HOW WILL THE U.S. CREDIT RATING DOWNGRADE IMPACT HOUSING FUNDAMENTALS?

Congress’ last-minute accord to raise the nation’s debt ceiling and avert a default wasn’t enough to save the United States’ AAA rating from Standard & Poor’s. The market’s reaction to the news could have an impact on Treasury yields and with these yields closely tied to mortgage rates, on homebuyers’ borrowing costs.

[Editor’s Note: As the day unfolded, following publication of this article, investors responded to the news with a Treasury bond buying spree, resulting in a 13 basis point drop in 10-year Treasury yields.]

The international ratings agency downgraded the long-term sovereign credit rating of the United States to AA+ late Friday night. That’s a grade level just below the AAA rating the U.S. had held for 70 years, going back to 1941 when S&P began assigning ratings to countries.

S&P said the fiscal plan that Congress and the administration agreed to last week “falls short” of what its analysts believe is “necessary to stabilize the general government debt burden by the middle of the decade.”

The agency also said the wrangling that went on in Washington – namely the use of the impending threat of default as a political bargaining chip – makes near-term progress on curbing public spending or reaching an agreement to raise revenues “less likely than we previously assumed.” S&P says the debate “will remain a contentious and fitful process.”

White House and Treasury officials fired back at S&P for basing the downgrade on what they said was a “math error of significant consequence.” The administration says S&P misquoted estimates from the Congressional Budget Office by $2 trillion in projecting the deficit over the next 10 years. S&P has since acknowledged the error but says that doesn’t change its decision.

So what does all this mean for the housing and mortgage markets?

Mortgage financiers Fannie Mae, Freddie Mac, and 10 of the 12 Federal Home Loan Banks also had their senior debt issue ratings cut from AAA to AA+ by S&P Monday morning. (The Federal Home Loan Banks of Chicago and Seattle were already rated AA+ prior to the U.S. sovereign downgrade.)

S&P says the downgrades were the result of the institutions’ “direct reliance on the U.S. government.” The agency warned back in April that the rating of the U.S. would have a direct impact on the ratings attached to the debt of these government-sponsored entities.

Reuters notes that a downgrade of Fannie Mae and Freddie Mac could also affect billions of dollars of debt issued by public housing authorities, debt that is secured by federally guaranteed mortgages.

The markets are bracing for an eventful week ahead, with expectations that the value of the dollar will slip and Treasury yields will begin to rise. The trajectory of mortgage rates typically goes hand-in-hand with Treasury yields.

But market participants point out that mortgage rates are already at historical lows, and it still hasn’t done much to boost demand from homebuyers.

Economists and housing experts alike were expecting mortgage rates to head higher later this year, even before the rating downgrade.

According to Paul Dales, senior U.S. economist for the research firm Capital Economics, “[A]ny spike in Treasury yields and/or fall in the dollar should be relatively short-lived. Once the dust settles, attention will turn back to the economic fundamentals, which are certainly consistent with low Treasury yields.”

The analysts at Barclays Capital don’t expect the ensuing shock to the market to run very deep.

“Treasuries are not going to sell off…but longer-run the fiscal problems are likely to mean a weaker dollar,” Barclays said.

The firm also stressed that for many observers, it was really a question of when the downgrade would happen rather than if it would since S&P had been very clear about its expectations.

“But it is yet another milestone in the ongoing financial crisis: another once-unthinkable event has taken place,” Barclays said. “For decades the 10-year U.S. government bond yield was the definition of the long-run risk-free interest rate; now that has been declared a less than top-notch credit risk.”

S&P is the only one of the three major ratings agencies to downgrade the United States.

Moody’s Investors Service and Fitch Ratings both confirmed their AAA ratings after the debt deal was reached last week.

By Carrie Bay
www.DSNews.com

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Survey: 87% of First-Time Homebuyers Don't Foresee Payment Troubles

Prospective homebuyers cite worries about future unemployment, concerns about property affordability, and the local economic outlook as issues that hold them back from jumping into the market, according to an industry survey commissioned by Genworth.

But the Virginia-based mortgage insurer says these economic concerns have not translated into excessive mortgage stress among recent U.S. homebuyers.

According to the survey, 87 percent of Americans who bought their first home in the past 12 months expect to easily meet their mortgage repayment obligations in the coming year.

