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

<strong>The</strong> <strong>Future</strong> <strong>of</strong> <strong>Real</strong> <strong>Estate</strong> <strong>Finance</strong> <strong>and</strong>
<strong>its</strong> <strong>Impact</strong> on your Business
April 30, 2009
Gerald A. Klassen
Research Analyst
<strong>Real</strong> <strong>Estate</strong> Center
Texas A&M University
gklassen@tamu.edu

Agenda
• <strong>Real</strong> <strong>Estate</strong> <strong>Finance</strong>: Back to the <strong>Future</strong>
• Implications for <strong>Real</strong>tors
• Texas/Austin <strong>Real</strong> <strong>Estate</strong>
• 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 <strong>of</strong> money
from savings accounts
<strong>and</strong> 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
<strong>Real</strong> <strong>Estate</strong>
Bubble Breaks

Dominance <strong>of</strong> MTG Securitization
Source: http://www.chicag<strong>of</strong>ed.org/publications/fedletter/cflnovember2007_244.pdf

Rise <strong>and</strong> Fall <strong>of</strong> Shadow Banking
Source: Congressional Oversight Panel, “Foreclosure Crisis: Working Toward a Solution”

Shadow Banking Credit Contraction
Data: Federal Reserve Bank, Flow <strong>of</strong> Funds

Fall <strong>and</strong> Rise <strong>of</strong> Personal Savings
Source: IHS Global Insight

Historical Savings Rate
Return to late 90s
level <strong>of</strong> saving <strong>and</strong>
economic activity
<strong>Future</strong> economic
activity
dependent on
savings rate
Source: http://online.wsj.com/article/SB123897160787290857.html#mod=todays_us_page_one

Implications for <strong>Real</strong>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 <strong>Real</strong>tors (cont’d)
• Rates spike after Fed qu<strong>its</strong> buying Treasuries
<strong>and</strong> 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 <strong>Real</strong>tors (cont’d)
• Downward pressure on home prices
– More savings, less money for mortgage payments
– Higher interest rates, lower borrowing capacity
• Role <strong>of</strong> Frannie uncertain, possibly reduced
– Losses will take decades to overcome
– US Govt won’t guarantee Agency debt
– Politicization hurts credibility with markets

Texas & Austin <strong>Real</strong> <strong>Estate</strong>

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: <strong>Real</strong> <strong>Estate</strong> Center at Texas A&M University

Annual Texas Home Sales
Source: <strong>Real</strong> <strong>Estate</strong> Center at Texas A&M University

Austin Annual Home Sales
Source: <strong>Real</strong> <strong>Estate</strong> Center at Texas A&M University

Texas Median Home Price
3-Month Moving Average
Source: <strong>Real</strong> <strong>Estate</strong> Center at Texas A&M University

Austin Median Home Prices
12-Month Moving Average
Source: <strong>Real</strong> <strong>Estate</strong> Center at Texas A&M University

Austin SF Building Perm<strong>its</strong>
Source: U. S. Census Bureau, <strong>Real</strong> <strong>Estate</strong> 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 <strong>and</strong> 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 <strong>of</strong> the market
• Wisdom <strong>of</strong> Crowds
– Pool knowledge <strong>of</strong> 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 <strong>of</strong> a transaction
– Members have complete picture <strong>of</strong> the market

ABoR MLS Sales Analysis
• Who are the sellers in the market?
• How many types <strong>of</strong> 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\<strong>Finance</strong>
• 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: <strong>Real</strong> <strong>Estate</strong> Center at Texas A&M University

ABoR MLS Sales Analysis
<strong>Real</strong> <strong>Estate</strong> 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: <strong>Real</strong> <strong>Estate</strong> 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/<strong>Finance</strong> 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: <strong>Real</strong> <strong>Estate</strong> 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/<strong>Finance</strong> 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: <strong>Real</strong> <strong>Estate</strong> 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/<strong>Finance</strong> 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: <strong>Real</strong> <strong>Estate</strong> 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 <strong>of</strong> 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

<strong>Real</strong> <strong>Estate</strong> Application
• Look for niche market
– Housing, Type <strong>of</strong> Client, Type <strong>of</strong> Property,
Location
• Provide unique service
– New type <strong>of</strong> service, new way <strong>of</strong> communicating
• Alternative sources <strong>of</strong> capital
– Creative substitutes: insurance, partnerships, good
track record
• Watch pr<strong>of</strong>it margin
– May be function <strong>of</strong> niche market

Gerald A. Klassen
Research Analyst
<strong>Real</strong> <strong>Estate</strong> Center
Texas A&M University
gklassen@tamu.edu