Amanda Clark

Archive for February, 2010|Monthly archive page

Buffett’s Take on the Housing Market from BusinessWeek

In Uncategorized on February 27, 2010 at 7:15 pm

By Andrew Frye

Feb. 27 (Bloomberg) — Billionaire Warren Buffett said the U.S. will recover from the residential real estate slump by 2011 as demand for houses catches up with the supply that accumulated during the bubble.

“Within a year or so, residential housing problems should largely be behind us,” Buffett wrote in his annual letter to the shareholders of his Berkshire Hathaway Inc. “Prices will remain far below ‘bubble’ levels, of course, but for every seller or lender hurt by this there will be a buyer who benefits. Indeed, many families that couldn’t afford to buy an appropriate home a few years ago now find it well within their means.”

The worst housing decline since the Great Depression has drained profits from the nation’s largest banks and forced the bailout of companies including Citigroup Inc. and American International Group Inc. Record foreclosures flooded a U.S. real estate market already glutted with unsold property, causing housing starts to fall to their lowest in at least five decades, the U.S. Census Bureau said in a December statement.

“People thought it was good news a few years back when housing starts — the supply side of the picture — were running about two million annually,” said Buffett, 79, the chairman and chief executive officer of Omaha, Nebraska-based Berkshire, in today’s letter. “But household formations — the demand side — only amounted to about 1.2 million.”

Buffett built Berkshire into a $198 billion company through takeovers and investments in companies he believes have lasting competitive advantages and superior management. His deals transformed the company from a failing maker of men’s suit linings into an enterprise with businesses ranging from ice cream and underwear to power plants and corporate jet leasing.

‘Ridiculously Cheap’

Berkshire, which has a real-estate brokerage, a business that constructs pre-fabricated houses and units making products used in homebuilding, has suffered amid the downturn. Profit at carpet manufacturer Shaw Industries fell 30 percent last year to $144 million.

“He’s very deeply invested in this,” said Tom Russo, partner at Gardner Russo & Gardner, which holds Berkshire stock. “Across his industrial companies, he’s massively poised to gain” from a housing recovery, Russo said.

Buffett wrote today that his company should have made more purchases of corporate and municipal bonds last year because they were priced ”ridiculously cheap” compared with U.S. Treasuries.

“When it’s raining gold, reach for a bucket, not a thimble,” he said.

Pied Pipers

Buffett has used past letters to discuss plans for his successor, praise Berkshire managers and confess his failings. He’s written passages that compare investing to baseball, derivatives to venereal disease, and Wall Street bankers to Pied Pipers. Last year, he said the U.S. economy was “in shambles” after reckless lending caused the worst financial “freefall” he ever saw.

Buffett said this year that the CEOs and boards of directors of companies that failed during the credit crisis shouldn’t be able to pass blame to those below them. Boards should insist on CEOs taking full responsibility for risk, he said.

“If he’s incapable of handling that job, he should look for other employment,” Buffett wrote.

Shareholders weren’t the ones who botched the operations of some of the country’s largest financial institutions, Buffett said, “yet they have borne the burden with 90 percent or more” of their holdings wiped out in cases of failure. “If their institutions and the country are harmed by their recklessness, they should pay a heavy price,” he wrote.

The Oracle

The annual communications with shareholders have won Buffett a following of professional money-managers and amateur investors who have given him the moniker “the Oracle of Omaha.” Past letters have been compiled into a book for those who want to study Buffett’s pronouncements.

“It’s Moses coming off the mountain with the Ten Commandments,” said Gerald Martin, a finance professor at American University’s Kogod School of Business in Washington who has made Buffett’s letter assigned reading for his students. “It’s something we all look forward to.”

Buffett agreed to his largest deal last year when he arranged the $27 billion takeover of railroad Burlington Northern Santa Fe. Berkshire completed the acquisition, which Buffett described as an “all-in wager” on the U.S. economy, on Feb. 12.

Shares of Berkshire traded at about $15 when Buffett took control in 1965. The Class A stock closed yesterday at $119,800, its highest since October 2008. Buffett added Class B shares in 1996, and agreed to split them this year to help pay Burlington Northern shareholders.

Record Trading

When Berkshire replaced the railroad in the Standard & Poor’s 500 Index, it prompted record trading. The value of Berkshire shares changing hands that day amounted to the most for a single company in one day of trading on the New York Stock Exchange.

The annual letters typically give a preview of the company’s upcoming shareholder meeting, scheduled this year for May 1. Buffett announced a change in the format of the meeting in the last letter after shareholders at prior gatherings sought his opinion on sports, abortion and religion while asking few questions about Berkshire.

Berkshire had announced that this year’s meeting won’t include a separate event for non-U.S. investors. He used the session in prior years to scout for acquisitions outside the country.

–With assistance from Jamie McGee and Hugh Son in New York. Editors: Erik Holm, Rick Levinson.

To contact the reporter on this story: Andrew Frye in New York at afrye@bloomberg.net.