Genworth debuted its new International Mortgage Trends Report Friday based on a global survey of current and aspiring homebuyers aimed at gaining local insight into key world markets. More than 9,000 respondents were interviewed from Australia, Canada, India, Ireland, Italy, Mexico, the United Kingdom, and the United States.

The company says the U.S. is the most optimistic among all the markets surveyed about buying a home. According to the findings, nearly two-thirds of Americans polled believe now is a good time to buy a home.

Genworth says indebtedness colors how households around the world view their financial situation and how they approach buying a home. Western countries tended to have higher levels of debt, but were also more comfortable taking on debt.

Of the many factors that influence the decision to buy a home, Genworth notes that consumer confidence is one of the most important.

The company’s survey found that homebuyer confidence has eroded due to property market instability and worries about personal finances, leading consumers to adopt a wait-and-see attitude.

Still, nearly two-thirds of Americans surveyed believe now is a good time to buy a home for those who can afford it.
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Article by Carrie Bay - www.DSNews.com

FLANDERS CORP COMING TO COLUMBIA COUNTY

The news that the Flanders Corporation will move into Columbia County is a welcome sign that the changing dynamics in New York State are starting to reap benefits.

The Flanders Corporation has picked our region to expand its growing air filter manufacturing business which is based out of North Carolina. The Company will be creating 180 jobs and investing approximately $7 million in the former Kaz plant. The collaboration between state, county and local officials helped make this a reality and I was pleased to be a part of this economic development team.

As challenging as this past budget process was, my Republican Senate Colleagues and I remained steadfast in our commitment to deliver an on time budget that contained no new tax increases. A signal that New York can be competitive in attracting and maintaining businesses and jobs.

I am hopeful the Flanders Corporation is the first of more businesses who will see the region full of potential to establish or expand a business.

Posted by State Senator Steve Saland

SENIOR LIVING FACILITIES SEE A BOOM IN THE USA

Seven years ago, real-estate developer Greg Smith purchased a failed nursing home in Danbury, Conn., with an eye toward converting it into residential condominiums.


When a friend suggested instead a senior housing strategy known as assisted living Mr. Smith initially wasn't enthused. "I didn't even know what assisted living was," Mr. Smith says.

Now he knows. His company Maplewood Communities LLC has developed and is operating three assisted-living communities including the one in Danbury and has three others under development. Moreover, Maplewood also just cut a deal with Aviv REIT Inc., one of the country's largest landlords of skilled nursing facilities, under which Aviv will provide capital for future growth, initially $60 million.

"We're talking about getting 15 to 25 communities under our belt," Mr. Smith says.

Assisted-living housing is growing into a bigger business in the New York region. While development is slow of most commercial property types—like office buildings and retail centers—a number of developers are moving ahead with plans to provide facilities that occupy a middle ground between standard apartment buildings and nursing homes.

Assisted-living tenants typically are elderly people who are generally healthy and can take care of themselves, but the facilities provide services like nurses, aides, dining and memory care. Average rents at Maplewood are $4,700 to $4,900 per month.

The New York metro area has the second lowest number of available assisted-living units in the country with 2.6 units for every 100 households with seniors aged 75 years and older, according to the National Investment Center for the Seniors Housing & Care Industry. The number of units has grown only 3% in the last five years in the region compared to 7.4% nationally, according to the center.

But the region's population is aging. People 75 years and older constitute nearly 20% of all households in the metro area, compared to 14.7% in the U.S. overall, according to the National Investment Center.

"We see that demand [is growing] as baby boomers start to climb" in age, says Mr. Smith. "The amount of [new] supply over the last 10 years has been virtually nonexistent."

The strategy so far has paid off for Maplewood. For example, it spent $11.5 million to buy the Danbury property and convert into an assisted-living facility equipped with a manmade waterfall in the dinning area. Today, it's roughly 90% occupied, has an annual income of $1.5 million. Mr. Smith estimates its worth at $18 million.

Altogether, Maplewood has invested about $35 million for its three existing properties. For the properties under development, it has invested about $45 million with a total of 225 units. Mr. Smith estimates that "conservatively" they're worth $55 million.

Other regional operators also are expanding. Benchmark Senior Living, which is Connecticut's largest owner of assisted living with 15 facilities, is expanding into northern New Jersey and suburban New York as well as New England, according to Thomas Grape, Benchmark's chief executive. He declined to elaborate citing competitive concerns.

