The Future of Real Estate Finance and its Impact on ... - ABoR.com

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The Future of Real Estate Finance and its Impact on ... - ABoR.com

ong>Theong> ong>Futureong> ong>ofong> ong>Realong> ong>Estateong> ong>Financeong> ong>andong>

ong>itsong> ong>Impactong> on your Business

April 30, 2009

Gerald A. Klassen

Research Analyst

ong>Realong> ong>Estateong> Center

Texas A&M University

gklassen@tamu.edu


Agenda

ong>Realong> ong>Estateong> ong>Financeong>: Back to the ong>Futureong>

• Implications for ong>Realong>tors

• Texas/Austin ong>Realong> ong>Estateong>

ABoR MLS Sales Analysis

• Bonus: Developing a strategy for Sur-Thrival


Competing Credit Sources


Exporting US Savings

$ Billions Current Account Balance

1,000

800

600

400

200

0

‐200

‐400

‐600

Net Outflow ong>ofong> money

from savings accounts

ong>andong> home equity used

to purchase imports

Tech Bubble

Starts

Canada

China

Germany

Japan

Russia

Saudi Arabia

United Kingdom

United States

‐800

‐1,000

Tech Bubble

Breaks

Data : International Monetary Fund

ong>Realong> ong>Estateong>

Bubble Breaks


Dominance ong>ofong> MTG Securitization

Source: http://www.chicagong>ofong>ed.org/publications/fedletter/cflnovember2007_244.pdf


Rise ong>andong> Fall ong>ofong> Shadow Banking

Source: Congressional Oversight Panel, “Foreclosure Crisis: Working Toward a Solution


Shadow Banking Credit Contraction

Data: Federal Reserve Bank, Flow ong>ofong> Funds


Fall ong>andong> Rise ong>ofong> Personal Savings

Source: IHS Global Insight


Historical Savings Rate

Return to late 90s

level ong>ofong> saving ong>andong>

economic activity

ong>Futureong> economic

activity

dependent on

savings rate

Source: http://online.wsj.com/article/SB123897160787290857.html#mod=todays_us_page_one


Implications for ong>Realong>tors

• Banks gain market share for mortgage finance

– Investors don’t trust Shadow Banking System

– Banks increase access to abundant, cheaper capital

– Research shows portfolio loans perform better

• Increased competition for credit

– Borrowers need to have better qualifications

– Borrowers must be willing to bid higher rates


Implications for ong>Realong>tors (cont’d)

• Rates spike after Fed quong>itsong> buying Treasuries

ong>andong> new GSE MBS issuance

• Fewer mortgage lenders to work with

– Securitization is broken (Principal-Agent Problem)

– Mortgage lenders likely to be required to have

more capital so this will eliminate some from the

market

– Good track record required to get capital


Implications for ong>Realong>tors (cont’d)

• Downward pressure on home prices

– More savings, less money for mortgage payments

– Higher interest rates, lower borrowing capacity

• Role ong>ofong> Frannie uncertain, possibly reduced

– Losses will take decades to overcome

– US Govt won’t guarantee Agency debt

– Politicization hurts credibility with markets


Texas & Austin ong>Realong> ong>Estateong>


Texas MSAs 2008

Sales

Change from

2007

Median

Price

Change from

2007

Months'

Inventory

Amarillo 3,009 down 9% $124,600 up 5% 5.7

Austin 22,404 down 20% $188,200 up 2% 5.4

Beaumont 2,107 down 15% $130,100 up 3% 6.9

Brownsville 908 down 16% $92,700 down 19% Na

Bryan–College Station 2,471 down 2% $144,200 up 4% 5.0

Corpus Christi 3,773 down 16% $138,900 up 2% 9.4

Dallas 50,291 down 16% $156,100 down 2% 5.8

El Paso 4,776 down 23% $134,600 up 2% 11.2

Fort Worth 9,658 down 16% $117,100 down 1% 5.6

Houston 65,070 down 16% $151,800 flat 5.8

Laredo 970 down 8% $123,200 down 8% 8.8

Longview‐Marshall 2,297 down 11% $125,000 up 1% 6.5

Lubbock 3,245 down 7% $110,300 up 6% 5.3

Port Arthur 924 down 9% $114,700 up 8% 6.3

San Antonio 19,367 down 19% $148,400 flat 7.6

Tyler 3,078 down 14% $133,800 Flat 10.2

Victoria 854 down 7% $126,100 up 5% 5.9

Waco 2,330 down 1% $111,000 Down 4% 7.6

TEXAS 231,371 down 16% $146,900 flat 6.4

Source: ong>Realong> ong>Estateong> Center at Texas A&M University


Annual Texas Home Sales

Source: ong>Realong> ong>Estateong> Center at Texas A&M University


Austin Annual Home Sales

Source: ong>Realong> ong>Estateong> Center at Texas A&M University


Texas Median Home Price

3-Month Moving Average

Source: ong>Realong> ong>Estateong> Center at Texas A&M University


Austin Median Home Prices

12-Month Moving Average

Source: ong>Realong> ong>Estateong> Center at Texas A&M University


Austin SF Building Permong>itsong>

Source: U. S. Census Bureau, ong>Realong> ong>Estateong> Center


Projected Texas Population

2000 - 2030

Source: U.S. Census Bureau, Texas State Demographer 2008 Projections


Austin MSA Population

Austin MSA: Bastrop, Caldwell, Hays, Travis & Williamson Counties

Source: US Census Bureau, Texas State Data Center ong>andong> Demographer


Mortgage Origination Volume

Austin-Round Rock MSA

Source: IHS Global Insight


Return to Peak Employment

Source: IHS Global Insight


Building a Stronger MLS

• What would you like to know about the real

estate market?

