The housing bubble was caused by poor lending standards, lax regulation, and low interest rates. Poor lending standards have met a natural death, lax regulation is irrelevant now — it turns out banks do self-regulate when lower executive bonuses are suddenly on the table — but today’s low interest rates should surely impact housing prices.
But is it enough to save the housing market? And what does it mean to your stock portfolio and your real estate business?
HSBC has done well to style itself the great subprime survivor. But the world’s biggest bank is less special than it thinks. True, its shares have outperformed almost every banking index around. And its core tier one capital ratio – 7.8 per cent at the end of September, towards the top of its target range – is on the high side, versus western peers.
But as HSBC has three-quarters of its loan book in the benighted US and UK, that target may be a moving one. A note to third-quarter accounts shows that the carrying value of US consumer loans was $111bn, but that the market value was $34bn lower. Fine: these are banking assets, not held for trading, so the group does not have to account for them at fair value. But if you were to tot up HSBC’s subprime losses taken so far through its P&L, then add the reported fair-value deficits not recognised on balance sheet, the sum would be almost $70bn – higher than Merrill, Citi or UBS, and second only to Wachovia. An accounting confection, of course, but it does throw a light on the scale of HSBC’s exposure to US subprime and the potential for further impairments.
– Lex – www.TheFlipBoard.com
A market analyst from Wachovia Bank said yesterday that he feels real estate is about to hit the bottom. I agree and disagree at the same time. Yes, some specific niches of real estate may bottom out, but some still have a good way to go. Continue reading
Hypo Real Estate, a German commercial property lender has been rescued for a second time by the German government two months ago. The company will also slash more than 40 percent of its workforce and pull back from some business areas to keep from completely going under.
Staff numbers would fall from 1,800 to 1,000 in the next three years, HRE announced this last weekend. Strangely enough, some two-thirds of the jobs being lost are outside of Germany. At the same time, the Munich-based corporation warned that business conditions had declined in the current quarter and “significant extra burdens” were expected in its fourth-quarter results. It was also terminating the contracts of Markus Fell, Finance Chief, and Frank Lamby, responsible for all commercial real estate operations.
HRE attracted global attention in October, at the height of the financial market crisis, when it received a €50bn ($70bn) funding package, orchestrated by Berlin, after a €35bn lifeline proved inadequate. This is the same predicament large US banks find themselves in.
HRE had run into difficulties after failing to obtain sufficient short-term, unsecured financing to support its public sector lending arm. The company has been among the German financial institutions hardest hit by the financial turmoil because of its reliance on wholesale funding markets.
Reading the news has become an exercise in how much bad news I can take before I feel the need to jump off a building or drink 100-proof alcohol until my tears become flammable. Continue reading
Before we get to current updates to the housing market in Atlanta, GA, I would like to remind our investors that overall market economics respond to market maker’s skepticism, paranoia and superstitions. Good, bad or otherwise, it is the truth. First of all, it is an election year for the Presidency. Second, the GSEs and investment banks scandal has not been resolved yet. Next, manufacturing in the United States is terribly low with unemployment ticking up, compared to the start of the year. And our beloved government, who created this problem, is passing a new bill that will allocate hundreds of billions of dollars of taxpayer money to procure bad loans. This action will save large firms, like Fannie Mae and Freddie Mac, and increase the national debt for all Americans. (Which is sad, since we are artificially inflating markets instead of letting them do what they are supposed to do: Correct Themselves!)
Could this be the bottom we are waiting for? Or is this the beginning of worthless American dollars, ridiculous inflation and terribly cheap housing? We do not know. However, if we follow what the ultra-successful are doing, we see it is time for action. (Check out what Warren Buffet is doing. Also, look at the deals that Donald Trump is crafting now during this “housing slump”.)
Now back to our story in Atlanta:
ATLANTA – More than $153 million in newly earmarked federal funds will extend a lifeline to Georgia regions hit hardest by the home foreclosure crisis, enabling leaders from Atlanta to Savannah to acquire and redevelop foreclosed properties at risk of being abandoned.
Small to midsize businesses have really taken the brunt of the national economic slowdown, much more so than their Fortune 500 counterparts. The banking, construction, auto and retail sectors are hardest hit, while other areas like health care, education and the federal government are doing better. Business leaders are closely watching existing assets and ensuring they are getting the best use out of them. This includes real estate, both commercial and residential. The difficult period we are in currently has caused us to become better stewards of what we buy and use. Just look at the number of forced sales of real estate across the board, if you want proof. Continue reading
Now that one of the largest insurance brokers in the world is in trouble and household names like Lehman Brothers and Merril Lynch are either bankrupt or purchased by another entity, what do we do about deals using 1031 exchanges? Continue reading
Morgan Stanley, the second-biggest U.S. securities firm, told thousands of clients this week that they won’t be allowed to withdraw money on their home-equity credit lines, said an inside source or person familiar with the situation. Continue reading
U.S. housing starts unexpectedly surged the most in more than two years in June because of a change in New York City’s building code that overshadowed a slide in single-family home construction. Continue reading