WATCH: This week in real estate numbers

A 1 million-square-foot lease at 1 Manhattan West, twenty-six L.A. hotels trading hands and a $32 million Brickell development site. In real estate, it’s all about the numbers.

This past week, The Real Deal reported on Tishman Speyer and Cogswell Realty plans to sell 183 Madison Avenue, the amount of poor L.A. households that live in deficient or unaffordable housing and the huge drop in million-dollar mortgage volume in Palm Beach County.

To see some of the biggest news of the past week in 10 numbers, watch the video above.

For more videos, visit The Real Deal’s YouTube page

Fannie Mae keeps economic growth projections unchanged despite political tensions

As tension mounts in Washington, Fannie Mae kept its annual growth predictions unchanged for 2017.

The company explained even a potential government shutdown won’t be enough to derail the projected growth.

And a government shutdown isn’t the only political tension lingering. Fannie Mae also mentioned the looming geopolitical tensions which pose risks to the economy.

Fannie Mae held its economic forecast steady at 2% for the year, according to the August 2017 Economic and Housing Outlook report from Fannie Mae Economic and Strategic Research Group.

“We are keeping our full-year economic growth outlook at 2% as risks to our forecast are roughly balanced,” Fannie Mae Chief Economist Doug Duncan said. “On the upside, consumer spending growth might not moderate as much as we have accounted for in our forecast.”

“A build-up in inventory also should be positive for growth this quarter and nonresidential investment in structures will likely continue to improve as oil prices stabilize,” Duncan said. “In addition, the decline in the dollar and a pickup in global growth should support manufacturing and exports, although the outlook for the trade sector is clouded by uncertainty surrounding trade policy.”

The economy increased by 1.9% in the first half of this year, however Fannie Mae predicts the growth will increase to 2.1% during the second half. Fannie Mae attributes the expected pickup in growth to consumer spending and business investment. After subtracting sizably from growth last quarter, residential investment also will likely be a modest contributor during the second half of the year.

However, there are still setbacks the economy could experience through the second half of the year.

“Headwinds include tax policy uncertainty that could delay business investment, the risk of a partial government shutdown this fall if Congress fails to pass spending appropriations, a technical default if the debt ceiling isn’t raised, and an increase in global political unease,” Duncan said. “However, we believe these headwinds and tailwinds essentially net out overall, and we stand by our view that economic growth will remain on track for 2% in 2017.”

Freddie Mac names Stacey Goodman chief information officer

Freddie Mac has announced Stacey Goodman will join the company as executive vice president and chief information officer in September.

Goodman will be a member of the senior operating committee and will report directly to CEO Donald Layton. She brings more than 25 years of technology experience in the financial services industry to Freddie Mac. In her role, which is set to begin September 25, Goodman will lead the information technology division and provide corporate-wide leadership for the government-sponsored enterprise’s technology activities.

“Stacey is the right leader at the right time to take our technology and company transformation to the next level,” said Layton. “Her strong leadership skills and in-depth knowledge of financial services technology will enable us to deliver services to our clients and operate our company as well as the very best financial institutions.” 

Most recently, Goodman was executive vice president, chief information and operations officer at CIT. Prior to her tenure at CIT, she held several roles at Bank of America, last serving as managing director and divisional CIO of global technology and operations. She also served as managing director of IT at UBS.

Freddie Mac: Mortgage rates continue to hold amidst economic uncertainty

Mortgage rates remained largely unchanged this week amidst the lingering sense of economic uncertainty, according to the weekly Primary Mortgage Market Survey from Freddie Mac.

“Following a mild decline last week, the 10-year Treasury yield rose 1 basis point this week,” Freddie Mac Chief Economist Sean Becketti said. “The 30-year mortgage rate similarly remained relatively flat, falling just one basis point to 3.89%.”

Click to Enlarge

(Source: Freddie Mac)

The 30-year fixed-rate mortgage dropped one basis point to 3.89% for the week ending August 17, 2017. This is down from last week when mortgage rates hit 3.9%, but up from last year’s 3.43%.

