June 11, 2006

‘It’s Gone From Great To Nothing’ In Florida

The housing bubble is a hot topic in Florida. “Following articles such as ‘Home flippers’ investments flop,’ Sunday, May 21, a reader sometimes comments along the lines of the one who said: ‘The same bad housing news does not have to be reported every Sunday. I am not questioning your statistics, just the frequency, which seems to be every Sunday.’”

‘”If real estate prices go up, we write about it,’ Managing Editor Bill Rose said. ‘And, conversely, when real-estate prices go down, we write about it. If they go down a lot and for a long time, we write about it a lot.’”

“‘Nor do I think our stories are driving down the prices. The prices actually go down before we write our stories. No one complained when we wrote a whole bunch of front-page stories on the hot real-estate market.’”

“Who got rich in the recent real estate boom? Some sellers, certainly, especially investors who got in and out of the market fast. One group who didn’t will surprise you: real estate agents.”

“From 2002 to 2004, the height of the hottest boom in recent real estate history, the annual median income of Realtors actually fell, to $49,300 from $52,200, according to the National Association of Realtors. Most agents earned less than the median income for Palm Beach County.”

“That means real estate agents could sell the median-priced home in Palm Beach County, but they certainly couldn’t afford to buy it.”

The St. Petersburg Times. “Jill Jackson is not your average real estate investor. Jackson takes home about $24,000 a year from her job at a credit services company. She rents an apartment in St. Petersburg and, until this year, her assets totaled about $8,000 and her financial statement showed a negative net worth.”

“She had zero experience in real estate acquisition, until Feb. 28. That day she bought three Tampa homes for $560,000. In the next few weeks, she bought seven more properties. She used 10 different mortgage lenders and managed to borrow 100 percent of the cash she needed for every deal.”

“The grand total for this greenhorn investor: 10 weeks, 10 purchases totaling $1.84-million, not a single penny down.”

“Jackson won’t say much about her sudden foray into real estate. She won’t discuss why she paid a huge premium for a handful of lower-value homes in Tampa or reveal how her financial statement and meager income qualified her for almost $2-million in mortgage loans.”

From the Panhandle. “Real estate experts in Panama City Beach say the condo bubble may have finally burst. Real estate developers, managers and agents throughout Bay County say in the last six months they’ve experienced a major decline in the number of new condominium buyers.”

“The new condos continue to go up, but the number of prospective buyers doesn’t.”

“Jeff Mynard has been selling condos for 20 years and says 2004 and 2005 were his best years ever. ‘So together that’s about 80 units, or a third of the property turning over in two years,’ said Mynard of Panama. ‘In contrast this year, we’ve sold two units. Actually, only one of them has closed. It’s gone from great to nothing.”




Appraisers Asked To ‘Hit A Target Number’ In Las Vegas

In Business Las Vegas has this report on appraisal fraud. “It may come as no surprise to those in the real estate industry that Nevada is near the top of the heap when it comes to mortgage fraud. According to the Mortgage Asset Research Institute, Nevada ranks seventh when it comes to alleged mortgage fraud and material misrepresentation reported by major mortgage lenders, agencies and insurers.”

“One of the latest problems in mortgage fraud complaints are problems with appraisals, said David Berenbaum, of the Center for Responsible Appraisals and Valuations. ‘Many people are trapped in an upside-down loan, in that the value of the mortgage exceeds the value of the house,’ he said. ‘Valuation issues are of grave concern, and there are growing numbers of appraisal fraud issues in companies’ portfolios.’”

“Berenbaum said too often appraisers are pressured by lenders to ‘come in’ at a predetermined number, or risk being black-listed or by withholding payment.”

“The problem continues even in Las Vegas’ cooling housing market, said Debbie Huber, owner of Huber Appraisal Inc. and president of the Nevada Commission of Appraisers. Huber said she receives several phone calls a day from a lender asking her to hit a target number in an appraisal.”

“It happens so often that Huber and her staffers have a response posted by every phone: ‘I cannot accept the assignment with this condition because it violates professional ethics. You should be aware that I must develop the appraisal before I will know the results. I can only accept this assignment if you remove the predetermined value requirement.’”

“Huber said the callers usually hang up, some are bold enough respond that they’ll find someone who will. ‘I had one loan officer that told my office manager ‘good luck with your business, you’re going to need it,’ Huber said.”

“The Nevada Appraisal Commission only handles disciplinary matters regarding an appraisal. There are few places appraisers can go when they have a dispute with a lender.”

“The Center is encouraging lenders, appraisers, realtors and others in the housing industry to sign a ‘Code of Conduct’ to ensure homebuyers and homeowners receive accurate and fair appraisals for their homes.”

