The Real Estate Weblog

Many analysts are wondering if the housing downturn can get worse than it already is.
Channel 4 News has reported that Mortgate repayments are rising and repossessions
 are at an all-time high - while still increasing - and new figures released today
 showed that the number of new homes being constructed in the United States has decreased
 to its lowest level in some ten years.
Just yesterday Yesterday, one of the countries largest mortgage firm, Countrywide Financial,
stated that it had been made to borrow nearly $6bn from a consortium of forty banks to stay alive.
 This has caused it’s shares to fall severely - with repercussions for the stock market.
In addition to this, homeowners have seen their home values drop and defaulters have seen their homes taken over
by the banks. Your out on the streets mama. I don;t care if you have 3 young children.
We just gotta have the profit.
BusinessWeek is not optimistic on a quick recovery either.
They reported on their website that financial markets were already in some turmoil today when
the Commerce Department stated the bad news that housing starts fell some 6.1% in July to a seasonally adjusted pace of 1.381 million.
That is the lowest level in an entire decade. it was really ytthe sheer size of the drop that was such a shock, however, as they had beeb bracing for some kind of tumble.
Meanwhile Single-family building permits, down about 1.6% last month, were not much better than the housing-starts numbers. Since they are less affected by the weather,
they are a less volatile measure of the state of the market and are a crucial marker for future construction. Last month’s steep slide in permits marked the nineteenth reduction in the twenty-two months
 that housing has been in recession. Sounds like we are out of the frying pan and into the fire.
“As bad as July’s numbers were, they are going to get worse in the next 1 to 3 months because of the turmoil in financial markets today,” stated Patrick Newport, an economist at Waltham (Massachusetts.)-based Global Insight.
Part of the reason is that fewer individuals will be qualifying for mortgages.

As reported recently in ‘The Economic Times’, the subprime loan problem that has been hammering the American
economy of late has also sent ripples worldwide, with a  mild correction occuring to global equity markets
in recent weeks. Even countries such as India are feeling the heat and are affected, unfortunately.
But what exactly is this thing all about?
Well in a nutshell, the home loans offered by banks and various real estate finance firms are subject to capital standards that are prescribed by regulators. This essentially requires them to back
 the risk in lending with an adequate level of owned capital. The growth in the mortgage business of a firm is therefore limited by the amount of capital available. and this includes undistributed profits as well.
 Pursuing a more aggressive growth rate would require new capital to be raised from time to time, and this has a tendency to limit the attractiveness of the firm in the equity market.
As the Economic Times reported, to overcome this particular problem the firms in question began to sell the loans which they originated through a process sometimes known as securitisation. This big word just means the carving out of
 pools of home loans with varied risk & return characteristics and selling down the same through certain structures to new investors in basically the same way that a bond is traded in the debt market.
Now the mortgage firms by becoming originators of mortgage loans who sell down the assets at a profit to other investors — often mutual funds, insurance firms, hedge funds and so on therefore improve their return on equity without having to continually raise new capital.
Wow, talk about playing games with money!
 The CDOs are usually sold at a yield lesser than the contracted yield with the individual home mortgages therefore deriving a profit equivalent to the difference between the net present values of the cash flows at the 2 yields.

The subprime fiasco in America a therefore a result of the excesses built into the system originally created by pushing the balance between risk and return beyond reasonably levels. Aggressive American banks were offering well priced home loans to subprime borrowers while hoping that the boom in the real estate market
would continue and the security cover will be more than enouph when repossession & ultimate sale becomes necessary on loan default caused either by too much unemployment or increasing interest rates. So far, it hasn’t been.

According to a report in the ‘Star Bulletin’ newspaper,
a sort of high-level real estate market is flourishing in the Pacific State of Hawaii.
Luxury homes attract investors
A high-end real estate market is thriving in Hawaii
Even though this state has been popular for a very long time as a place to purchase a luxury second home as well as a resort market, various upgrades in transportation including the upcoming light rail system as well as technological advancements have combined to make it more viable for high-level buyers, who basically see it it as good price compared to certain other destinations, according to the newspaper story.
Other luxury real estate industry professionals in this tate have stated that they are also bullish on this market which is booming despite of various reports of declining inventory and ever higher interest rates on the larger loans. The luxury real estate professionals here report that showing activity and sales are actually ahead of the previous year. Continued renovation and reinvestment in the market will probably continue push the market higher according to many experts.
 Meanwhile, in related celebrity news, according to a story from the Transworld News out of Atlanta, Georgia, Paris Hilton wishes to try her luck in Real Estate.
In particular, she stated that she wishes to purchase a chain of restaurants & also shops.
“I definitely want to get more into real estate,” she was recently quoted as saying……. “Own my own hotels, restaurants, my own Paris stores. There’s a lot more to do. I want to be a real estate mogul”.