The 15-year FRM also decreased slightly, hitting 3.16% for the week. This is down from 3.18% last week, but up from 2.74% last year.

However, the five-year Treasury-indexed hybrid adjustable-rate mortgage increased to 3.16%, up from 3.14% last week and 2.76% last year.

“Mortgage rates are continuing to hold at low levels amidst ongoing economic uncertainty,” Becketti said.

Although most economists predicted the Federal Reserve will raise rates three times in 2017, weak economic data is now leading some experts to say the chance of a third rate hike in December is less certain.

Mortgage Rates Ridiculously Low, Freddie Mac Confirms

Shutterstock photo

( – Mortgage rates are continuing to hold at low levels amidst ongoing economic uncertainty, mortgage provider Freddie Mac announced Thursday.

The 30-year fixed-rate mortgage averaged 3.89% with an average 0.4 point during the week ending August 17, down from 3.90% in the prior week. It is now just one basis point above its 2017 low. A year ago at this time, the 30-year FRM averaged 3.43 percent.

The 15-year fixed-rate mortgage averaged 3.16%, down from 3.18% last week. The 5-year Treasury-indexed hybrid adjustable-rate mortgage averaged 3.16%, up from last week when it averaged 3.14 percent.

Separately, Freddie Mac announced that housing starts were lower than anticipated during the second quarter. While starts should improve in the second half of 2017, expect them to remain well below their long run average at around 1.24 million.

The company expects mortgage rates to stay below 4 percent for the remainder of the year, while home sales should reach 6.2 million units for 2017, a three percent increase over the 2016 pace. However, home sales would be much higher if inventory was not so tight.

Further, house price appreciation is expected to average 6.3 percent for full year 2017 on high demand and low inventory.

Freddie Mac appointed Stacey Goodman as executive vice president and chief information officer on September 25. Goodman will be a member of the senior operating committee and will report directly to CEO Donald H. Layton.

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More than a decade later, housing bust still hurts

• Tight inventory. “We have a lot of willing buyers unable to find a home,” said George Ratiu, managing director of housing and commercial research for the National Association of Realtors. Some homeowners are still underwater from the housing collapse. Another reason: The great migration of baby boomers to smaller houses hasn’t materialized. “They like the space,” Mr. Ratiu said. “Their current homes are more accommodative to family visits.”

• Labor shortages. During the housing downturn of 2006-2012, many workers abandoned construction altogether, and shortages still plague the construction market. Currently, for example, 33% of builders surveyed by the National Association of Home Builders say that there is a severe shortage of framers, and 29% say there’s a severe shortage of rough carpenters.

• Declining affordability. As home prices have recovered, incomes have not risen proportionately. The NAR’s housing affordability index has declined from 165.8 in 2014 to 153.3 in the most recent quarter, Mr. Ratiu said. “It’s still in good territory, but it’s not a good trend.” And many young first-time home buyers are saddled with student debt and uncertain job prospects.

An estimated 7 million to 10 million homes were lost to foreclosure during the housing collapse, and that surge has largely ended. Forclosure filings peaked at 2.87 million in 2010, according to RealtyTrac. They fell to 933,045 in 2016.

But the effects of the crisis linger.

“I do have a couple of clients with little to no equity in their homes, which makes dragging that debt and those payments into retirement a drag on other assets and cash flows,” said Matt Chancey, an Orlando financial planner.

Others say they have clients with real estate investments that still haunt them. Steve Branton, a financial planner with Mosaic Partners in San Franciso, notes that housing prices there have recovered. “But I do have clients who bought vacation homes in Nevada which, after the housing collapse, became public or affordable housing. That investment will never recover,” he said.

And others are simply disappointed with the returns from their homes, which is often the largest chunk of Americans’ savings.