“Berenbaum said the group also plans to begin tracking complaints filed with the states nationwide. ‘Hundreds of complaints are not being acted on by state regulators,’ he said.”




‘Anybody Ready To Begin Lowballing’?

“One reader suggested a topic on when a housing market buy-opportunity may arise. “How about a general consensus on whether anyone’s ready to begin the lowballing? I mentioned, a week or so ago, that a co-worker of mine was going to make an offer on a ridiculously overpriced home in Telford, PA. Spoke to her today and, while she still made an offer, thanks to the advice I gave her she lowballed (and will list her home appropriately).”

“She won’t tell me how much she lowballed by yet (she doesn’t want to ‘jinx’ her offer), but she said it was a LOT less than the asking price (the home was listed at $309K and zillowed/ABCed in the low $200s - my hunch is she used this newfound information as a guideline).”

“So…feeling somewhat empowered, today I contacted my realtor (very nice woman - zero pressure since I’ve been looking for 2 years now and she still hasn’t given up on me) and asked her to tell me honestly how she feels about offering low bids. I found a home that might be nice for my son and I and, if after seeing it I still feel that way, am pretty sure I will toss in a low bid (which, based on when the people last bought the home, would give them the ol’ ‘1% above inflation’ appreciation). Anyone else thinking about it yet?”

Another replied, “If you have studied the bubble charts, you should know we are not going to see the bottom of this thing until 2010-2012. There is a pretty good consensus on that timeline.”

“However, if you cannot wait it out, your strategy is the best. Zillow existing listings and if they bought pre-2000, you can attempt some low balls. The fallacy is if they refinanced to ‘pull out equity’ which Zillow does not tell you.”

“You will have a lot of sellers scoff at lowballs for now. The winning strategy is to make a lot of lowball offers, and you might have a 5% chance at acceptance. You are picky about the house you want (which is a great thing). So if it is nice house that might fetch ‘FMV,’ chances of success are small. I applaud your efforts regardless of outcome. Good luck!”

From the recommended article. “Let’s just say, for the sake of argument, that San Diego is going to experience a housing downturn. Our task is to try to figure out what past housing downturns say about how our hypothetical bust might play out.”

“The duration of the price run-up, the tremendous growth in real estate employment, the prevalence of negative-amortization and other ‘exotic’ mortgages, the low levels of home equity, the sheer magnitude of the price increases, and the resultant crushing lack of home affordability; all of these elements are unique to this unprecedented housing boom.”

“Muddying the waters further, we have a new Fed chairman who was talking like an inflation hawk on Monday but who in 2002, when financial market prospects seemed a little bleaker, proposed monetary policies that he likened to dropping cash from helicopters.”

“The past two cycles are quite helpful in suggesting a duration for post-boom housing slumps. The accompanying graph shows that the prior two busts were very similar in duration, and that in each case, the bulk of the valuation decline took about six years.”

“What will be the effect on nominal prices? This question requires us to make even more assumptions. First, we have to figure out where the price-to-income ratio will bottom out. Again, the past two cycles are fairly consistent here. In both cases, as the graph shows, home prices found a ‘floor’ at about seven times incomes. That seems as good an assumption as any.”

“If 2005 marked the end of the housing boom and 2006 the first year of the downturn, another assumption, yes, but one I believe will be borne out by history, we end up with the housing market bottoming out in 2011. In order for the price-to-income ratio to get down to the level of prior market lows, and assuming the 4.6 percent income growth rate, San Diego home prices will have to drop by 36 percent.”

“So we should probably also run the calculation under the assumption that our Fed head does indeed fire up the chopper fleet..we find that home prices would have to decline by 23 percent within the allotted time period. So, the Ghost of Housing Busts Past says that home prices will drop roughly between 25 percent and 35 percent from their 2005 levels, and that they will take around six years to do so.”

“Will he be right? To answer that question, look back at the painfully long string of assumptions we had to make just to get this far. Put another way: who knows? There are certainly an awful lot of cross-currents that could cause this post-boom housing market to behave quite differently than those that came before it.”




Weekend Bits Bucket And Craigslist Finds

Please post any off-topic ideas, links or Craigslist finds here! This thread will be forwarded through the weekend.




The ‘Quick Money Days Are Gone’ In New York

Some reports from New York. “Through the first five months of the year, single-family home sales tumbled 12 percent from 2005, according to the Orange County Association of Realtors. Price reductions have become commonplace, and homes are staying on the market longer, say people in the business of selling homes.”

“‘What’s affecting the market the most is, the investor is out,’ said (broker) Chris Scibelli.”

