Monday Morning Cup of Coffee: Slow housing starts offset boom-time construction
A look at stories across HousingWire's weekend desk, with more coverage to come on bigger issues:
Housing starts have run at less than half their normal pace for nearly four years, more than offsetting overbuilding during the boom. The trend gives faith to housing economists at Bank of America Merrill Lynch ($13.14 -0.07%) that the industry will administer a positive, but minor, injection into the national economy this year.
Data released this week should show a continued modest gain in housing demand, which continues to be boosted by investors. Both BofAML economists and a Bloomberg survey indicate data on Wednesday will show existing home sales increased 3% to a seasonally adjusted annual rate of 4.5 million in July after tumbling 5.4% in June.
Look for new home sales — figures will be released on Thursday — to increase just over 4% to a 365,000 annual rate in July, partly reversing the 8.4% drop in June. And expect initial jobless claims to tick up to 370,000, bringing the four-week moving average to 367,000. “Over the rest of the year, we expect further weakening in the labor market as the uncertainty shock from the fiscal cliff kick in,” BofAML economists said.
The gain in housing starts thus far has only been a bounce off the bottom. And home prices have slipped below fair valuation as defined by income or rent growth. BofAML revised its forecast of national home price gains way upward to 2% in 2012 and 2013.
“We expect housing starts to increase 20% to an average 750,000 pace, which translates to a 0.2pp contribution to GDP growth this year from residential investment,” analyst said.
Vacancies declined in all property types in the commercial real estate sector in the second quarter, despite global market and U.S. economic uncertainties, according to CBRE Econometric Advisors.
As a result, rents are rising. The markets exhibiting the strongest rent growth are San Francisco, San Jose, Calif., Oakland, Calif., Charlotte, Boston, New York and Austin, Texas, Moody’s Investor Service points out. The the markets with highest vacancy rates — those above 7% — are Tucson, Ariz. Las Vegas, Jacksonville, Fla., Atlanta, Phoenix, Memphis and Houston.
“The multifamily sector will remain healthy, with stable growth,” analysts at Moody’s say. “Apartment demand will continue because of a growing renter base, increasing employment, and declining homeownership. The vacancy rate will remain low while rents increase.”
The chart below shows the actual multifamily sector performance from 1991 through first-quarter 2012 and projected performance through 2017.
“Rents in CMBS’s largest two property sectors, office and retail, will rise, as the recovery advances and vacancy rates continue to decline,” Moody’s analysts say. “Furthermore, the multifamily and hotel sectors will maintain positive momentum in their revenue growth and high occupancies.”
The share of specially serviced loans fell 55 bps to 11.6% in the second-quarter from the previous quarter’s 12.1%, Moody's Investor Service says. The firm's Specially Serviced Loan Tracker, or SSLT, has fallen in eight of the past 12 months, declining by 78 bps year over year. The current level is 116 bps below the April 2011 peak of 12.7%.
Click on the graph below to see the performance of specially serviced loans from June 2011 to June 2012. Performing specially serviced loans accounted for 20.3% of the specially serviced loan universe by balance in second-quarter, down 6% from the first-quarter. Moody’s says its delinquency tracker, or DQT, which rose to a new high of 9.9%, reflects the increasing share of non-performing loans.
“With the SSLT falling and the DQT rising, the gap between the two measures has narrowed for the fifth consecutive quarter, to 164 bps," analysts say. “The gap is approaching the 103 bps gap at the end of first-quarter 2009, when the SSLT-DQT gap first began to widen following the financial crisis. The SSLTDQT gap is an indicator of future delinquencies and the relative volume of loans entering special servicing.
There were no bank failures over the weekend. Forty banks have closed so far in 2012, according to the Federal Deposit Insurance Corp. This time last year, 68 had failed.
As of August 14, the FDIC authorized suits in connection with 73 failed institutions against 617 individuals for director and officer liability. This includes 32 filed lawsuits (2 of which settled) naming 266 former directors and officers. The FDIC has authorized 45 other lawsuits for fidelity bond, insurance, attorney malpractice, appraiser malpractice, accounting malpractice, and RMBS claims. In addition, 156 residential mortgage malpractice and fraud lawsuits are pending, consisting of lawsuits filed and inherited.
As receiver for a failed financial institution, the FDIC may sue professionals who played a role in the failure of the institution in order to maximize recoveries. Most investigations are completed within 18 months from the time the institution is closed. Prior to filing the claim, staff will attempt to settle with the responsible parties. If a settlement cannot be reached, however, a complaint will be filed, typically in federal court.
Late last week the San Francisco Planning Commission unanimously approved the city’s first and the country's largest affordable housing development specifically welcoming to lesbian, gay, bisexual and transgender seniors. Mercy Housing California and Openhouse, which provides housing to the Bay Area’s LGBT community, are heading the project.
Called 55 Laguna, the development — click here for a rendering — includes 110 apartments for low-income seniors, Openhouse service offices and an activity center for residents and LGBT seniors from across the city. Over 25,000 LGBT seniors live in San Francisco alone, many of whom do not access senior services and housing for fear of rejection and compromised care.
"For decades, thousands of LGBT people have come to San Francisco to find personal freedom and acceptance,” said Openhouse Executive Director Seth Kilbourn. “As older adults with increasing needs, the pioneers of this migration are being forced back into the closet in order to receive the quality care and housing they need. They are being forced to relocate and leave dear friends behind. 55 Laguna will be a critical community resource to help LGBT seniors age with dignity and grace in the city they call home."
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