“Most people today don’t understand why their house is worth only slightly more than it was 12 years ago,” said Ray Ferrara, CEO of ProVise Management Group. “The good news is that prices have mostly recovered, but there has really been little appreciation from where prices were at the peak — unlike equity prices, which recovered and went on to set new highs.”

Clients are also struggling with how to help their children afford homes. One solution — albeit a sometimes uncomfortable one — is to have them live at home for a few years so they can build a nest egg.

And, Mr. Ferrara noted, any financial help to children buying a home has to be a gift. “The lingering effect of that is that mom and dad have less money to enjoy retirement with,” he said.

Home affordability erodes in first half of 2017

Most industry watchers believe home prices will keep moving up
and the strong sellers’ market will keep going for some time barring a recession.
Housing economists don’t agree, however,
on how relatively affordable the market is for buyers.

On Wednesday, the National Association of Realtors (NAR) reported
that the median national home price had reached a new record high at $255,600
in the second quarter. Prices in some cities are at truly eye-popping levels. A
home in the nation’s most expensive market, San Jose, California, for example,
will cost $1.18 million, NAR reported. The median sales prices in San Francisco
and Los Angeles aren’t that far behind.

Nationally, however, NAR’s data suggests that the housing market remains
solidly affordable. The trade group’s affordability index — a measure of  how easy it is for a typical wage earner to
qualify for a mortgage to cover 80 percent of the home-purchase price — remains solidly in the affordable range at 151. This is a gauge for the entire market, based on incomes, mortgage rates and home prices. A number above 100 indicates that borrower will be able
to afford the mortgage payments, assuming a 20 percent downpayment.

Notably, NAR’s affordability index for first-time buyers fell
below the 100 threshold in the second quarter, to 99.7.

NAR’s Chief Economist Lawrence Yun has warned for months about the potential for an affordability crisis, given the strong demand for homes and
ultra-tight inventories in some markets, especially at the lower-priced end of
the market. NAR’s composite affordability index has fallen from a height of
214.5 in January 2013.

“The number is above 100 comfortably, which implies that a
median-income person should easily be able to buy a median-priced home,” Yun
said in a telephone interview this week. “But it is all relative. Compared to
what it had been say, three, four, six years ago, the affordability is lower
now. And the reason why it is lower is because home prices have grown much
faster than people’s income.”

Other indices that have measured affordability have also
been weakening. The title insurance company First American Corp’s real price
index, for example, was up just over 10 percent year over year in May.

First American’s index factors in changes in wages and
mortgage rates. That index appears to indicate that home prices on a national
basis are well below the real price of homes in 2000, which is often benchmarked
as a normal market.

First American Chief Economist Mark Fleming said the real issue with the
housing market today is not the price of homes, but the lack of inventories,
which affords buyers and potential sellers fewer choices. Rising mortgage
rates and rising prices will eventually catch up with the market, however.

“There are more expensive markets than others, but
practically everywhere housing remains, by historic standards, affordable,” Fleming
said. “That said, nationally we have lost 10 percent affordability. We are
moving quickly toward decreasing affordability. That is because house prices
are significantly outpacing income growth and interest rates are beginning to
rise. Even though the level of affordability is very high, it is not getting
better, it is getting worse.” 

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  • NAR CEO Bob Goldberg: Disrupters aren’t ‘the bogeyman’

    Realtors can be a fearful lot, seeing threats in new technologies and new business models that might change the way they do business.

    The National Association of Realtors (NAR) has in some ways encouraged this mindset, often disparaging companies such as real estate tech giant Zillow Group.

    But new NAR CEO Bob Goldberg, who is determined to paint himself as a change agent, is striking a more inclusive tone at the beginning of his tenure. In an interview with Inman, Goldberg said those thought of as “disrupters” should be invited into the “tent” of organized real estate in the hopes of turning them into Realtor advocates.

    Goldberg’s plans for change in regard to technology don’t stop there. They extend to Realtors Property Resource (RPR) and Upstream and whether they can justify their existence.

