by Calculated Risk on 11/01/2009 07:08:00 PM

The WSJ has an article on landlords cutting effective rents: Landlords Offer Incentives to Stay Put

... Equity Residential said new tenants in the third quarter paid 9% to 10% less rent than the previous residents. ... Denver-based UDR is offering renewing tenants a flat-screen TV, new carpet, kitchen upgrade or, $300 in cash. ... Some landlords have also become more open-minded about tenants with credit issues involving home foreclosures.

Rents are falling because vacancies are at record levels. Reis recently reported that the apartment vacancy rate in cities hit a 23 year high of 7.8 percent in the third quarter, and Reis expects the vacancy rate to reach a record 8 percent soon.

Click on graph for larger image in new window.

Last week the Census Bureau reported the overall rental vacancy rate hit a record 11.1 percent in Q3 2009.

The higher vacancy rate is pushing down rents and the value of rental units. This is good news for renters, but this will also lead to more apartment defaults, higher default rates for apartment CMBS, and more losses for small and regional banks.

And falling rents are already pushing down owners' equivalent rent (OER). OER just turned negative for the first time 1992. From the BLS:

The increase [in CPI] occurred despite declines in the indexes for rent and owners' equivalent rent, the first decreases in those indexes since 1992.

Since OER is the largest component of CPI, this will apply downward pressure on CPI for some time. And lower rents will also put pressure on house prices, since renting is a competing product.

Note: REIT BRE reports tomorrow and their CEO always some interesting comments.

"I think it is shaping up there is another leg down in terms of market rents and effective rents and that will be somewhere late this year or early [next] year where I think all the operators will move their rents down to basically handle the late stage of this recession."
BRE CEO, Aug 5, 2009

by Calculated Risk on 11/01/2009 03:53:00 PM

Press Release: CIT Board of Directors Approves Proceeding with Prepackaged Plan of Reorganization with Overwhelming Support of Debtholders

And from the NY Times Dealbook: CIT Files for Bankruptcy

On Sunday afternoon, the company filed for Chapter 11 — but under a so-called prepackaged bankruptcy plan that will enable it to emerge from court protection by the end of the year.

Sunday’s filing, made in a Manhattan federal court, caps months of efforts by CIT to stay alive.

And from the WSJ:

One loser from a bankruptcy would be the U.S. Treasury. Late last year it injected $2.3 billion of funds from the Troubled Asset Relief Program ... The government investment is likely to be wiped out ...

Even if CIT emerges intact, its lending capacity could drop to less than 20% of what it was two years ago, according to an estimate by Brian Charles, a debt analyst at R.W. Pressprich & Co.

CIT provides financing for about one million small businesses, so the key question is how will this impact the ability of many small businesses to obtain financing.

by Calculated Risk on 11/01/2009 12:41:00 PM

Another busy week ahead starting with construction spending, the ISM reports, vehicle sales, the Fed meeting (little change in wording expected), and ending with the employment report. Did the unemployment rate hit 10% in October?

Here is a summary of data released in October and the updated Unofficial Problem Bank List.

October Economic Summary in Graphs

Unofficial Problem Bank List Grows to 500

A guest post from albert:

On a New York bankruptcy case in the news: In re Olga: of Bankruptcy and Foreclosure

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On the GDP report:

From Rex Nutting at MarketWatch: U.S. GDP rises 3.5% as stimulus kicks in

From Paul Krugman: What recovery should look like

From Jim Hamilton at Econbrowser: A welcome GDP report

And from me: Random Thoughts on the Q3 GDP Report

Click on cartoon for larger image in new window. Cartoon from Eric G. Lewis www.EricGLewis.com (site coming soon)

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A few stories on the collapse of WaMu:

From Kirsten Grind at the Puget Sound Business Journal: The downfall of Washington Mutual

From Drew DeSilver at the Seattle Times: Part one | Reckless strategies doomed WaMu

From David Heath at the Seattle Times: Part two | WaMu: Hometown bank turned predatory

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And on the Home buyer tax credit:

From Bloomberg: Senate Said to Revise Plan to Extend, Expand Homebuyer Credit

The details:
- Income eligibility for home buyers increases to $125,000 for individuals and $225,000 for couples.
- The tax credit for first-time home buyers (anyone who has not owned in the last 3 years) will be the lesser of $8,000 or 10% of the purchase price.
- For move-up buyers - "who have lived in their current home for at least five years" - the credit would be limited to $6,500.
- The credit runs from Dec. 1, 2009 to April 30, 2010, with an additional 60 day period to close escrow. (So end of April to sign contract, end of June to close escrow)

Cartoon from Eric G. Lewis www.EricGLewis.com (site coming soon)

by Calculated Risk on 11/01/2009 09:03:00 AM

From Greg Gordon at McClatchy Newspapers: How Goldman secretly bet on the U.S. housing crash

In 2006 and 2007, Goldman Sachs Group peddled more than $40 billion in securities backed by at least 200,000 risky home mortgages, but never told the buyers it was secretly betting that a sharp drop in U.S. housing prices would send the value of those securities plummeting.
...
A Goldman spokesman, Michael DuVally, said that the firm decided in December 2006 to reduce its mortgage risks and did so by selling off subprime-related securities and making myriad insurance-like bets, called credit-default swaps, to "hedge" against a housing downturn.

DuVally told McClatchy that Goldman "had no obligation to disclose how it was managing its risk, nor would investors have expected us to do so ... other market participants had access to the same information we did."

The last section of the article "I've got a secret" discusses the selling of Goldman's MBS and the disclosure rules.

by Calculated Risk on 10/31/2009 10:35:00 PM

The whole video is here: Banking with Bird & Fortune at the Financial Times. An excerpt ...