Canadian dollar is near par and the U.S

It had to happen eventually. The Canadian dollar is near par and the U.S. real estate recession is in full swing. So it's only natural that Canadians start asking themselves, "When is the time to buy property south of the border?"

The answer, according to some property veterans, is now. Kim, a Calgary developer with 15 years experience in Alberta and in Arizona, says he's starting to see amazing bargains in the US, where he has developed condos. Mr. Kim doesn't claim to know whether or when U.S. property prices will bottom. But certain rental properties, he says, offer extraordinary value.

He tells of a 19-unit, single-storey building across the street from Arizona State University's campus. Despite full occupancy, the panicking owner originally listed it for $1.6-million (U.S.). She finally agreed to Mr. Kim's $1.2-million with a $900,000 vendor take-back mortgage (meaning she would only get $300,000 cash and the rest would be paid to her like a mortgage, over time with interest.)

At that price, the cap rate - industry jargon for the income the property produces divided by the price - was about 11 per cent, unheard of in Canada, where current cap rates are closer to 7 per cent. Not only that, but Mr. Kim was able to finance part of the equity down payment with a bank loan, meaning his investment was very small, the rest being borrowed. Borrowing magnifies your returns (if you're right.)


The building needed some work to get it to modern standards, but the developer saw that as an opportunity because the $180,000 in renovations would allow him to raise rents by $100 a suite per month. "That's where the value is. Put in a nominal amount of work and your return is excellent if you know what you're doing."

With bank financing, the cash-on-cash return on the building would be about 30 per cent if it all worked out - which it has so far. But the real upside to the deal will come later as the land is zoned for multi-storey residential, meaning it can be upgraded.

Mr. Kim's research tells him that postsecondary enrolment goes up during a recession, such as the United States has entered. Rents in those neighbourhoods are fairly immune from a downturn. Yet there's so much fear and loathing that even these property prices are being dragged down in panic selling (or to raise money to salvage other developments).

"Someone is going to make a lot of money down there," Mr. Kim says. "Investors and I will be among them."

Governor Mark Sanford opposition to offshore drilling.

Despite Republican Party pressure, South Carolina Governor Mark Sanford is hanging on to opposition to offshore drilling.

With gas prices going up about every day, leading Republicans, including President George W. Bush and Senator John McCain, are now calling for an end to the federal moratorium on offshore drilling. That's putting some coastal GOP governors, like Mark Sanford, in the hot seat.

When running for reelection less than two years ago, Sanford strongly opposed any effort to drill off the states coasts for natural gas or oil. During an October 2006 debate in Conway, Sanford said, "What I think we have got to keep in focus is the fact that 14 million people a year come to Myrtle Beach. And the driver of this economy is tourism."

Sanford has watched many members of his own party push for an end to the federal ban on drilling. Now, Sanford is acknowledging the trend. "While Governor Sanford has not called for an end to the federal moratorium, he would consider it if states can determine what to do," said spokesman Joel Sawyer.

The talk of state politicians debating offshore drilling has Myrtle Beach Mayor John Rhodes hopping mad. From a conference in Miami Thursday, Rhodes said, "This issue could be a war zone. We will do anything to oppose any potential threat to our economic engine, our beaches."

South Carolina Senators Lindsey Graham and Jim DeMint support offshore drilling with Graham saying the closer it is to shore, the cheaper it is to drill.

Responding to a question Sanford was asked about offshore drilling during the October 2006 debate, Sanford said, "It takes but one oil spill, I think, to impact in essence what amounts to be the anchor tenant for attraction to tourists for this part of South Carolina." Sawyer says Sanford still agrees with that assessment.

Sanford isn't alone in feeling pressure on offshore drilling. Florida Governor Charlie Crist, sometimes mentioned as a possible McCain running-mate this fall, changed his position yesterday and now supports it.

Environment America, an environmental group, warned today that "offshore drilling proposals threaten sensitive coasts, beaches and beloved parks with chronic pollution... from oil and gas production and catastrophic spills from platforms and pipelines..."

Pointing out the Exxon Valdez oil spill in 1989, Rhodes says one catastrophe could wipe out the Grand Strands tourism industry as we know it. "Oil on the beaches, however it gets there, is oil on the beaches. Why would we ever take that risk?"

Myrtle Beach International Airport

It is the seemingly eternal debate in Myrtle Beach: What to do with the airport terminal.

On Thursday night, there was another meeting and plenty of options available for change in Myrtle Beach. Local leaders may look to Florida for some answers.

Since 1976, the terminal at Myrtle Beach International has been added onto several times and the debate over what to do about it has gone on for years.

