The LMC Group Blog

Investors should be prepared for Fed’s next move…………

Days after the Federal Reserve seemed to sound the alarm that the era of near-zero interest rates is ending, Chairman Ben Bernanke tempered those expectations a bit this week. Just because the Fed boosted the rate it charges banks, he told Congress, doesn’t mean it will move any time soon to boost broader interest rates too.

Despite what some may think, moving toward higher rates will be good news in many ways.

It’s an endorsement of the economy’s potential to soon stand on its own without the help of emergency rates. It means yields from CDs as well as savings and money-market accounts at banks won’t be minuscule much longer. It could even bode well for certain types of stocks and basement bargain real estate properties.

Overall market returns may be harder to come when the Fed determines it needs to raise interest rates to try to keep the economy from growing too fast. But stocks should still climb.

Standard & Poor’s study of what happened after past rate hikes tells the story: Stocks rose at only a modestly lower rate than the norm.

All told, the Fed has moved 13 times since 1946 to raise rates, usually in a series of increases lasting about 25 months. The Standard & Poor’s 500 index has risen a not-too-paltry 6.2 percent on average in the year following the start of the process, according to Sam Stovall, S&P’s chief investment strategist.

What’s more, some sectors have been big winners over those 12 months following the first rate hike, with technology stocks jumping an average 20 percent higher and health care stocks up 13 percent.

Tread carefully, though. Some sectors have been big laggards when rates rise, notably utilities, financials and materials.

Inflation
Bernanke professes not to be overly concerned about inflation, so you shouldn’t either.

That leaves investors to determine whether Treasury inflation-protected securities, or TIPS, are a wise buy now or not.

Unlike with many corporate bonds, you can be fully confident that the issuer — the U.S. government — will pay you back. The return on these Treasury bonds is adjusted to eliminate the impact of inflation.

Just be aware the optimal timing for buying TIPS may have passed. So many investors piled into them last year, concerned that heavy government spending would spur inflation, that some advisers consider them too pricey now.

Saving and borrowing
Long-suffering savers can look forward to a time when their money can grow at a decent clip again while sitting in the bank. Currently, rates for one-year CDs are under 1.7 percent, savings and money-market bank accounts often below 1 percent and money-market mutual funds hovering just above zero.

At the same time, rising rates will make mortgages and other loans more expensive. If you’re thinking about buying a home or refinancing an existing mortgage, it might be time to consider locking in those low-low rates.

All these trends are likely to be gradual, and hinge on a Fed decision that still appears months away.

The economy’s still too uncertain to call, so I don’t think they can raise rates just yet. “But we know it’s coming.”

Real Estate is at an all time low, with bargains being snapped up daily, with major investors cashing in on heavily weighted bank REO’s and foreclosures. Higher interest rate costs bring yields down, and those who pounce on what is felt as the bottom end of the cycle could see big gains in the next few years. This generation of values, although painful to most investors, may very well shift major wealth to from those affected today to the capitalists investing for tomorrow.

PUNXSUTAWNEY, Pa. – The world’s most famous groundhog, Punxsutawney Phil, emerged before chilly revelers in western Pennsylvania on Tuesday to see his shadow, a sign his handlers say means winter will last another six weeks.

Some 12,000 people gathered before dawn to await his weather forecast. They came from as far as Chile and the Netherlands, braving a chilly 18 degrees Fahrenheit to see the more than century-old ritual.

Bill Deeley, president of the Inner Circle of the Punxsutawney Groundhog Club — and reputedly the only person in the world who can speak “groundhogese” — declared that Phil had “seen his shadow” as he has about 90 percent of the time.

Investment Sales Volume Seen More Than Doubling to $100B in 2010
Dec 29, 2009 – CRE News
Sales of office, retail, multifamily and industrial properties could exceed $100 billion in 2010. That would more than double the $45 billion projected for all of 2009, according to Real Capital Analytics.

“We have hit bottom and are starting the new decade on the upswing,” the New York research firm said.

The projected increase would be the first year-over-year gain in investment-sales volume since 2007 when it rose 32% to $439 billion. In 2008, volumes had plunged to $133 billion.