    Will agents and brokers take their cue from Goldberg? Time — and Goldberg’s results — will tell.
    On embracing disruption
    As Goldberg sees it, whether it’s called disruption or in…

    Pershing H1: Recent DC Action On Fannie Not Priced Into Shares

    Bill Ackman’s Pershing Square H1 2017 letter to investors is out see below for highlights

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    Timeless Reading eBook

    For the period January 1, 2017 through June 30, 2017, the Company returned -2.3%3 net of fees4. During the first half of the year, a number of holdings made positive contributions to performance, with Restaurant Brands International being by far the most significant. The portfolio’s gains, however, were offset by mark-to-market losses in several holdings, with the Herbalife short, Fannie Mae/Freddie Mac and Mondelez long positions being the largest detractors to performance year-to-date. From July 1, 2017 through August 15, 2017, the Company returned 0.5% net of fees, bringing YTD performance through August 15, 2017 to -1.7%.

    For an up-to-date NAV, please refer to our website at where we publish our NAV on a weekly basis.
    On August 4, 2017, Pershing Square Capital Management, L.P. (the “Investment Manager,” or “PSCM” or “ Pershing Square”), issued a press release announcing a new investment in ADP. The company fits the long-term profile of historically successful Pershing Square activist investments as it is a simple, predictable, free-cash-flow-generative business with a long-term history of growing cash flows and a dominant market position.

    On April 19, 2017, PSH announced a share buyback program of up to 5% of PSH’s outstanding Public Shares. Jefferies International Limited, the buyback agent, commenced the program on May 2, 2017. PSH believes that the repurchase is an attractive investment at current discount levels which should contribute to performance, and may assist in reducing the current discount between PSH’s share price and NAV.
    As of August 15, 2017, a total of 1,775,793 shares have been repurchased under this program representing 14.8% of the total buyback authorization.

    As reported in the 2016 Annual Report, the terms of PSH’s investment management agreement with PSCM have a “high water mark” feature such that investors in PSH only pay performance fees on increases in the NAV above the highest NAV at which a performance fee has previously been charged. As a result, PSH investors will not incur performance fees until PSH’s NAV exceeds $26.37 per share

    Despite modestly negative performance of the Company year-to-date, our portfolio companies have made substantial business progress which we discuss further below. Over the intermediate to long-term in the stock market, business performance has been inexorably reflected in share price performance.



    Fannie Mae (FNMA) / Freddie Mac (FMCC)
    Fannie and Freddie have cost us substantial performance this year as their large share price gains after the November U.S. Presidential election have nearly completely retraced. Both stocks have fallen by approximately 30% year-to-date. They are trading modestly above our average purchase prices of nearly four years ago despite substantial increases in intrinsic value since that time (albeit these increases have been offset by a nearly 100% sweep of the profits of both companies by the U.S. government), and the growing potential for a resolution of their status.

