Sunday, October 23, 2011

Marcellus shale drilling vs. mortgage company restrictions

As natural gas drilling becomes more common in Pennsylvania and elsewhere, lenders are becoming more reluctant to make loans and accept mortgages on properties on which natural gas drilling takes place. Lenders have placed restrictions on natural gas drilling as a condition of approving loans. Lenders do this out of fear of liability for environmental damage or that environmental damage will reduce the value of the mortgaged property.

These new lending policies have taken borrowers and real estate sellers by surprise, according to last week's New York Times:
As natural gas drilling has spread across the country, energy industry representatives have sat down at kitchen tables in states like Texas, Pennsylvania and New York to offer homeowners leases that give companies the right to drill on their land.

. . . .

But bankers and real estate executives, especially in New York, are starting to pay closer attention to the fine print and are raising provocative questions, such as: What happens if they lend money for a piece of land that ends up storing the equivalent of an Olympic-size swimming pool filled with toxic wastewater from drilling?

Some lenders have placed outright prohibitions on drilling on mortgaged properties, while others require the owners to obtain permission from the lender. Other lenders will not approve loans if natural gas drilling already takes place on the property.

The Marcellus Shale development has tremendous potential to increase property values, benefit Pennsylvania's economy and blunt the effect of skyrocketing fuel prices. But property owners especially must be aware that signing a natural gas drilling lease might limit a buyer's ability to obtain a mortgage to purchase the property in the future. The income and resulting increased value from the gas lease should be weighed against potential borrowing problems of future buyers and the resulting decrease in price resulting from a restricted pool of buyers.

Thursday, October 20, 2011

Homeownership decline in 2010

The AP and the Census Bureau report that homeownership saw continued nationwide declines in 2010:
The American dream of homeownership has felt its biggest drop since the Great Depression, according to new 2010 census figures released Thursday.

The analysis by the Census Bureau found the homeownership rate fell to 65.1 percent last year. While that level remains the second highest decennial rate, analysts say the U.S. may never return to its mid-decade housing boom peak in which nearly 70 percent of occupied households were owned by their residents.

Inflation surges in September

From CNBC comes bad news on the inflation front:
U.S. producer prices rose more than expected in September to record their largest increase in five months as gasoline prices surged, a government report showed on Tuesday.

Wednesday, October 12, 2011

Harrisburg passes Ordinances 13 and 14; Rental inspection program

Harrisburg City Council voted unanimously last night to adopt Bills 13 and 14. These bills have been pending in various forms for almost 4 years. They impose new registration requirements on landlords as well as vicarious liability on the landlord and property manager for the actions of tenants. Bill 13 also imposes a residency requirement (plus 50 miles) for owning investment property in the City.

Bill 13 expands the inspection period from three years to five years. The passage of Bill 14 shifts the city's emphasis from inspection upon purchases of residential properties to regular inspections purely of investment properties. Regular inspections have been required by law in Harrisburg since 1996. Proponents of Bills 13 and 14 have argued that the inspection program was not previously enforced because City manpower focused on inspection of residential purchases. City officials have previously stated that this program will increase revenue for the City.

These bills passed on the same night that the City voted to proceed with a bankruptcy filing and voted to increase parking fees.

update - Breitbart confirms today that Harrisburg has filed its bankruptcy petition.

Thursday, October 6, 2011

Metal theft; North Beaver Township bridge

I have written previously about metal theft and the implications of rising metal prices and metal theft for inflation and the real estate market. In today's inflationary environment, Metal thieves are constantly finding different metal things to steal in ever greater quantities. An item in today's Ellwood City Ledger in Western PA proves that point:
As the value of scrap metal — including copper and steel — increases, thieves have been becoming more daring and less respectful of institutions such as churches and schools.

But one group of thieves might have set the standard last week by stealing a 50-foot-long bridge. State police said the bridge was stolen between Sept. 27 and Wednesday in North Beaver Township. The theft was discovered shortly after 9 a.m. Wednesday.

Despite recent commodity price declines, metal theft continues and will remain an indicator of strong inflation until government spending is brought under control.