Real Capital noted that credit markets have shown signs of thawing, which could help facilitate sales in 2010. It added that capital raising by investors has been strong this year, led by REITs, which raised $28.3 billion this year, including $17.2 billion of equity from 59 stock offerings.

While REITs have used much of the money raised to pay off maturing debt, Real Capital said they still figure to “dominate in acquisitions in 2010.” Some REITs have already accumulated substantial war chests and are deploying them.

For instance, Simon Property Group this month agreed to buy the Prime Outlets affiliate of Lightstone Group in a deal that values the company at $2.33 billion.

In addition to REITs, a number of investment managers have raised capital to take advantage of potential opportunities. And much of that has yet to be deployed.

Exactly when the sales rebound begins is tough to predict. Property owners are not yet pressured to sell. And, by most accounts, the gaps between what they are asking and what investors are offering remain wide.

“For now, it’s still a dilemma with buyers saying they don’t want to go first,” for fear they might overpay in what is a falling market, said David J. Lynn, head of U.S. research and strategy for investment manager ING Clarion Partners. “And before they go first they’re saying they want an optimal payout.”

Ross Moore, executive vice president and director of market and economic research for Colliers International, said, “It’s more a matter of buyers still waiting for sellers to capitulate” and drop their asking prices.

Property values as of the third quarter were down 42.9% from their peaks in October 2007, according to the Moody’s/Real Commercial Property Price Indices, and Moody’s Investors Service warned they could fall up to a total of 65% from their peaks before bottoming.

Despite predicting a sales increase, Real Capital Analytics has also reported that there have been “very few” closed sales of distressed assets, which include properties whose loans are in default or are being foreclosed on. It also warned that distressed assets are unlikely to be offered at the deeply discounted prices that opportunistic investors may be expecting. So far, that has been the case, as growing volumes of maturity defaults are extended and other distressed loans are restructured, keeping those assets out of the market.

Nonetheless, assets that can be classified as distressed are expected to account for the lion’s share of sales activity in the years ahead. For example, the FDIC had taken over 148 banks with $515.6 billion of assets from late 2008 through mid-November, and about $65 billion of CMBS loans were in special servicing as of early December, according to Realpoint.

Overseas investors are shaping up as a force that could drive up pricing, according to Janice Stanton, senior managing director of Cushman & Wakefield’s capital markets group.

She said that German investment funds in particular are focused on buying in the United States after some had waited too long to buy in the United Kingdom before commercial property pricing there rebounded. She estimated that capitalization rates in the U.K. have dropped 50 to 100 basis points since topping at averages of about 6% in the middle of the year.

Because the U.K. market timing was miscalculated, Stanton said European investors will be willing to bid aggressively to avoid repeating that mistake in the United States. “U.S. investors are pricing differently,” she added. “They are saying fundamentals will continue to deteriorate.”

Examples of Europeans buying here include the German investment fund manager, Deka Immobilien GmbH, which in September bought 1999 K St. NW in Washington, D.C., for $207.8 million. The price reflected a 6.3% first-year capitalization rate versus the 7% rate that U.S. investors are said to have bid for the office property.

Victor Calanog, research director for Reis Inc, seconded the sense that foreign entities could stir the investment pot here. “The story for the past few months has been about a widening of the bid/ask spread, with both parties not willing to concede. If economic conditions appear to have stabilized, and foreign competitors are sneaking into the mix, perhaps the twain may yet meet and transactions begin to move,” he said.

The sense that debt financing will become more available is based on three single-borrower CMBS deals that allowed.

Developers Diversified Realty Corp., Inland Western Retail Real Estate Trust Inc. and Flagler Development Group were able to raise capital at relatively attractive coupons. In addition, a number of conduit lenders are said to be priming their lending operations, with Bridger Commercial Funding saying it was re-starting its lending operation and would bring up to $200 million of loans to market through a CMBS deal by the middle of next year.

With the stock market constantly proving itself to be unstable, investors are turning to another method of investing for their retirement. The Self Directed IRA…………….