    Over the last nine years since the financial crisis, the Congressional dialogue around Fannie and Freddie has changed dramatically, and in a manner which we believe is favorable for shareholders. We believe the consensus view in Congress and the White House is that the 30-year prepayable fixed rate mortgage, which is the bedrock of middle-class housing values and affordability, is essential for the economy and the American people, and would not exist without Fannie and Freddie. In addition, there is a growing consensus that the U.S. government must play a role as a catastrophic guarantor for the housing financing system, and that the private sector should pay a market-based fee for that support. As importantly, the government would like the private sector to invest a large amount of capital in a first loss position to protect the government’s guarantee from ever being called upon.
    We believe that there is a growing consensus that the simplest and lowest risk solution to address each of these key considerations is the reform and restructuring of Fannie and Freddie supported by a large capital raise from the private sector and the retained earnings of the two companies. In order for this capital to be raised, the investment proposition for new investors has to be appealing. No new investor will invest in Fannie and Freddie unless historic investors are protected from, and compensated for, the expropriation of profits from the two companies that took place with the cash-flow sweep transaction that has swept more than $270 billion of profits from Fannie and Freddie since the crisis.
    Wall Street’s memory of injecting tens of billions of dollars into Fannie and Freddie just prior to their conservatorship, and the expropriation of both companies’ profits forever, just as they began to turn profitable, is still fresh. Completing the largest capital raise in history in a newly restructured Fannie and Freddie will not be achievable unless and until investors in the companies are treated fairly and receive commitments that the extra-legal action of the past will be reversed and not reoccur. We believe this is understood in Washington.
    We are fortunate that two of the most financially sophisticated Senators in Washington, Senators Corker and Warner, have taken the lead on housing finance reform and have suggested that they will put forth new legislation shortly to address this last remaining restructuring of the financial crisis. We believe that this initiative combined with support from the Treasury Secretary has dramatically increased the chances of a favorable resolution for the country and for investors in Fannie and Freddie, including the government, which is not reflected in their current share prices.
    Since the government and taxpayers own 79.9% of the common stocks of both companies, the interests of shareholders and the government are largely aligned. Fannie and Freddie offer one of the few potential opportunities for political compromise in the current political environment as a resolution could generate tens of billions of dollars for taxpayers and reduce the risk of future government outlays. For all of the above reasons, we believe that there is likely to be significant positive developments at both companies in the short term which are not reflected in their share prices.


    Herbalife Ltd. (HLF) Short
    On Monday, August 14, 2017, Chinese media outlets reported that the Chinese government has launched an investigation and crackdown on multi-level marketing and pyramid selling companies. HLF’s stock declined 5.25% on the day’s news. As we previously noted in our first quarter letter, Herbalife updated its risk-factor disclosures in its first quarter 10Q, adding new language about regulatory risk in China. China is approximately 20% of Herbalife’s revenues. A substantial decline or shutdown of HLF’s China business would have a material adverse effect on the company.
    With the implementation of the FTC mandated injunctive relief in late May, the second quarter provided the first opportunity for investors to witness its partial effects on Herbalife’s financial performance. While the changes to its U.S. business practices were only in place for a fraction of the second quarter, Q2 results were disappointing to HLF investors and analysts from a top line perspective as volume declined 8% year-over-year. Year-over-year constant currency sales declines in North America (-18%), South Central America (-9%), Mexico (-1%) and Asia Pacific (-1%) were

    Taking Over Fannie And Freddie: Perjury Or Bust?

    Fannie Mae (OTCQB:FNMA) and Freddie Mac (OTCQB:FMCC) are two Fortune 50 companies that the government has held in conservatorship since 2008 governed by HERA which was passed into law in 2008. HERA created FHFA, the Federal Housing Finance Agency and permitted the agency to place the two companies into conservatorship if they met certain conditions. Because the companies were adequately capitalized at the time they were placed into conservatorship since they had their highest levels of capital in history, the government coerced the companies’ BODs into surrendering the companies into a statutory framework formally known as conservatorship. Since Fannie and Freddie were placed into conservatorship the companies have consistently remained cash profitable.

    Further inspection of the GSEs annual statements shows this is due to their regulator packing them full of temporary accounting losses designed to retroactively justify the imposition of conservatorship. When it was already a foregone conclusion that these temporary accounting losses were going to be reversed to create one-time gains in excess of $100B, the government implemented the third amendment to the senior preferred purchase stock agreement (SPSPA) which unilaterally took 100% of the net worth of the enterprises for no consideration. Investors have been furious, but to date no judge has ruled the government’s actions as illegal but the court system has said that if the government breaches contracts, there are consequences. Those consequences are TBD as they are in-remand in the DC Court of Judge Lamberth.