To contact the editor responsible for this story: Dan Kraut at dkraut2@bloomberg.net.

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I’ve been threatening to move somewhere warm for awhile now…

In Uncategorized on February 27, 2010 at 7:14 pm

…and I’m not talking about Hell!

Real Estate prices in North Carolina are amazing! And because the weather is amazing year round and Chapel Hill has hit the indie-rock-culture motherload – I dream of jumping out of these winter clothes and heading to the Southeast…more specifically, to these condos in Raleigh:

NIFA Loan FAQ’s

In Uncategorized on February 27, 2010 at 6:41 pm
1. What are the benefits of a NIFA loan when compared to a non-NIFA loan?
Tab Generally, the main benefit of the NIFA bond program is a lower fixed rate mortgage loan, resulting in interest savings on the loan over the 30-year mortgage term. The program offers low down payment requirements and limits the amount of closing costs that may be charged by the originating lender.
2. What is a “first-time homebuyer”?
Tab A “first-time homebuyer” is a person who has not held an ownership interest in his or her principal residence within the past three years.
3. Are all persons living in the home required to be a first-time homebuyer?
Tab All persons who are 18 years and older that intend to occupy the home as their principal residence must be a first-time homebuyer.
4. Are there any exceptions to the first-time homebuyer requirement?
Tab Yes. NIFA may be able to grant an exception if a buyer lost their previous home by either a divorce, forced job relocation or natural disaster.
5. Does owning a mobile home disqualify me as a first-time homebuyer?
Tab Not necessarily. If the mobile home was not permanently anchored to the real property on which it was located and the wheels, road gear and other components have not been removed from the mobile home, you may still qualify as a first-time homebuyer.
6. What are the benefits of buying a property in a targeted area?
Tab If the property is located in a targeted area, the buyer is not required to be a first-time homebuyer and higher maximum income and purchase price limits apply. The property is still required to be owner-occupied for the term of the NIFA mortgage.
7. What sources of income are used to qualify a buyer for the program?
Tab NIFA is required to use all sources of income for persons who are 18 years and older that will be occupying the home as their principal residence. This would include, but is not limited to, part-time income, overtime income, bonus income, net rental income, unemployment income and interest income derived from family assets exceeding $5,000. The total household income cannot exceed NIFA’s maximum income limits for the applicable family size.
8. What is the down payment required to obtain a NIFA loan?
Tab Generally, a 3% down payment is required. NIFA offers some loan products that require little or no down payment depending on the location of the property and buyer eligibility.
9. Does NIFA have a down payment assistance program?
Tab Yes. NIFA provides assistance in the amount of 4.25% of the loan amount. This may be used for down payment or closing costs charged by the lender. The buyer is required to contribute a $500 minimum investment and execute a second mortgage that is forgiven over an 11-year period.
10. Are loan payments required on the second mortgage?
Tab Payments pursuant to the second mortgage are only required if the first mortgage loan is prepaid or refinanced, or if you sell, transfer (including through foreclosure) or otherwise dispose of your home.
11. Can the home financed under the program be used as a rental property?
Tab No. The buyer is required to occupy the property within 60 days of closing and the property must remain owner-occupied for the life of the 30-year mortgage term.
12. Can the property be used for business purposes?
Tab Generally, no; however, up to 15% of the total square footage of the home may be used to operate a business or trade. This would include using the property for home day care purposes.
13. Is a duplex an eligible property under the program?
Tab Yes. The program provides financing on 2-4 unit dwellings that meet specific purchase price limits. At least one of the units must remain occupied by the owner of the units as long as the NIFA loan remains outstanding. The units must be in existence at least five years before the mortgage is executed.
14. Where does a buyer apply for a NIFA loan?
Tab Lending institutions located throughout the state of Nebraska originate all loans under the program. A list of participating lenders may be obtained on the NIFA website.
15. How long does it take from application to loan closing?
Tab The loan closing process may vary depending upon certain circumstances. Generally, it takes between 30-60 days to process a loan.
16. Does a buyer need good credit to qualify for a NIFA loan?
Tab Yes. All persons executing the promissory note are required to have a satisfactory credit record.
17. Is homebuyer education required by NIFA?
Tab Not for all programs. There are some programs that may require a certain level of homebuyer education to qualify for the loan.
18. What kinds of penalties apply when the home is sold or the loan is prepaid?
Tab NIFA loans do not carry a prepayment penalty. There is a potential IRS recapture tax that is in effect during the first nine years of the loan. If the home is sold for a gain within the initial nine-year period, a recapture tax may be due the IRS, depending upon certain circumstances. However, for all loans closed on or after June 1, 2004, and financed through the Single Family Bond Program, NIFA will reimburse any homebuyer who sells his or her home and is required to pay the federal recapture tax.
19. Can NIFA funds be used to refinance an existing loan?
Tab No. Only loans to finance a home being purchased by a first-time homebuyer are permitted under the program. The only exception is for short-term interim construction loans that have a term of 24 months or less.