On Thursday night, those talks resumed at what they call a "progress" meeting. All parties concerned, from the city to the county, got an update from contractor M. B. Kahn on how the passenger terminal may evolve.

"Our solution will probably be unique to Myrtle Beach, but we want to look at other places," said Edgar McGee with M.B. Kahn.

Officials will travel to Florida next month to check out the Orlando-Sanford airport which had a very similar situation. They had an older terminal that had been added onto several times and with code issues.


Myrtle Beach International Airport Director Bob Kemp said, "One of the good things about Myrtle Beach is that the demand is pretty strong here and that we think that will help us be able to stay as viable as possible."

In Florida, they built a new building adjacent to the old terminal.

McGee said, "They are reusing the existing building, and that's another reason we're going down there to take a look at what they did and how they did it."

McGee also said Myrtle Beach's terminal could be reused for restaurants and shopping while a new building could give it the capacity needed to stay competitive.

Doug Decker, a concerned citizen, has opposed the project before and says, unless the traffic picks up, we should work with what we have. "Any contention that we're going to build a new terminal here, I think it would have quite a bit of opposition up and down the road," Decker said.

There is also concern rising fuel prices may throw budgets out the window.

Kemp said, "Every airport in the country is being affected, and every airline in the country is being affected by fuel and energy costs. So, we're cautiously watching what's happening."

There will be a series of public meetings in the future. Officials want input from communities all over Horry County. The contractor, M.B. Kahn, will take those recommendations to Horry County Council in November.

Greenspan Predicts Rise in Interest Rates

The credit crisis is under control, but with inflation now the top concern, higher interest rates can be expected, said former Federal Reserve Chief Alan Greenspan last week.

Greenspan said he thought the credit crisis had peaked in March. "I think the worst is over (for the U.S. economy) if the financial crisis is over," Greenspan said via video link to an event in Mexico.

But to keep inflation under control, Greenspan said the Fed will have to tighten monetary policy and that will drive up interest rates.

'Window Right’ For Buying Residential Real Estate

Falling home prices is unleashing pent-up demand. But too many buyers remain on the sidelines, according to the chief executive officer of Century 21.

“I’m fearful that … the average individual will miss what I think is one of the greatest opportunities I’ve seen in my years in this business,” said Thomas Kunz in a recent interview with the Business Journal.

Century 21 is a franchising unit of Realogy Corp., a New Jersey-based privately held concern that owns Coldwell Banker, ERA and Sotheby’s International Realty.

Realogy, which was purchased by the private equity firm Apollo Management LP for $8.75 billion in April 2007, has been hammered by the downturn.

The company posted a net loss of $797 million between April 10 and Dec. 31, 2007, according to regulatory filings.

Kunz conceded the meltdown has slowed transactions, but said there is a silver lining in the cloud hanging over the market.

Kunz was in San Diego on June 12 to meet with agents to discuss market conditions in the rapidly deflating housing market.

“A year ago, newspapers were full of subprime meltdown news. Before then, 99 percent of people hadn’t heard the word before,” he said.

Bottoming Out

The failure of New Century Financial Corp., the near failure of Countrywide Financial Corp. and bailout of Bear Stearns Cos., destroyed confidence in the industry.

However, Kunz remains optimistic. “The reality is that things are bad for some but not for everybody,” he said.

Buyers who wait for the bottom could miss out when the market turns. The $20,000 to $30,000 saved on the sales price of a home might be erased due to higher interest rates later, he said.

dealing with second mortgages and short sales

HOPE NOW, the industry alliance of mortgage lenders, servicers, investors, and counselors, announced that its servicer members have agreed to a uniform set of procedures and guidelines that will greatly enhance the ability of homeowners to quickly receive the help they need and ensure that the assistance process is respectful, understandable, and transparent.

The agreement also includes the mortgage lending industry’s first-ever guidance for dealing with second mortgages and short sales.

“These new guidelines will greatly expedite the process of preventing foreclosures,” said Faith Schwartz, executive director of HOPE NOW. “The industry is committed to helping distressed borrowers stay in their homes whenever possible and these guidelines will help in that effort.”

For the first time, the new guidelines establish a common, streamlined timetable that will be used by each HOPE NOW mortgage servicer when working with a homeowner to prevent a foreclosure.

The guidelines establish a common set of principles on the possible foreclosure prevention alternatives including loan modifications, repayment plans, partial claims, and temporarily suspending the need to make monthly payments.