The regional activity reflects a national trend. The biggest real-estate mergers so far this year involved national health- care landlords seeking to expand their senior housing exposure including Ventas's $5.8 billion acquisition of Nationwide Health Properties in February several months after it acquired Atria Senior Living, one the biggest regional operators in the New York region. In addition, Health Care REIT recently enters a partnership with Benchmark Senior Living involving 34 assisted living facilities in New England.

Jeff Theiler, an analyst at Green Street Advisors, says there are nearly 2 million assisted living units in the U.S. and on average, the number has increased 5% every year for the past 25 years. "Because of that resiliency, there has been a big …interest in the property type among the health care REITs," Mr. Theiler says.

To be sure, assisted living isn't without its pitfalls. Although rents have risen in recent years, the growth hasn't been robust. During the recession, many seniors or their children couldn't sell their homes or didn't have viable employment to pay for assisted-living accommodations, which are relatively expensive.

Mr. Smith started in commercial real estate by developing and acquiring office and hotel buildings more than 10 years ago. But, after he purchased his first assisted living facility in Danbury he decided to focus on this sector. He even recruited family members to live in the Danbury facility, including his great aunt and grandmother who died last year. "They fell in love with it. My grandmother was the matriarch of the community," Mr. Smith said.


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Article written by A.D. PRUITT, Wall Street Journal

Picture of Maplewood Community by Anton Troianovski/The Wall Street Journal

http://online.wsj.com/article/SB10001424052748703864204576311443059330956.html#printMode

CLEAR CAPITAL: HOME PRICES HAVE OFFICIALLY DOUBLE-DIPPED



The national home price index from Clear Capital has officially entered double-dip territory.

The company says data through the end of April has pushed its reading of national home prices 0.7 percent below the prior low recorded in March 2009, as markets have become saturated with bank-owned properties.

Clear Capital’s report shows prices have fallen 11.5 percent over the previous nine-month period. A rate of decline this rapid has not been seen since 2008.

All the major metropolitan statistical areas tracked in Clear Capital’s report showed quarter-over-quarter price declines. The company says it’s a “sign of the continued volatility and fragility of home prices.”

At the regional level, home prices in the West, Northeast, and South regions have all crossed into double dip territory to record their lowest prices since the downturn began.

Clear Capital says the fact that the Midwest is the only region yet to double dip is largely a reflection of magnified gains it experienced during the last two years of tax credit activity.

Dr. Alex Villacorta, director of research and analytics at Clear Capital, says he continues to see evidence of an increase in the proportion of distressed sales taking hold in markets nationwide.

“With more than one-third of national home sales being REO, market prices are being weighed down as many markets have not regained enough footing to withstand the strain of the high proportion of REO sales,” Villacorta said.

“In light of the compounding effects of winter’s seasonal slowdown and increased distressed sale activity, the market now faces the true test of whether prices can rebound in the historically active spring season,” according to Villacorta.

While spring typically brings with it a resurgence in home sales – and home prices follow – Clear Capital warns that markets have entered uncharted territory since this spring homebuying season will be the first since 2008 without any tax credit incentive.

“A note of caution to those looking for a strong end to 2011: The last time no incentives were in place and distressed inventories were this high, home prices fell sharply,” Clear Capital said in its report.

The company’s home price report last month noted the subtle but rather ominous trend that distressed sales activity in the West, as a percentage of total sales, had climbed after a prolonged 18-month period of general improvements, and in turn, home prices in the western part of the country hit the double-dip mark in March.

Nationally, Clear Capital says a similar trend has formed with REO saturation climbing to a current level of 34.5 percent after it declined to near 20 percent in mid-2010. Strikingly similar, the company says, 2008 saw REO saturation grow from near 20 percent early in the year to 32 percent by the end of 2008.

Looking at home price trends during these same two periods ties together similarities, Clear Capital explained, with a 15.6 percent price decline for the 2008 timeframe compared to the 11.5 percent decline for the mid-2010 through April 2011 period.

“This comparison leads to concern over home price declines through the rest of 2011,” Clear Capital said in its report, noting that the trends of 2008 were quickly reversed with the introduction of stimulus measures.

“[T]he housing market still faces many challenges that will only be solved through increased buying activity or a reduction in the distressed segment ― neither of which is assured in 2011,” according to Clear Capital.


Written by Carrie Bay - http://www.dsnews.com/