• MLS is the best tool for answering that

question

ABoR members are VITAL to providing

accurate data to get the right answers to the

questions!


Building a Stronger MLS

• MLS as a Marketing Tool

– Primary function is to market properties

– Each member knows a piece ong>ofong> the market

• Wisdom ong>ofong> Crowds

– Pool knowledge ong>ofong> members to get the answers

• MLS as a Management Tool

– Primary function is to inform members about

market conditions so that they can maximize the

value ong>ofong> a transaction

– Members have complete picture ong>ofong> the market


ABoR MLS Sales Analysis

• Who are the sellers in the market?

• How many types ong>ofong> sellers are there?

• What prices are they willing to take?

• How are foreclosures affecting prices?

• Is there a difference between foreclosures by

lenders versus loan servicers?


ABoR MLS Sales Analysis

• Field Analyzed: Owner Name

Bank\Mortgage\ong>Financeong>

• Owner Name contains:

• ‘bank’

• ‘finance’

• ‘lending’

• ‘mortgage’

• ‘mtg’

Sample

Result

JP MORGAN CHASE BANK AS T RUSTEE

JP MORGAN CHASE BANK N A

JP Morgan Chase Bank N.A.

JP Morgan Chase Bank NA

Jp Morgan Chase Bank Na &

JP Morgan Chase Bank NA, as trustee

JP MORGAN CHASE BANK TRUS TEE

JP MORGAN CHASE BANK TRUSTEE

JP Morgan Chase Bank, as Trustee

JP MORGAN/CHASE BANK TRUS TEE

JPMChase

JPMORGAN CHASE

JPMORGAN CHASE BANK

Jpmorgan Chase Bank &

JPMORGAN CHASE BANK AS TR USTEE

JPMORGAN CHASE BANK N A


ABoR MLS Sales Analysis

ABoR MLS Classifications

Sales By Foreclosure/REO 1997‐2009 (Jan/Feb) 2008 2009 (Jan/Feb)

Foreclosure/REO = Y 8,486 1,666 356

Foreclosure/REO = N 1,697 318 1,379

Foreclosure/REO = NULL 244,099 20,429 294

254,282 22,413 2,029

Sales By Foreclosure/REO Type 1997‐2009 (Jan/Feb) 2008 2009 (Jan/Feb)

Bank 296 134 162

FHA/HUD 166 78 88

Mortgage Co 37 18 19

Private 136 69 67

See Agent 9 2 7

VA 7 2 5

651 303 348

Source: ong>Realong> ong>Estateong> Center at Texas A&M University


ABoR MLS Sales Analysis

ong>Realong> ong>Estateong> Center Classifications

Sales By Distress Type 1997‐2009 (Jan/Feb) 2008 2009 (Jan/Feb)

Distressed 19,702 2,695 449

Non‐Distressed 234,580 19,718 1,580

Source: ong>Realong> ong>Estateong> Center at Texas A&M University

254,282 22,413 2,029

Sales By Distressed Owner Type 1997‐2009 (Jan/Feb) 2008 2009 (Jan/Feb)

Bank/Mortgage/ong>Financeong> 3,377 329 46

GSE 1,417 126 24

HUD/VA 6,328 537 91

Other Foreclosure/REO 8,391 1581 270

Private Label ABS/MBS Pool 189 122 18

19,702 2,695 449

Sales By Non‐Distressed Owner Type 1997‐2009 (Jan/Feb) 2008 2009 (Jan/Feb)