The agreement also includes procedures to keep homeowners informed about the status of their request to their servicer for help. Additionally, it encourages servicers to provide access to objective, independent, and free counseling for homeowners while putting in place detailed procedures that will allow servicers to reach out to homeowners who may be in danger of losing their home.

“The guidelines also include an agreement relating to second mortgages which is important to help clear the path for increased modifications and re-financing,” said Schwartz.

“It’s critical to remember that nobody benefits when a homeowner faces foreclosure,” said Jonathan L. Kempner, President and CEO of the Mortgage Bankers Association. “Creating these servicing procedures was the right thing to do, both for consumers and for the industry, and it’s something that the HOPE NOW Alliance is entirely united on as it continues to fulfill its mission of helping as many homeowners as possible stay in their homes each and every day.”

“This is another clear sign of the industry’s commitment to helping more homeowners avoid foreclosure,” said Steve Bartlett, President and CEO of the Financial Services Roundtable. “We are bringing more transparency and clarity to the process and that is a positive for the homeowner.”

“These new guidelines will bolster some of the existing policies that servicers have already had in place, while creating important new ones,” said John Dalton, President of the Housing Policy Council. “We are seeing more coordination within in the industry with the hope of preventing more foreclosures.”

The new agreement was developed between April and June 2008. “Although many of the HOPE NOW mortgage servicers have been implementing some procedures similar to many of these for some time, they are now agreeing to fully implement this uniform plan in 60 days or less.”

loan application volume

The Mortgage Bankers Association (MBA) released its Weekly Mortgage Applications Survey for the week ending June 13, 2008. The Market Composite Index, a measure of mortgage loan application volume, was 508.4, a decrease of 8.7 percent on a seasonally adjusted basis from 557.1 one week earlier. On an unadjusted basis, the Index decreased 9.6 percent compared with the previous week and was down 21.3 percent compared with the same week one year earlier.



The Refinance Index decreased 15 percent to 1378.6 from 1622.1 the previous week and the seasonally adjusted Purchase Index decreased 4.3 percent to 360.2 from 376.2 one week earlier. The Conventional Purchase Index decreased 7.2 percent while the Government Purchase Index (largely FHA) increased 4 percent.



The four week moving average for the seasonally adjusted Market Index is down 5 percent to 540.3 from 568.6. The four week moving average is up 0.5 percent to 355.7 from 353.8 for the Purchase Index, while this average is down 11.3 percent to 1627.6 from 1835.6 for the Refinance Index.



The refinance share of mortgage activity decreased to 37.4 percent of total applications from 39.8 percent the previous week. The adjustable-rate mortgage (ARM) share of activity decreased to 9.7 percent from 10.3 percent of total applications from the previous week.



The average contract interest rate for 30-year fixed-rate mortgages increased to 6.57 percent from 6.24 percent, with points decreasing to 1.1 from 1.12 (including the origination fee) for 80 percent loan-to-value (LTV) ratio loans.



The average contract interest rate for 15-year fixed-rate mortgages increased to 6.14 percent from 5.78 percent, with points decreasing to 1.1 from 1.12 (including the origination fee) for 80 percent LTV loans.



The average contract interest rate for one-year ARMs increased to 7.22 percent from 6.87 percent, with points increasing to 1.56 from 1.42 (including the origination fee) for 80 percent LTV loans.

bring the market back up to speed

Recession and the reality of real estate

Here’s what’s going on to bring the market back up to speed


As one would expect over a problem that's already sent nearly 2 million American homeowners into foreclosure and threatens to drag the economy into recession, the federal government is beside itself trying to bring the ongoing mortgage crisis under control.

That's proving a particularly tough challenge for numerous reasons, not the least of which being that no one really knows just how deep is the hole in which we find ourselves. Aside from the financial exposure already incurred by the mortgage industry -- The Economist magazine in December estimated sub-prime borrowers alone may ultimately default on as much as $300 billion in loans -- the potential losses as the crisis bleeds into other areas of the economy are incalculable. But that hasn't stopped the U.S. government from trying to fix the mess anyway.

Since the sub-prime debacle first came to the fore in July 2007, an increasingly desperate Federal Reserve has tried to shore up the economy through interest-rate cuts four times -- in August, October, December and January. More cuts are almost certainly on the way. In March, the Reserve and the central banks of four foreign countries announced they would pump $200 billion of Treasury securities into financial institutions that have seen their liquid assets dry up as a result of the crisis.