“These days, the speculators have moved on to gold or oil, or maybe animal pelts. ‘We’re getting back to really doing real estate,’ Scibelli said. ‘The quick dollar, the quick money, those days are gone.’”

From Newsday. “Potentially predicting future home price declines, the median price for homes under contract in Suffolk County dipped slightly last month, while the contract price in Nassau County saw a tiny increase. Even in closed sales, there’s more definitive evidence of flat prices and a weaker real estate market.”

“‘Houses under contract are a leading indicator,’ said Martin Cantor, chief economist for Sustainable Long Island, an advocacy group. ‘It’s now becoming a buyer’s market that tends to have flat prices or diminishing prices.’”

“There’s also anecdotal evidence that still-high prices and taxes are keeping some buyers from looking at Long Island at all. Traditionally, typical first-time home buyers purchase a house in Queens and then move to a larger home on Long Island. ‘That’s not happening like before,’ said Buddy Hoosein, broker in Hollis, who said buyers are choosing to go to lower-cost areas instead.”

The New York Times reports on problems with preconstruction condos. “More than 100 condos went on sale a few weeks ago at deeply discounted prices on 50 West 34th Street. The average price of a studio condominium in Manhattan is nearly $500,000.”

“When prices over all were cut by $10 million last month, it had the appearance of a closeout sale at an appliance store. ‘There are substantial discounts available to the buying public for a limited time only,’ said Elliott P. Joseph.”

“The project is caught up in a legal struggle between the owners of the building and the sponsor firm they contracted with to convert it to condos, and some previous buyers have already backed out of their market-rate deals.”

“The Herald Towers project is an unusual example of what can go wrong, sending a chill through the lives of buyers who were early purchasers and their brokers, who lost commissions and lost the trust of some of their clients. If the case drags on, it could erode the public’s confidence in condominium developments.”

“Buyers of more than 70 of the 125 units previously sold backed out, according to some of the brokers who lost commissions on these sales.”

“But as soon as the deadline to rescind a purchase agreement had passed, the Property Markets Group filed another amendment to the condominium plan lowering prices, infuriating many buyers who had stuck with the project, but now saw identical apartments offered for far less than they paid.”

“‘I feel that I am getting ripped off,’ said David Yoon. After learning of the price cut, he found himself unable to back out of the contracts he had signed to buy two apartments for his family. Then, he said, when he tried to buy another apartment for himself at the discount price, he was turned down.”

“, said, ‘We are giving them away,’ (sponsor) Mr. Joseph said. ‘And if the buyers are making money, I am losing money, but I hope to gain that back in litigation from the seller.’”

“John Jun, a broker with the Corcoran Group, said he completed deals for six apartments at Herald Towers: two buyers backed out, and four have already waited a year or more to buy, only to see the prices drop. ‘New York City developers have credibility,’ he said. ‘But these buyers are angry. People who stayed in and didn’t give back their apartments deserve some kind of discount. It really is unfair.’”




Housing Market ‘Jinxed’ By ‘The Obvious Reason’

A pair of reports on housing from New Jersey. “While home prices are still edging up, they are not rising at the furious double-digit clip of the past three years. And that is starting to put a damper on the real estate market for investors, some would call them speculators, who have had a hand in driving up prices in recent years.”

“Last year, real estate investors accounted for 15 to 20 percent of residential sales in Monmouth and Ocean counties, said (appraiser) Jeffrey Otteau. This year, he estimates it will be less, about 5 percent.”

“In the near term, Otteau said, investors will be rushing to the sidelines, hurting the market even more. ‘Investors will be looking to liquidate and that is going to bring additional supply onto the market and will further weaken the real estate market,’ he said.”

“Typically, they hope that prices will rise quickly and until they can sell, they expect to cover their carrying costs with rents. Neither is expected to happen. ‘Many of the investors who would want to liquidate will be unable to sell their homes in the current market and that will push them into the rental market.’ That will weaken the rental market for single-family homes, he said.”

“Wall resident Terrance Hege, an investor and developer, said he is ‘not necessarily a buyer at this point.’ Hegel believes that the market peaked in the early summer of 2005. Now he is waiting for median home prices to decline. ‘I wouldn’t be surprised if they fell from their peaks,’ he said.”

“Last year, Hegel sold two new homes and two renovated houses. ‘I sold them all at a pretty aggressive price because I didn’t want to be sitting with them,’ he said. ‘I don’t think prices are moving up, so (that) I am missing the boat on something,’ Hegel said. ‘With the inventory that is out there right now, you can be patient.’”