While some critics of this type of plan have stated that the market always bounces back, the current recovery is seen as a reaction to the government stimulus plan and, therefore, is not sustainable. Investors are now looking for alternatives to the market and many of these people believe that real estate IRA is the way to go.

Josh Moore of Truly Self Directed IRA states that “there has been a significant increase in the number of real estate IRA deals being done.” This bodes well for the future of this type of investments, “as many people are now choosing this method over the stock market,” Moore adds.

This is a direct backlash from the amount of money that has been lost in the stock market over the past couple of years. Individuals have been forced to work well beyond their perceived retirement date because their retirement funds have been depleted.

In some cases, these individuals have seen their funds decrease by 50% in a very short span, which “rarely happens around the median home priced real estate market. People need a place to live no matter what is happening on Wall Street. Even though the real estate market did go through some short term problems, it has rebounded in many parts of the country and has truly stabilized,” states Moore.

The Real estate IRA is meant to help people take control of their own destinies by giving them some control over where their personal investments are placed. “The days of relying on a big company or a large government pension is no longer a sustainable strategy for retirees because these programs seem to always receive cuts, especially during a recessionary period. It is wise therefore for every investor to evaluate their investment strategy and take personal responsibility for their own retirement plan,” says Moore.

“In addition, we are starting to see a trend where younger investors are asking about the Real Estate IRA at our company,” states Moore.

The trend maybe increasing for a number of reasons:

1. Investors are seeking to truly diversify.
2. Many want control over where their retirement funds are invested.
3. Many realize homes will always be in demand.
4. Thirty and forty somethings realize there is not going to be a safety net for them like Social Security so they must take the initiative now or face a substandard lifestyle during their retirement years.

“Simply put, many wonder with the current state of the economy and the loses suffered over the past year whether they will be able to retire,” concludes Moore.

What are you waiting for, the market to drop out of the sky again? We know what your stock broker is going to say; stocks are his/her business model, they make money no matter what the market does, as long as you stay in the market….. Call The LMC Group and see what the other opportunities exist out there for your retirement funds. I promise we don’t bite, you will get an honest opinion of what you can do, and you can make the decision, not your broker.

Buying a home is about to get cheaper for a whole new crop of homebuyers — $6,500 cheaper.

First-time homebuyers have been getting tax credits of up to $8,000 since January as part of the economic stimulus package enacted earlier this year. But with the program scheduled to expire at the end of November, the House voted 403-12 Thursday to extend and expand the tax credit to include many buyers who already own homes. The Senate approved the measure Wednesday, and President Barack Obama is expected to sign it.

Buyers who have owned their current homes at least five years would be eligible for tax credits of up to $6,500. First-time homebuyers — or anyone who hasn’t owned a home in the last three years — would still get up to $8,000. To qualify, buyers in both groups have to sign a purchase agreement by April 30, 2010, and close by June 30.

The homebuyers tax credit is one of two tax breaks totaling more than $21 billion that was included in a bill extending unemployment benefits for those without a job for more than a year. The other would let companies now losing money recoup taxes they paid on profits earned in the previous five years.

While the measure passed the Senate by a 98-0 vote, Sen. Kit Bond, R-Mo., questioned its efficiency in stimulating home sales.

The credit is available for the purchase of principal homes costing $800,000 or less, meaning vacation homes are ineligible. The credit would be phased out for individuals with annual incomes above $125,000 and for joint filers with incomes above $225,000.

The credit would be extended an additional year, until June 30, 2011, for members of the military serving outside the United States for at least 90 days.

The business tax break would allow money-losing companies to use current losses to offset taxable profits earned in the previous five years, giving them refunds of taxes paid in those years. Under current law, businesses with annual gross receipts of more than $15 million can claim losses back only two years.

The tax break would help industries suffering losses in 2008 or 2009, including retailers, homebuilders and newspapers. Congress included a scaled-back version of the tax break — for companies with revenues of $15 million or less — in the economic recovery package enacted in February. The new tax break would be available to companies of any size, providing a quick source of cash.

