Premature Enthusiasm: All We Have To Fear Is Hope Itself

Home builders and real estate investors seem to have a bad case of premature enthusiasm, sparked by the hope that everything is better now that we’ve avoided a global financial melt down.  Many economists and Wall Street analysts now believe we’re likely to see a significant downturn again later this year, and that the economy, real estate and banking all have a long, hard slog ahead.

According to Bloomberg News, Alec Phillips, head of Goldman’s Sachs Washington office, said in an Oct. 23rd note to clients, “The risk of renewed home price declines remains significant.  Our working assumption is a further 5 percent to 10 percent decline by mid- 2010.”  And, on October 23rd, Bloomberg quoted investor Jeremy Grantham as stating that, “ stocks will drop painfully from current level in the coming year amid disappointing economic data and shrinking profit margins.” Grantham is the chief investment strategist at Boston-based Grantham Mayo Van Otterloo & Co., which oversees about $89 billion.

Why?  Well read on….

2009: The Year Lenders “Recapitalize to Survive”

If 2008 was the Year of Denial, 2009 will be the Year of Recapitalization.  How much recapitalization? Investment bank Keefe, Bruyette & Woods projects that United States Banks might need as much as an additional $1 trillion in capital, according to the April 24, 2009 edition of the New York Times.

Housing Prices, BB’s and the Bottom of a Bucket

How long will it take before housing prices go up again? In reply to that question, I typically respond, “It will probably take a while longer than most people think and will look a lot like the bottom of a bucket.” When I’m asked why, I’ll usually ask them a question in return: “How long would it take to pick up two million BBs off the beach?” Whomever I’m speaking with usually gives me a puzzled and slightly annoyed look and says, “What’s that got to do with the bottom of a bucket, or, more importantly, when the real estate market will hit bottom or what the bottom will look like? And, for that matter, what’s the bottom of a bucket got to do with anything, anyway?”  Its been the best way I can think of to explain my view of the housing market.

Receivers Can Sell Real Estate Free and Clear of Mechanics Liens

Yes, receivers can sell real estate free and clear of mechanics liens.

This is not well known though – not even by title companies, highly experienced bank attorneys or many of the most experienced receivers.  Not because these folks aren’t knowledgeable and sophisticated, but rather simply because there hasn’t been much call for selling real estate by receivers, so the area is full of myth and legend and misinformation.

Receivers May Reduce a Lenders Tax Liability on the Sale of Subdivisions

Marc Brooks called me the other day and announced, ”You know, a lender who forecloses on a new subdivision development that was collateral for a non-performing loan may have to pay ordinary income taxes on all of the sales proceeds as a real estate ‘dealer’. On the other hand, when a borrower or a court appointed receiver sells out the subdivision and pays down the loan, the lender gets to remain a lender.”

CFD Infrastructure Bonds: Investors Are Buying and Foreclosing CFD Bonds to Acquire New Housing Subdivisions

So I’m sitting at lunch with some of the other speakers at a recent commercial loan workout conference (I was speaking on the use of receivers to complete and sell new housing projects), and someone mentions that vulture investors are buying, and in some cases foreclosing on, CFD and Mello Roos bonds to acquire distressed tract housing developments.

Where’s the Bottom? March of the Zombies

Several months ago I earnestly asked a friend of mine who is a land economist, “Where’s the bottom of this housing market?” and he promptly answered, “I don’t know.”  However, being persistent, I asked again. This time he answered, “Well if you could tell me how much zombie housing is out there, I could make an intelligent guess.”