September 24, 2006

Buying Time In California

The LA Times reports from California. “Sellers, builders and real estate agents have been reaching deeper into their bag of tricks in their efforts to move the ever-increasing homes-for-sale inventory. Agent Mac Donald considers it just one piece of her overall marketing pie. She’s been selling real estate for 22 years and says she personally would never advise clients to offer cars or trips when they list their homes.”

“‘It’s silly,’ agent Sarah Mac Donald said. ‘This is a price-driven market; it’s that simple. If it’s priced right, it will move.’”

“Mark Tacconelli, an agent in Ladera Ranch, has clients who are offering a brand-new Toyota pickup truck to whoever buys their 2,300-square-foot La Habra home, listed at $750,000. ‘If they don’t want a pickup, they can have a Prius,’ Tacconelli said, covering all bases. ‘Or if they don’t need a new car and just want to knock $15,000 or $20,000 off the price, that’s fine too.’ The man is practically begging here.”

“Does it really make sense to do business this way? Not from a buyer’s property-tax perspective. If the value of the car being given away is $40,000, why not just lower the price of the home by that much? After all, the lower the purchase price, the lower the annual tax bill. Of course you may not need the tax break, given that the interest on that hefty mortgage payment is tax-deductible.”

The Orange County Register, “Sherry Klapp tries to find hope in what’s become, at best, a challenging housing market. This real estate agent from Dana Point says a tough sales environment changes how everybody in her game does business, from buyer to broker, from seller to lender.”

“All these extra household expenses are apparently too much for some folks. Mortgage defaults, late property taxes and foreclosures are becoming common. Klapp says several sellers she’s working with are classically highly motivated to rid themselves of a suffocating house payment. ‘A lot of people overextended themselves,’ Klapp says. ‘They really weren’t looking down the road.’”

The Union Tribune from San Diego. “As recently as last year, no property in San Diego County was too old, too derelict, too small to be snatched up by the condo converters. But no longer. Once one of the nation’s leading conversion markets, the county now has a glut of gussied-up apartments for sale with too few buyers.”

“By the end of June, the number of converted units ready for occupancy or earmarked for sale later had grown to 6,922 in 111 projects. Making matters worse for converters, in June, there were 5,800 unsold condos in new projects. Phoenix, another hot conversion market, was second with 6,024 unsold units in 44 actively selling projects. Los Angeles County, with a population more than three times that of San Diego County, had 22 conversion projects with just 1,326 units.”

“‘Here’s the problem: A number of people bought these apartment buildings at prices higher than what they should have paid,’ San Diego real estate consultant Gary London said. ‘Now they’re stuck in a marketplace that will not allow them to do that, which is why you’re going to see financial distress. A lot of these guys are still in denial.’”

“In downtown San Diego, at the 777 Lofts at Sixth Avenue, price reductions of up to $90,000 have been advertised on selected units. In University City, the selling price of a 934-square-foot, two-bedroom unit averaged $440,000 in May through August 2005. This year, the same-size unit at Verano sold for an average price of $371,000.”

“Real estate broker Vince Provenzano is in the process of selling two four-unit properties in University Heights that he said were to be converted but stalled when the owner ran out of money. The interiors have been gutted and windows are covered with plywood.”

“When The Heights in Carmel Valley converted from apartments to condominiums last year, the owners renovated 150 of the 225 units, thinking they’d sell fast. It hasn’t turned out that way. The Heights has sold just 80 condos through August. Only 18 of those sold in 2006. At that pace, it could take three more years for The Heights to sell completely.”

“The owners now plan to put some of the units, with their new granite countertops and stainless-steel appliances, back on the rental market.”

“These developers in particular can find themselves in a bind as the pace of sales slows. That’s because many converters have big, short-term loans. Owners now are confronted with slower sales, a glut on the market and widespread price cutting and/or incentives to attract buyers. So they’re not paying down their loans as fast as they expected.”

“Brokers say some converters would like to find an exit. ‘All of them would entertain the option of selling in bulk,’ said Ed Rosen, senior vice president with Burnham Real Estate Services. ‘They’re all in play.’”

“Once a project has sold some of its condo units, however, unloading the complex to a buyer becomes difficult. Today, potential buyers are offering prices that are well below what most condo converters have put into the projects, brokers say.”