The U.S Chamber of Commerce has been a big backer of the tax break for money-losing companies.
“It frees up capital that they can use to maintain jobs and potentially even hire new people as the economy returns,” said Caroline Harris, senior tax counsel for the U.S. Chamber of Commerce.

The bill is H.R. 3548.

Oct. 29 (Bloomberg) — The Obama administration endorsed plans to extend an $8,000 tax credit for first-time homebuyers, saying it is helping stabilize the nation’s housing market.

The tax break, enacted earlier this year as part of the $787 billion economic stimulus package, has “brought new families into the housing market and contributed to three consecutive months of rising home prices,” Treasury Secretary Timothy Geithner said today in a statement. The tax break will expire Nov. 30 unless Congress intervenes.

Senate Democrats have announced plans to extend the credit until April 30, while expanding it to include higher-income Americans and some who already own homes.

Senate Finance Committee Chairman Max Baucus said today the new plan would offer a $6,500 credit for homebuyers who have lived in their prior residence for at least five years. Couples earning up to $225,000 and individuals up to $125,000 would qualify for the break, Baucus said. That’s up from the current $75,000 limit for individuals and $150,000 for couples.

“The success of the American economy is closely tied to the success of the housing market; by helping to stabilize the housing market, the homebuyer tax credit has helped to shore up the economy as it begins to recover,” said Baucus, a Montana Democrat. “This would enable an even greater number of potential homebuyers to take the credit.”

Millions of renters earn more than $75,000, he said.

Unemployment Bill

Democrats have been pushing to include the provisions in an unemployment-benefits bill, which has been held up by a disagreement with Republicans over other proposed amendments. Senate Banking Committee Chairman Christopher Dodd, a Connecticut Democrat, said he expects the chamber to vote on the tax-credit plan within a week.

The administration’s statement didn’t specifically endorse expanding the break beyond first-time homebuyers. Dodd expressed confidence President Barack Obama would sign such legislation.

Lawmakers said they want to prevent home sales from slipping as the economy struggles to recover from the worst drop in home prices since the Great Depression. More than 1.2 million borrowers have claimed $8.5 billion of the $13.6 billion set aside for the homebuyer tax credits this year, according to the Treasury Department.

The Democrats’ proposal would extend the credit to home purchases under contract by April 30 so long as they close the sale within 60 days. The measure would require those receiving the tax break to remain in their new homes for three years; otherwise, they would have to repay the credit.

$800,000 Cap

Those buying homes worth more than $800,000 wouldn’t be eligible for the credit, said Baucus. Lawmakers also said they won’t extend the break beyond the new April 30 deadline.

“The American people should understand this — and the affected industries — this is the last extension,” said Senator Johnny Isakson, a Georgia Republican. “Tax credits like this only work by creating the sense of urgency to take advantage of them.”

Isakson estimated the new plan would cost $10.2 billion. Dodd said the plan wouldn’t add to the government’s budget deficit because lawmakers plan to finance it by delaying a tax break for multinational companies scheduled to take effect next year.

Pelosi Position

House Speaker Nancy Pelosi, a California Democrat, is waiting to see the final Senate agreement on extending the tax credit before deciding whether to support it, said spokesman Nadeam Elshami.

While the tax credit speeds demand for homes from next year to this year, it won’t necessarily increase overall sales, said Scott Buchta, head of investment strategy at Guggenheim Securities LLC in Chicago.

“They do need to expand the credit to get more people involved, but at the end of the day you are paying people tax dollars to do what they probably would have done anyway,” Buchta said. “If it is passed, home sales of lower-priced homes should continue to hold their ground. However, if it is not passed we will probably see home sales slow down as we wait for natural demand to build up again.”

Senate Majority Leader Harry Reid, a Nevada Democrat, said yesterday that there is significant support among both parties for the homebuyers’ tax credit. He said the other amendments to the unemployment bill sought by Republicans are designed to embarrass his Democratic colleagues by forcing votes on extraneous issues. Republicans want to vote on amendments on immigration and to bar funding for the community activist group Acorn.

