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Real Estate Market Commentary - May 2012
by Peter L. Zachary, MAI, MRICS

Two interesting developments happened in the month of May, 2012. The Appraisal Institute’s “Appraiser News Online” stated that “Home Builder Creates REIT for Single Family Rentals” and “Bank of America Rolls out Principal Reduction Plan”.

Appraiser News Online Stated:

“Atlanta-based home builder Beazer Homes has created a real estate investment trust to buy, renovate and rent single-family homes, The Wall Street Journal reported May 8. Beazer plans to make an initial public offering when assets reach at least $150 million.

Beazer developed the REIT in partnership with buyout firm Kohlberg Kravis Roberts & Co., and named the new company Beazer Pre-Owned Rental Homes Inc. Beazer already has acquired 192 single-family homes in the Phoenix and Las Vegas areas, purchasing most through foreclosure auctions, short sales and other distressed property avenues.

The Journal reported that Beazer originally built about 10 percent of the homes it has purchased, and the company plans to renovate the properties and then rent them out as reconditioned homes. Beazer claims the number of rental homes it controls could eventually number in the thousands.”

I’m surprised it took this long for something like this to happen. In my opinion this is a good investment since the purchase prices of these homes should be low enough for the REIT to have a positive cash flow. And if the housing market improved greatly, the houses can be sold for a nice profit.

Appraiser News Online also posted a story “Bank of America Rolls out Principal Reduction Plan”. They stated:

“Bank of America has mailed notices to the first of 200,000 borrowers who might be eligible for principal reduction under the terms of the $26 billion settlement with the state attorneys general and federal officials, National Mortgage News reported May 8.

“So far, under this early initiative, about 5,000 trial modifications have been mailed, providing a potential total of more than $700 million in forgiven principal,” Ron Sturzenegger, Bank of America servicing executive, told National Mortgage News. Under the terms of the multi-billion settlement, servicers are required to reduce borrower’s mortgage payments to a sustainable and affordable level.

Bank of America indicated that it would initially reduce the principal balance to as low as 100 percent of the current property value, and after that the bank will reduce the interest rate and forebear on additional principal “as necessary to reach the target payment,” National Mortgage News reported.

If Bank of America owns the second mortgage, it then must write down the second loan in proportion to its write down on the first loan. Servicers must extinguish the second lien if it is 180 days or more past due under the settlement terms.”

I really can’t believe the above. The people who have been struggling to keep their mortgages current are probably not that happy.

Appraiser News Online also posted a story “Fiserv Case-Shiller Indicates Steady Housing Recovery”. It Stated:

“Data from 384 U.S. markets indicates that the housing market is on a slow but steady pace toward recovery after experiencing steep price declines, according to the Fiserv Case-Shiller Indexes released May 8.

The average price of a single-family home in the U.S. fell 4 percent in the fourth quarter from a year ago, and Fiserv reported that a further decline of 0.8 percent is expected by the end of 2012. Prices are expected to stabilize by the end of the summer, and then increase at an annualized rate of 3.9 percent over the next five years.

The hardest-hit markets will likely see the fastest growth during recovery, Fiserv data showed, while home prices in markets that were less affected by the downturn are expected to increase at a slower rate.

Fiserv noted that when home prices do hit bottom, they will be 35 percent lower than their peak levels in the first quarter 2006.”

I’m glad someone has a crystal ball and can see the future.

More to come next Thursday!

Read previous Real Estate & Housing Market News.

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