Homebuilder‐New 27,753 2209 195

Homebuilder‐Remodel 791 71 27

Not Yet Assigned 203,058 17203 1327

Relocation Service 1,157 101 12

Trust 1,821 134 19

234,580 19,718 1580


ABoR MLS Sales Analysis

Year

Foreclosure REO

Type

Sale

Count

Avg Sale

Price

Non‐Foreclosure

REO Avg Sale Sale Price

Lease Price Difference

Avg SqFt

Sale Price

Non‐Foreclosure

REO Avg SqFt Sale SqFt Sale

Price Price Diff

2008 Bank 134 $146,940 $245,296 ‐40% $70.40 $119.62 ‐41%

2008 FHA/HUD 78 $108,386 $245,296 ‐56% $63.68 $119.62 ‐47%

2008 Mortgage Co 18 $112,949 $245,296 ‐54% $61.57 $119.62 ‐49%

2008 Private 69 $130,824 $245,296 ‐47% $71.87 $119.62 ‐40%

2008 See Agent 2 $47,250 $245,296 ‐81% $31.72 $119.62 ‐73%

2008 VA 2 $98,000 $245,296 ‐60% $47.34 $119.62 ‐60%

2009 Bank 162 $142,701 $254,313 ‐44% $71.34 $119.15 ‐40%

2009 FHA/HUD 88 $97,576 $254,313 ‐62% $60.88 $119.15 ‐49%

2009 Mortgage Co 19 $115,358 $254,313 ‐55% $62.35 $119.15 ‐48%

2009 Private 67 $148,149 $254,313 ‐42% $72.78 $119.15 ‐39%

2009 See Agent 7 $162,786 $254,313 ‐36% $97.61 $119.15 ‐18%

2009 VA 5 $132,000 $254,313 ‐48% $61.68 $119.15 ‐48%

Source: ong>Realong> ong>Estateong> Center at Texas A&M University


ABoR MLS Sales Analysis

Year

Owner Type

Sale

Count

Existing Home

Avg Sale Non‐Distressed

Price Avg Sale Price *

Sale Price Avg SqFt

Difference Sale Price **

Existing Home

Non‐Distressed

Avg SqFt Sale

Price *

SqFt Sale

Price

Difference

2008 Bank/Mortgage/ong>Financeong> 329 $155,260 $250,007 ‐37.9% $74.82 $125.68 ‐40.5%

2008 GSE 126 $135,027 $250,007 ‐46.0% $73.34 $125.68 ‐41.7%

2008 Homebuilder‐New 2,209 $280,302 $250,007 12.1% $106.34 $125.68 ‐15.4%

2008 Homebuilder‐Remodel 71 $264,007 $250,007 5.6% $108.23 $125.68 ‐13.9%

2008 HUD/VA 537 $103,128 $250,007 ‐58.7% $62.63 $125.68 ‐50.2%

2008 Not Yet Assigned 17,203 $250,116 $250,007 0.0% $125.72 $125.68 0.0%

2008 Other Foreclosure/REO 1,581 $203,516 $250,007 ‐18.6% $99.10 $125.68 ‐21.2%

2008 Private Label ABS/MBS Pool 122 $114,562 $250,007 ‐54.2% $69.86 $125.68 ‐44.4%

2008 Relocation Service 101 $311,598 $250,007 24.6% $109.74 $125.68 ‐12.7%

2008 Trust 134 $236,051 $250,007 ‐5.6% $120.66 $125.68 ‐4.0%

Source: ong>Realong> ong>Estateong> Center at Texas A&M University


ABoR MLS Sales Analysis

Year

Owner Type

Sale

Count

Existing Home

Avg Sale Non‐Distressed

Price Avg Sale Price *

Sale Price Avg SqFt

DifferenceSale Price **

Existing Home

Non‐Distressed

Avg SqFt Sale

Price *

SqFt Sale

Price

Difference

2009 Bank/Mortgage/ong>Financeong> 46 $161,109 $252,646 ‐36.2% $71.59 $122.99 ‐41.8%

2009 GSE 24 $112,396 $252,646 ‐55.5% $65.94 $122.99 ‐46.4%

2009 Homebuilder‐New 195 $258,902 $252,646 2.5% $100.24 $122.99 ‐18.5%

2009 Homebuilder‐Remodel 27 $262,650 $252,646 4.0% $97.79 $122.99 ‐20.5%

2009 HUD/VA 91 $98,949 $252,646 ‐60.8% $60.44 $122.99 ‐50.9%

2009 Not Yet Assigned 1,327 $252,911 $252,646 0.1% $123.01 $122.99 0.0%

2009 Other Foreclosure/REO 270 $190,145 $252,646 ‐24.7% $87.43 $122.99 ‐28.9%

2009 Private Label ABS/MBS Pool 18 $118,183 $252,646 ‐53.2% $64.71 $122.99 ‐47.4%

2009 Relocation Service 12 $241,979 $252,646 ‐4.2% $114.86 $122.99 ‐6.6%

2009 Trust 19 $234,147 $252,646 ‐7.3% $121.48 $122.99 ‐1.2%

Source: ong>Realong> ong>Estateong> Center at Texas A&M University


Foreclosure Leading Indicators

Source: Congressional Oversight Panel, “Foreclosure Crisis: Working Toward a Solution


Bonus: Sur-Thrival Strategy


SWOT Analysis

• Strengths

– Take advantage ong>ofong> your strengths

• Weaknesses

– Take actions to minimize your weaknesses

• Opportunities

– Exploit opportunities in the market

• Threats

– Take actions to protect against threats


Case Example: Securities Lending


ong>Realong> ong>Estateong> Application

• Look for niche market

– Housing, Type ong>ofong> Client, Type ong>ofong> Property,

Location

• Provide unique service

– New type ong>ofong> service, new way ong>ofong> communicating

• Alternative sources ong>ofong> capital

– Creative substitutes: insurance, partnerships, good

track record

• Watch prong>ofong>it margin

– May be function ong>ofong> niche market


Gerald A. Klassen

Research Analyst

ong>Realong> ong>Estateong> Center

Texas A&M University

gklassen@tamu.edu

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