Senate Minority Leader Mitch McConnell, a Kentucky Republican, agreed that most lawmakers support the unemployment and homebuyer measures. “We’re not that far away from an agreement,” he said yesterday.

Mortgage rates went up this week, as economists declared that the recession is over.

The benchmark 30-year fixed-rate mortgage rose 10 basis points to 5.32 percent, according to the Bankrate.com national survey of large lenders. A basis point is one-hundredth of 1 percentage point. The mortgages in this week’s survey had an average total of 0.34 discount and origination points. One year ago, the mortgage index was an eye-popping 6.74 percent; four weeks ago, it was 5.38 percent.

This week, four in five economists surveyed by the National Association of Business Economics said that the recession has ended and the economy is in recovery. But they expect the economy to remain in the critical care unit for a long time, with a high unemployment rate lingering all next year.

Delivering his economic update at the MBA’s annual convention in San Diego this week, Jay Brinkmann, chief economist for the Mortgage Bankers Association, says he expects the unemployment rate to top out at around 10.2 percent in the second quarter of next year. From there, he expects it to decline slowly, finally dipping under 8 percent in the last three months of 2012.

Brinkman expects a modest decline in mortgage rates in the final three months of this year. Then comes the slow rise in rates. Brinkmann forecasts that the 30-year fixed will average 5.1 percent for all of this year. (In Bankrate’s weekly survey, the 30-year fixed has averaged 5.44 percent so far this year; the MBA uses a different methodology and its rate averages are usually about 0.3 percentage point lower than Bankrate’s.)

What does all this mean to me? It means that we have hit the bottom and it is expected by all economic forecasters that the future holds debt repayment from the bank bailouts, which means higher rates and inflation.

What to do?

If you have been sitting on the fence on re-financing, loan modification, buying a house; you had better get busy. Your time is running out if you want the most house for the money, the best rate for a re-finance, or a loan modification. 2010 welcomes a modest recovery from the recession and surely would be a welcome sign for all, however, new growth means no more giveaways and the end of low rates for many years to come. Time to pay the piper.

For further information on this and other topics that concern you, please feel free to comment and contact us.

The LMC Group

The Cape Fear economy is expected to grow about 4 percent next year with most of the growth across the board and during the first half, UNCW senior economist William “Woody” Hall said Tuesday.

This represents significant recovery from the 1 percent growth seen for the Wilmington area for 2009, up just a bit from last year’s 0.75 percent growth, he told the sixth annual Economic Outlook Conference at the University of North Carolina Wilmington.

Noting the national, state and local economies are all forecast to exit the recession by late this year, Hall said the 2010 growth expected from New Hanover, Brunswick and Pender counties combined is expected to exceed that for the state of North Carolina, at 1.5 percent, and the nation, at 2.1 percent.

Hall said his forecast, developed with UNCW business faculty colleague Ravija Badarinathi, shows especially strong growth during the first half of 2010, followed by more modest growth over the second half.

He went on to say these expectations are conditioned on:

Retail sales in the area stabilizing by the fourth quarter of this year after dropping in the first quarter and surging in the second;

Home sales stabilizing shortly and showing growth by year-end;

Tonnage through the Port of Wilmington continuing to grow; and

A slowdown of the rise in unemployment, already at a 25-year high.

Unlike during the four previous downturns in economic activity dating back to early 1980, Hall said, the local economy has been hard hit by the latest national recession, which dates from late 2007. Local economic activity was virtually flat over 2008 and will likely rise only 1 percent in 2009.

Last year and this year have shown and will show the lowest growth in the more than two decades in which the UNCW faculty has been monitoring local economic conditions, Hall said. He noted that the economic decline during the fourth quarter of 2008 was noticeably large.

Following another decline during the first quarter of 2009, local economic activity rebounded strongly during the second and third quarters, the economist said, forecasting the rebound will continue during the fourth quarter of the year, but at a lower rate.

He said the 2008 and 2009 growth rates stand in sharp contrast to the 5.7 percent annual growth rate from 2002 to 2007.