“Whether a project can find a buyer ‘depends on what (owners) can stomach,’ said broker Kent Williams. ‘We’ve seen people come to us and want out of a deal. We tell them what it’s worth, and they take a big gulp and say, ‘Maybe it makes more sense to hold on and see if the market comes back.’”

“Waiting for a housing uptick appears to be the strategy most developers are relying on, at least for now. ‘Time is your enemy to some extent,’ said John Ed Easley, (who) is consulting developers in downtown San Diego.”

“Many converters are talking with their lenders. ‘We’ve had conversations with our banks,’ said Paul Kerr of Davlyn Property Management, which is developing the 200-unit Adagio. ‘They’ve told us in no uncertain terms that they don’t want us to dump the price to pump sales up to 20 a month.’”

“Kerr said banks are supportive. ‘They know they’re better off hanging in there than doing a fire sale,’ he said. ‘In our conversations with lenders, we’ve told them, ‘We don’t want to toss you the keys, and we don’t think you want us to toss you the keys, because who will (manage the project) better than we will?’ And they know that.’”

“‘Do I think (by renting) you can cover 100 percent of your debt service? Probably not,’ Easley said. ‘”But that basically buys you time and allows you to wait for the market.’”




‘Homeowners Are Thrilled, But Can’t Justify It’

Some readers think homeowners may be fooling themselves about their windfall. “I’d like a poll of homeowners (not the ones on this blog - but your neighbors, co-workers, families, etc.). I’d like to know how many of those who own homes (particularly those who didn’t buy during the bubble years) really, honestly, truly believe their homes are suddenly worth 2, 3, 4, 5, etc. times what it was worth in 2000 or so.”

“My findings are that all homeowners are thrilled about it, but not one can really and truly justify it.”

A reply, “I can justify why my house worth 50%-75% more than in 1999. In 1999, it was a 2-2, 8 room, 2000sf 1935 English Tudor brick with a 1980s remodel. In 2000, it was redone to a 4-3-2 half bath, 12 room, 3200 sf with a 2000 restoration to 1935 style, and modernized where appropriate.”

Another said, “Yes, they can justify it! ‘It’s the market, stupid! And housing is the only one that only goes up!’”

And another, “At least in my hood, I don’t think they care how much it is worth…Why ? They are not sellers….Its only important when you want or need to sell.”

To which was replied, “Or brag, show off, and one-up loser renters like myself. Yes, I’ve been exposed to this.”




Post Local Housing Market Observations Here!

What do you see in your housing market this weekend? Builder incentives? Condo auctions? Here’s one incentive from North Carolina. “Typically, it’s a free toaster oven or trip to Hawaii that’s used to clinch a deal. In Haywood County, however, one company selling manufactured and modular homes has found that a can of beans, your choice of pintos, green beans or limas, works just fine.”

“Two cans had been given away as of Monday evening. Gail Brown said they were both Luck’s brand. ‘But if someone wants a can of Bush beans, I’m not too proud,’ she said. ‘I’ll buy them whatever they want.’

The Arizona Republic. “It wasn’t exactly a big-tent revival inside an Arizona Biltmore ballroom Thursday, but real estate analyst RL Brown certainly gave a ‘come to Jesus’ talk to the audience about the housing industry. His message: Sellers and home builders need to get real. If a more realistic approach isn’t taken, the market will continue to slug along.”

“He cautioned builders to reduce inventories of new and resale homes, build more affordable housing and work to attract new consumers. Too many of them are waiting to see if the market will continue to slow. ‘The housing consumer needs to be re-energized,’ he said. ‘They need to come back from vacation because they are on one right now.’”

“Mike Jackson, CEO the largest U.S. auto retailer, offered his views about the automotive marketplace and the outlook for the 2007 model year. ‘Pickup trucks and their decline are directly affected by adversity in the economy. Declining sales (are) an indication of stress in the economy. Everybody knows there will be a slowdown in housing, and all these construction people are saying, ‘It’s time to play it safe.’ People can postpone.’”

The Oregonian. “August added new signs that the Portland area’s once-blistering real estate market is cooling off. Home sales volumes in Oregon were 20 percent lower than a year earlier and the number of new listings increased.”

“‘Our market is kind of settling out,’ said Marcia Kies, an agent in Lake Oswego. ‘House prices are holding, or even going up a little, but they’re not going up freakily.’”