    Investment Thesis: The government can do whatever it wants. As Frank Costanza would say, “Serenity now!” With that out of the way, the rulings so far have operated outside of a constitutional framework. A lot of that has to due with what appears to be deficiencies in plaintiff arguments. In theory, one should not have to argue the self-evident, but in practice when you’re suing against illegal expropriation against the United States, if you don’t then you are liable to some outcome that involves some crazy behind the back explanation that voids all the observable facts and reason in favor of one liner explanations that are taken out of any observable context. I am not a lawyer and so this came as a surprise to me. I was operating under the mental framework that reason will prevail but at the end of the day what I’ve come to learn and appreciate is that judges will go to the ends of the earth to rule in favor of the defendant unless the plaintiffs have foreclosed all other possibilities. In this case, constitutional arguments were not raised early enough and now we are 4 months away from the time when these two companies are set to have $0 by government design. Where did all their money go? It went to the government. Fortunately, due to Trump winning the elections, Mnuchin was put in as Treasury Secretary and he has expressed an interest in getting the GSEs out of government control by saying, “any solution will be dependent upon the GSEs being capitalized…” which is basically game, set, match. FHFA’s Watt has recently come out saying that they need a Capital Buffer. I expect that in a recapitalization scenario, preferred shares eventually resume their dividends or are converted to common.

    Government Official Perjury

    Fairholme has raised the issue of perjury given the fruits of discovery disproving a written and sworn affadavit by a government official being undermined by discovery:

    In 2013, Mario signed a declaration saying that FHFA and the enterprises had not discussed their deferred tax assets before the net worth sweep was put into place:


    This declaration is undermined by the following email:

    If this is not incriminating, I don’t know what is. That said, I encourage you to review the work of Bloomberg’s Joe Light and Brietbart’s John Carney. Those two guys do a great job of putting together a more government centric narrative. I can’t say that the narrative makes sense, but I can say it’s always good to review opposing viewpoints. I personally subscribe to Occam’s razor which suggests the simplest solution is likely better. I see no need to commit perjury if you didn’t do something wrong in the first place. Further, withholding these highly relevant documents for over a year gave the government an edge in other court rooms where this affidavit was submitted and its relevance not seriously questioned.

    Summary and Conclusion

    I own 4050 shares of FMCCH, 21988 shares of FMCCP, 7370 shares of FMCCT, 741 shares of FMCKO, 12885 shares of FMCKP, 12788 shares of FNMFN, and 5 shares of FNMFO. I think that if Watt and Mnuchin are set on recapitalizing Fannie and Freddie, they would have to settle the lawsuits and that’s why I own these shares. I’m not sure when, I’m not sure how, but at this point to me it’s not really a question of if. Fannie and Freddie are two great american companies that made so much money that even after 9 years of the government taking everything they still couldn’t drown them to death. They are still very much alive and very profitable and have paid the government billions in excess of what the government forced them to take via pro-government accounting transactions in the earlier years of conservatorship.

    Senator Bob Corker’s 75-day speech ripened on the first of this month so we are now in uncharted territory. When the next shoe drops is anybody’s guess. What’s at stake here is the United States mortgage market. Those against Fannie and Freddie want to cut them up, raise the price of mortgages in America, and put the business into some sort of Ginnie Mae explicit guarantee situation or explicitly guarantee at the securities level by attaching a guarantee to anything that floats through the GSE designed CSS/CSP. It all sounds fine and dandy until you get to the nuts and bolts of how insurance works and it works by pooling. The GSEs do a great job of pooling so you can spread issuance risk across multiple time frames and the law of averages is on your side. I have yet to see a reasonable case for doing away with the GSEs that doesn’t promote an agenda that increases inequality in some way shape or form. In four months the GSEs capital will be wound down to $0 if nothing changes. For years they’ve been treated as government agencies even though they are private companies with shareholders.

    As more documents come to light showing that the government lied to our faces about the GSEs, perhaps that will set up the political stage for changing the sweep.

    Disclosure: I am/we are long FMCCH,FMCCP,FMCKP,FMCCT,FNMFO,FMCKO.

    I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

    Editor’s Note: This article discusses one or more securities that do not trade on a major U.S. exchange. Please be aware of the risks associated with these stocks.