And the 4 percent growth expected for 2010 is less than half the 9.5 percent recovery seen in the Cape Fear region after the 2001 recession, Hall pointed out.

Now, mortgage modifications can include second mortgages — not just first mortgages — and cash incentives are sweetening short sale deals, thanks to new efforts by the Obama Administration.

The new efforts give some homeowners a second shot at a home-saving loan modification, especially if they were originally turned down — or turned off — because the second mortgage (piggy back, home equity loan or line of credit, etc.) impeded the process.

Other homeowners may now be able to take the short sale escape route from unaffordable mortgages that could otherwise wind up in foreclosure.

Second mortgage modifications

Loan modifications are designed to make the home loan more affordable, typically by reducing the interest rate, extending the term of the loan and, less often, by reducing the principal. They are not refinanced mortgages, which pay off the old mortgage with a new mortgage.

Under Making Home Affordable’s new second-lien program, borrowers whose first mortgages are modified will automatically have payments reduced on their second mortgages as well, provided the first and second-mortgage lender participates in the program.

Twelve mortgage servicers currently do. Among them are large banks including, Bank of America, Wells Fargo, Countrywide, Citibank, Chase and others.

Eligible homeowners looking to modify their first mortgage must be an owner-occupant of the home; have an unpaid principal balance that is no more than $729,750; have a loan that was originated on or before January 1, 2009; have a mortgage payment (including taxes, insurance, and home owners association dues) that is more than 31 percent of their gross monthly income; and have a mortgage payment that is not affordable, perhaps because of a significant change in income or expenses.

Under the new second mortgage program, in addition to lowering the payment, lenders can also opt to erase a borrower’s second mortgage in exchange for a lump-sum payment from the government.

New short sale incentives

Short sale incentives were among recent refinements to the Obama administration’s housing rescue programs.

In a short sale, the lender closes the mortgage in return for whatever sale price the homeowner can net. However, the difference is sometimes considered income for which the selling homeowner may be taxed. It’s important to include a tax professional’s advice in the deal.

Under the new short sale incentive, lenders can receive a $1,000 payment from the U.S. Treasury for allowing the owner to sell the house for less than the amount owed on the mortgage and for accepting the proceeds as full repayment, rather than treat it as a short sale.

Lenders can also receive $1,000 for accepting a deed-in-lieu transaction, in which the deed is simply transferred to the lender instead of going through a costly foreclosure.

Homeowners who agree to short sales or deed-in-lieu deals can receive up to $1,500 in closing costs. To help stop second mortgages from blocking the deal, the Treasury will pay second lien holders up to $1,000 to relinquish their claims in such transactions.

To learn more about these options visit MakingHomeAffordable.gov

THE LMC GROUP

We are here to HELP

If you are tired of dealing with banks that won’t deal or other financial institutions that have forgotten who you are, there is an alternative – Private Lenders. These monies come from a variety of sources, but regardless of the source, you must be aware of who you are dealing with, their credibility factor in the marketplace and their proven history of success.

We work directly with Pension Fund and Hedge Fund Managers as well as private individuals and Real Estate Equity Investment Groups. From Five Hundred Thousand ($500,000) up to Four Hundred Million Dollars ($400,000,000) available from our individual sector and up to 2 Billion Dollars from the larger funds.

If you have a development or project that needs funding or you want to get out of the project altogether, there are options to explore and we can show you how.

A word of caution: There are a lot – A LOT – of scam artists out there as with any industry. Beware of “up front” fees – that is a sure sign that you are probably dealing with someone who cannot actually produce the funding, but will try to collect a substantial fee (up front) prior to funding and then lead you along until they give you a reason why the funding wasn’t approved. Other red flags usually show themselves in the “qualifying” criteria for the loan. Again, they are trying to collect up front fees, they tie the ultimate loan to a certain loan to value percentage (LTV) and when the appraisal that THEY have done doesn’t support that LTV, you are out of your up front money.

So, beware of things like this, but don’t hesitate to call us if you are in the position of needing funding – we don’t have these issues because of the relationships we have in place.

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Contact us today to learn more!!