Forgetting ‘Lessons Learned’ In Florida

The Sun Sentinel reports from Florida. “Is this market, defined by a glut of for-sale signs in front yards and a leveling of record prices, reminiscent of the recessionary periods of the 1970s and ’80s, the pre-housing boom years of the late 1990s, or..none of the above?”

“‘We have never had a market..where the investor and speculative buying played such a role in generating the big numbers,’ said Lewis Goodkin, a Miami-based real estate analyst.”

“Wayne Archer, director of the center for real estate studies at the University of Florida, said the overbuilt condominium market in South Florida reminds him of the 1970s. ‘You get the sense that people have forgotten all the lessons that they learned,’ Archer said.”

“Looking to capitalize on the huge price appreciations, many people put their homes on the market. This year, the listing of homes for sale have doubled in Palm Beach County and tripled in Broward. But as values soared, so did property taxes, and people soon found that they couldn’t afford to move within South Florida.”

“Some homeowners are selling and leaving for Georgia, North Carolina and Tennessee, saying those states have a lower cost of living and a better quality of life. Michael Skiera, a native South Floridian, built a five-bedroom house on five acres near Boynton Beach for $300,000 in 2001. Two weeks ago, he listed it for $3.5 million because he and his family are moving to northwest Georgia.”

“‘The numbers are just staggering,’ Skiera said of the recent run-up in prices. ‘This has become the new California.’”

“Deerfield Beach analyst Jack McCabe expects the South Florida market to get worse before it gets better. The downturn, he says, reminds him of the 1980s. ‘People just quit buying,’ McCabe said. ‘Prices went down by 30 percent and stayed flat for years. The ones holding the bag lost a lot of money.’”

The Naples News. “As prices skyrocketed out of reach, many families reached for what seemed like a good option at the time: creative and exotic mortgages. Some are now paying the price and many are finding they cannot afford it.”

“The interest-only payment on the Valarie and Michael Thomasellis’ loan is now up to about $2,000 a month, almost 40 percent of their combined take-home income. ‘I didn’t understand the difference between the payment going up and the interest rate going up. That threw me and I don’t think it was explained to me properly,’ Valarie Thomaselli said.”

“Mortgage brokers insist all the specifics of each type of loan is spelled out in the paperwork borrowers must sign. ‘When they close the loan they specifically sign disclosures explaining the terms of the loan and the worst-case scenario,’ said Patrice Yamato, president of the Florida Association of Mortgage Brokers.”

“Chuck Kansy, who has been in the mortgage business since 1983, disagreed with Yamato’s assessment. ‘A lot of people who took the option ARMs now come to me looking for refinancing advice, and when I explain to them what their loan terms are they look at me like I am from Mars,’ Kansy said. ‘They have no idea what I am talking about.’”

“The areas that have the most to fear are the areas with a high percentage of option ARMs. According to a recent study, 26 percent of all mortgages in Naples were option ARMs.”

“Numbers from Fitch Ratings show that up to 80 percent of all option ARM borrowers make only the minimum payment each month. Meanwhile, the interest rates adjust each month, and after the initial fixed-rate period of the loan, the loans reset at much higher levels.”

“When that happens, Kansy said, the borrower has the option to either refinance into a fixed-rate loan or sell the property to pay off the loan. ‘The problem is lenders are paid to build in pre-payment penalties into the loans,’ he said. ‘The greater the pre-payment penalty - one, three or five years - the higher their commission.’”

“The notice of foreclosure is a telling figure, say industry observers. The number of homes entering the foreclosure process is on the rise, especially in the more middle-class Lee and Charlotte counties, said Keith Sipnick, a Realtor who also invests in pre-foreclosure properties.”

“Since the beginning of the year he has been sending roughly 200 letters, about 20 percent more than last year, to property owners facing foreclosure, about 80 percent of them in Lee and Charlotte. Most involve investors who bought multiple properties intending to flip them and then got caught in the slowing market, Sipnick said. A vacant condominium on Citrus Drive (is) one of the several foreclosed properties he has for sale.”

“‘I think it is inevitable that we see foreclosures,’ said (realtor) Greg Gorman. ‘With interest rates rising and as we stay in a soft market, it is just inevitable.’”




‘There Are Real Estate Issues Everywhere’

The Boston Globe reports from Massachusetts. “The new home and condo market may be hit hardest by the softening of the Massachusetts real estate market. There’s a glut of new construction on the market, and would-be buyers are struggling to unload their own current homes. And that slowdown is pinching developers.”