“Otteau said experienced investors will continue to buy homes that are owned by people who are in financial distress, such as someone who might have had an increase in their adjustable rate mortgage and can no longer afford the payments. But these investors will no longer be willing to pay top dollar. ‘To be an investor going forward, it is not for the inexperienced, it is only for the expert,’ Otteau said.”

An editorial. “May and June are traditionally the best months for real-estate sales, but this May and June have been ‘very, very slow,’ says Dan Scher of Ledgewood, who has been selling real estate for 25 years.”

“It’s the worst market he has seen in 10 years, for himself and other agents. The root of the problem, in his view, is that sellers are stuck in a time warp and refuse to budge from their lofty asking prices.”

“What has jinxed the market? Scher says, “The inventory of houses for sale has risen dramatically, interest rates have climbed, gas prices are outrageous.’ Then there’s the obvious reason: House prices have climbed too high.”

“His advice for buyers: It’s not a bad time to buy, considering the large number of houses for sale. But look for a seller who’s aware that this is the summer of 2006, not last year. It’s undeniable. Things are very different. I see a lot more For Sale signs when I drive around and a lot more PRICE REDUCED! signs.”

“Jeffrey Otteau says he has no hard evidence that house prices in New Jersey have declined, but the latest data aren’t in. He points out that the market began slowing in April, at the start of the second quarter. That’s when ‘the bottom fell out of the market.’ The number of potential buyers declined sharply.”

“‘Buyers are taking a wait-and-see attitude,’ he says, and he gave three reasons: ‘People have been so drilled by the press that there’s a bubble that they have started to believe it.’ He cites a poll that found that 71 percent of the public believes that a real-estate collapse will begin within a year.”

“Rising mortgage rates. House prices that have outpaced salary increases. During the past five years, there has been a 16 percent increase in salaries in New Jersey, and an 88 percent increase in home prices, he reports.”

“Gumbinger acknowledges that it’s a different market. ‘We’ve passed the peak, we’ve topped out. There’s more room for negotiation now. Sellers know that buyers are not lined up 10 deep. And buyers know that while there were once three acceptable houses and 22 bidders, there are now 30 acceptable houses and very few bidders. Instead of asking for 10 percent off, they may ask for 20 percent off. Power has moved from the seller to the buyer,’ he said.”




Post Local Housing Market Observations Here!

What are you seeing in your housing market this weekend? Homebuilder price reductions and incentives? Some reports from around the US. “The slowdown in Baltimore’s housing market continued into May, with sales dropping as homes lingered longer on the market and listings piled up. Sellers often found themselves resorting to price reductions to snag buyers.”

“For the past several months, sales meetings at W.C. & A.N. Miller Realtors have ended with agents announcing how much prices on listings have been reduced, said agent Jerry Murphy. He said the seller of a home he listed in the city’s Guilford neighborhood put the home on the market for $699,000, reduced it to $649,000, then ended up signing a contract for $625,000.”

“‘Buyers these days are usually making an offer and if that offer doesn’t get accepted, going on to the next house,’ agent Trent Waite said. ‘There’s so much inventory on the market, it doesn’t always make sense to pay full asking price.’ A refurbished two-bedroom rowhouse in Butchers Hill had been reduced from $350,000 to $300,000. And with the help of Waite, (the buyer) negotiated to an even lower $265,000 and settled on the house last month.”

The Boston Globe. “Sales on Cape Cod fell nearly 10 percent last year, and that trend has only worsened this spring. The glut of homes for sale is threatening to drive prices down, and more sellers are reducing their asking prices, agents and housing specialists said.”

“‘I don’t know that I’d be jumping into this market right now,’ said Barnstable County Register of Deeds John Meade. ‘Who knows what it’s going to do.’”

A reader posted this from the Falls Church News Press in Virginia. “A leading real estate agent in the City of Falls Church has reported to the News-Press that, with the cooling off of the residential property market throughout the region, single family homes here are now selling on average ‘for about 10 percent below their assessed values.’”

“The report from the realtor, who has a long-standing reputation for doing a major business in Falls Church, indicates that the City may face not a slower rate of growth in values, but an absolute decline in values.”

“There has been no scenario discussed publicly at City Hall to date that has taken this prospect into account, although by comparison to the earlier budget projections, the impact of a net decline in residential real estate tax revenues would be little short of catastrophic.”

“As for Falls Church’s prospects for new commercial development taking up a greater share of responsibility for delivering tax revenue to the City’s coffers, this is prospect is now dimming as all current plans for projects in the City’s commercially-zoned corridors are heavily tied to condominium components, and the condo market throughout the greater Washington, D.C., metro region has become overbuilt and has tanked badly.”