In December, President Bush announced the creation of the "Hope Now Alliance," in which lenders would be encouraged to temporarily freeze the mortgages of some homeowners with adjustable-rate loans. The Treasury Department has been working with banks to try to modify loans facing adjustable-rate increases. For its part, Congress in February pushed through a $168 billion economic stimulus package that, aside from putting a few hundred more dollars in everyone's pockets, raised the FHA jumbo-mortgage limit in high-cost areas to $729,750. The move was aimed at bringing more buyers to the housing market and, thus, stop falling property values by reducing the inventory of unsold homes.

So how much of a positive effect will all this official activity have on the foundering mortgage market and the shaky economy as a whole? According to two industry experts, not much at all.

The trouble with all those interest-rate cuts by the Federal Reserve, says Robert Pavlik, the investment chief at the investment firm Oaktree Asset Management in New York, is they only help when an individual or institution has actually obtained a loan. And loans, he says, have become increasingly difficult to obtain.

"The real-estate market faces high mortgage rates despite the fact that the Fed continues to cut short-term interest rates because lenders have raised credit standards -- they want a certain level of income and verification," Pavlik says. "So it's harder to go out and obtain those loans for investment and personal buying. (The cuts) are a step in the right direction, but the lenders have to be willing to make those loans."

Pavlik also expressed concern that tottering financial institutions might not use the liquidity freed up by the Reserve for its intended purpose.

"I think that the Fed's actions, while designed to increase lending, might be used by banks and federal borrowers as a way to shore up their weakening balance sheets."

Ken Mayland, president of the economic analysis firm ClearView Economics LLC in Pepper Pike, Ohio, says interest-rate cuts and increasing market liquidity might provide some initial relief, but he worries that it could come at a high cost. Further, he says, nothing the federal government has done thus far addresses the problems at the core of the mortgage crisis.

"The rate cuts are a good thing for real-estate markets and mortgage lending, et cetera, and the Fed has injected a substantial amount of liquidity into the system," he says. "Things tend to work better when there's money growth versus no money growth. But it carries a risk; it's a two-edged sword. Putting too much liquidity into the system can cause inflation.

"Is this going to resolve the problem?" he continues. "I think it will only have a modest, limited effect, because the real problem is that there was a lot of bad underwriting, and people were allowed to be put into mortgages and homes that they really couldn't afford under any circumstances. On top of that, there was a substantial amount of fraud on the part of the homebuyers. Buyers bought homes without any intention of living in them -- they just planned to flip them."

Mayland and Pavlik say that, despite the frenzy of activity in Washington, the real-estate market is going to get worse before it gets better. Both men, however, see bright spots in their otherwise gloomy forecasts. Pavlik believes that the coming recession "will probably last six to nine months, at the longest," while Mayland suggests that the good thing about hitting bottom is you have nowhere to go but up.

"Step back and look at the big picture," he says. "We started to slide in 2006, when new housing starts were at about 2.2 million. We're at 1 million right now. We know that housing declines are cyclical, and that, historically, the deepest 'bottoms' tend to be around 900,000 new housing starts. That means that most of the decline is behind us."

next Fed meeting would contain inflation

"Loose lips sink ships," if this was the Fed's motto rates would probably not reacted the way they did. After several Fed Governors spoke about the inflation front last week rates reacted less than calmly. So are we in store for more of the same?

Last week, several Fed Governors spoke out about the inflationary pressures that face the economy and the lack of the Fed's action to date. Some even suggested that increasing rates at the next Fed meeting would contain inflation and bring crude oil prices back down to under $100 per barrel, these comments caused rates to react wildly.

Although the week ahead has several reports scheduled for release the most impactful is Thursday's Philadelphia Fed index. However, the market will likely be more focused on the continued comments of the Fed Governors and there willingness to criticize the lack of action by the Fed to stem inflation.

The bottom line: Expect rates to continue to be volatile as long as the Fed dissenters continue to flat their lips.

Canadian Real Estate Association

Primus Telecommunications Canada Inc., today announced an extended three year contract with The Canadian Real Estate Association (CREA) to host and provide managed services for mls.ca, one of the busiest websites in Canada with more than four million unique visitors every month. Agents and customers visiting the mls.ca website will continue to experience fast response rates and near 100 per cent up time.

As part of the agreement mls.ca users will continue to benefit from increased reliability through a more robust, industry leading infrastructure. Primus will host the mls.ca site across two of its Internet Data Centres.

"Our clients look to us to help with their core business," said A.J. Byers, senior vice president of Primus Business Services. "Primus looks forward to continuing to support The Canadian Real Estate Association to enhance the user experience for visitors to the mls.ca website."

