mortgage asset you tend to hold, your viewpoints can differ dramatically; and if you hold all three, as most commercial banks tend to do, you’re facing more than a mild case of financial schizophrenia.
While the truth is many investors are in favor of principal write-downs, at least to a point—and many investors buying distressed whole loans are already forgiving significant amounts of principal, because they can—many commercial banks are hamstrung by such a maneuver. What’s more, plenty of consumers (rightfully) roil at the notion that financial rewards would ever accrue to the worst performers.
For most major commercial banks, for example, their whole loan portfolios present a distinct set of challenges apart from any securitized servicing they do—especially in the case of second liens (which I’ve written about before). Wide-scale principal reduction for these banks means recognizing massive losses on their second lien portfolios, losses that would blow a hole in their balance sheets so large that even the coziest of regulators wouldn’t be able to ignore it.
I’m pretty sure that right now, there isn’t the political will to fund another banking sector bailout. But the will to reduce principal is already embedded in our government’s short sale push—from there, it’s only a hop, skip and a jump into the broader use of principal reductions.
Editor's note: The author held no relevant investment positions at the time this story was published.
Paul Jackson is the publisher of HousingWire.com and HousingWire Magazine. Follow him on Twitter: @pjackson
The Dodd-Frank financial-regulatory overhaul, which Democrats hope will win final Congressional approval this week, offers greater protections for consumers against riskier and more complicated types of home mortgages. But some in the industry warn the legislation also may lead to higher costs and fewer choices for consumers.
"The kinds of mortgages you see today—fixed-rate loans [or] if it's an adjustable rate, it's pretty conservative in its terms—those are going to be the loans you see for a long time in the future," said Glen Corso, managing director of the Community Mortgage Banking Project, which represents small, independent mortgage lenders. "There's not going to be any room for experimentation or trotting out loans that have new features."
Goldman Sachs has been ordered to pay $20.58m to creditors of a failed hedge fund to settle claims that the bank helped the fund perpetrate a Ponzi scheme.
The award represents the first time that a bank has been held accountable for a Ponzi scheme because of its role as a middleman.
Goldman cleared trades and lent money to the Bayou Group, a Connecticut hedge fund that collapsed in 2005, when state and federal investigators said the firm defrauded investors of hundreds of millions of dollars.
More than half of commercial mortgages bundled and sold as bonds have been unable to pay off maturing debt this year even as the availability of financing increases, according to Bank of America Corp.
Between 50% and 60% of loans on skyscrapers, hotels, shopping malls and apartment complexes failed to refinance within a few months of their maturity date this year.
Mortgage delinquencies were largely lower in May, according to Standard & Poor's Ratings Services, in yet more signs that housing-loan woes may have reached a peak.
Recent data from numerous sources have shown either plateauing or small declines in delinquencies from the prior month.
According to S&P, the under-performer in May was prime-rated jumbo loans, or mortgages of at least $417,000 at origination.
The Gillard Government in Australia announced key reforms to help deal with unfair mortgage exit fees.
These reforms will strengthen the hand of Australia's credit regulator, the Australian Securities and Investments Commission (ASIC), to pursue banks over unfair mortgage exit fees.
Currently, some banks are using mortgage exit fees to lock customers into their home loans. Exit fees can be so high that there is no incentive to switch to another lender, even if they are offering a substantially lower interest rate.