“When Beth Shelburne and her husband moved to Boston from San Diego earlier this year, they (were) pleasantly surprised to find developers desperate to fill empty buildings practically fawning over them. The Shelburnes put in a low-ball offer on a penthouse condominium in Jamaica Plain priced far above their price range. Not only did they get it for $34,000 less than the $500,000-plus asking price, but the developer agreed to pay six months of condo fees worth more than $2,000.”

“For good measure, he threw in a sleek plasma television. ‘You’ve got these six beautiful condos going to be ready in August and none of them had sold,’ Shelburne recalled. ‘We felt like we were able to call the shots. We looked at so many places that were sitting there empty.’”

“Home shoppers leery of getting stuck with two mortgages or expensive bridge loans also have been a problem for Sharon agent Dave Wluka, president of the Massachusetts Association of Realtors. He said he’s struggling to find buyers for a new subdivision in Plainville consisting of 81 single-family homes in the mid-$500,000 range. ‘The reluctance I’m getting is, `I’m afraid I won’t sell my house,’ Wluka said. ‘People are afraid, and rightly so.’”

“The Toll Brothers Inc., builders of suburban McMansions, recently laid off workers at its Estates at Walpole, a large development of homes priced in the mid-$600,000 range. A Toll Brothers development of a dozen luxury Wellesley homes priced around $1.3 million has finally sold most of the units after the company aggressively slashed prices, (broker) Elaine Bannigan said.”

“‘Those prices tumbled,’ Bannigan said, noting one property sold after 495 days on the market at $578,500 less than the original $1.7 million asking price.”

“In Worcester, formerly optional features such as hardwood floors are becoming standard, said Guy Webb of the Builders Association of Central Massachusetts. ‘I haven’t heard of anybody in the desperation phase yet, but it certainly has slowed down, and it’s taking longer for them to sell something,’ Webb said.”

The Providence Journal from Rhode Island. “The foreclosure auction was scheduled for 9 on a Thursday morning at the small, Cape-style house on a country road near Putnam Pike in Chepachet. The house appeared to be vacant. A for-sale sign was on the front lawn, surrounded by tall weeds.”

“Jeff Craig, of Commonwealth Auctions, in Newton, Mass., was waiting for a call from Wells Fargo Bank, which held the mortgage that was in default. Ken Robertson, of Glocester, was waiting to see whether he could pick up a bargain.”

“The two men had met a few times before, in similar circumstances. There has been ‘an enormous amount’ of foreclosure auctions in Rhode Island in recent months, Robertson said.”

“Robertson said many defaulted mortgages issued in 2005 are higher than the market value of the property in question. Many people were mortgaged to the hilt in the past few years, and it didn’t take much to push them ‘over the edge’ into financial distress, he said. The foreclosure rate in Rhode Island for ’subprime’ mortgages appears to have increased 150 percent since last year, more than any other state in the country.”

“‘We’ve been busy,’ said Sal Corio, owner a Warwick auctioneer. Corio is handling the auction of 19 condominiums in Pawtucket on Sept. 30. The units, formerly apartments, were recently renovated in a conversion project. The minimum bid will be $87,500 per unit.”

“Joseph DeAngelis, a lawyer representing the condo owners, a group of investors, said the renovation was completed four or five months ago and the units went on the market for $99,900. ‘It’s surprising to everyone that they’re not selling,’ he said.”

“Corio said many of the 100-percent-financed house loans of 2004 and 2005 are the ‘upside-down mortgages’ of today, meaning the outstanding loan exceeds the market value. ‘These mortgages written in 2004, 2005, 2006, they haven’t even made a payment yet, or they made one or two payments. There’s no equity,’ Corio said.”

“‘In the late ’80s, we were doing a lot of real estate. Foreclosures were quite plentiful, which we’re seeing again today,’ he said.”

“Jerome Manning CEO of JJ Manning Auctioneers of Yarmouth Port, Mass., on Cape Cod, said he was headed to Naples, Fla., to sell real estate; this time, a large group of properties. Things are tough in Florida, he said, but ‘there are real estate issues everywhere.’”




Bits Bucket And Craigslist Finds For September 24, 2006

Please post off-topic ideas, links and Craigslist finds here.