CREA will draw upon Primus' managed services which include its Internet Data Centres, 24/7 technical support teams, and extensive server and network management expertise. With managed network management, Primus undertakes mls.ca's server load balancing, server and network monitoring, and managed firewall and VPN services, so CREA can focus its resources on serving the needs of agents and customers.

"The renewed contract makes it possible for us to concentrate on providing accurate and comprehensive information to our members." said Dan Gies, MLS(R: 69.98, +0.93, +1.34%) & Technology Chair from the CREA. "Given the complexities of our website infrastructure, and our requirement for the site to be available near 100 percent of the time, I've been very happy with the reliability of Primus' Internet Data Centres, the managed service team, and its flexible contracts that satisfy our growth."

By leveraging multiple Primus' Data Centres, Primus can ensure back up of all critical data for redundancy in case of natural disasters. Managed network services ensure seamless user visibility for Canada's largest industry trade association which represents more than 94,000 real estate brokers, agents and salespeople who work through more than 100 real estate boards and associations. Since February 2008, the mls.ca and sia.ca French websites had more than four million unique visitors each month, resulting in over 12 million visits to the mls.ca and sia.ca websites each month when repeat visits are included.

Countrywide gave special treatment to US lawmakers: reports

Countrywide Financial, the largest mortgage lender at the center of the US housing crisis, regularly gave loans on favorable terms to prominent lawmakers and former cabinet members, according to US media.

The preferential treatment for senators including Democrat Chris Dodd, chairman of the Senate Banking Committee and a recent presidential candidate, was approved by Angelo Mozilo, chief executive of Countrywide Financial, the Washington Post reported on Saturday.

CondeNast Portfolio magazine first broke the story on Wednesday, saying the recipients of the favorable terms were known as "Friends of Angelo" in internal company documents and e-mails.

"Make an exception due to the fact that the borrower is a senator," Mozilo wrote in one e-mail obtained by the magazine, referring to a loan for Kent Conrad, a Democratic lawmaker from North Dakota.

The other officials who allegedly received special attention from Mozilo included President George W. Bush's former housing secretary, Alphonso Jackson, and two senior figures from former president Bill Clinton's administration -- former United Nations ambassador Richard Holbrooke and former Health and Human Services secretary Donna Shalala, the magazine wrote.

Mozilo made no effort to conceal his special favors, Guy Cecala, publisher of Inside Mortgage Finance Publications, told the Washington Post.

"It was something he handed out like party favors. He was fairly forthcoming with it," Cecala said. "As long as I can remember, he was offering that."

Dodd and Conrad, the chairman of the Senate Budget Committee, denied they had sought out or received any special deals.

"I was never told I was given preferential treatment. I didn't ask for it, didn't seek it, and as far as I know, I didn't get it," Conrad was quoted as saying by the Post.

Dodd, who has been mentioned as a possible vice presidential pick, said: "As a United States senator, I would never ask or expect to be treated differently than anyone else refinancing their home."

The reports come shortly after former Fannie Mae chief executive Jim Johnson was forced to resign as an adviser to Democratic presidential candidate Barack Obama following a report in the Wall Street Journal alleging he received favorable treatment on loans from Countrywide

As Georgia real estate declines, agents leave

The party's over, and thousands of Georgia's real estate sales agents are going home.

The decline of agents is the largest since the sales force hit a record high in 2007. The number of active agents has fallen by 6,131, or 5.9 percent, according to the Georgia Real Estate Commission, which licenses agents.

Their departure is expected as the days of easy sales — and commissions — fade into history.

"A lot of people weren't having to work real hard to make really good incomes," said Bob Hamilton, chief executive of the Georgia Association of Realtors, a professional organization.

In Georgia, at least some of the decline appears to be among part-time sales agents. The state doesn't analyze the data it collects, said Jeff Ledford, the state real estate commissioner.

People who sell real estate as a side job typically get into the market to supplement their other household income, said Becky Babcock, a Realtor in Cherokee County who got her license in 1985. When selling homes takes more time, as in the current sluggish market, they tend to go to the sidelines, she said.

"The people leaving are primarily part-time agents who have their license as a secondary income — schoolteachers, firefighters, people who drive a school bus, stay-at-home moms," Babcock said. "I'm not aware of anyone who is an active, full-time, successful real estate agent who has dropped out of the business."

The dip in Georgia follows a national pattern.

Over the past 12 months, about 30,000 people have dropped out of the national real estate sales sector, according to the Bureau of Labor Statistics. The national peak was in June 2006, according to bureau.

Hamilton said most members of his organization will weather the storm.

"Some will say they can't make it, but the vast majority of our members are hanging in there, doing what they have to do to stay in the business and what they have to do to make a living," he said.