July 4, 2007

Home Prices Are Coming Down In Arizona

A report from the Arizona Republic. “Pat Thomas is a longtime West Valley Realtor. Question: What is your advice to current renters thinking about purchasing a property? Answer: ‘It’s a great time to buy because home prices are coming down and there are a lot of homes to choose from.’”

“Q: What is your best advice for potential clients looking to sell their properties right now? A: ‘Since there is a record number of about 53,000 homes listed for sale on the Arizona MLS, and since only 10 percent of these properties are currently selling, my advice would be that if they do not have to sell their home right now, don’t put it on the market.’”

“‘But if they do have to sell, their house must be in ‘parade-ready’ condition. And it must be the most attractively priced property among comparable homes in the area. Plus, they need a Realtor who will pull out the stops when it comes to marketing their home…Otherwise, the chances of the home selling in this market are remote.’”

“Q: What housing/real estate trends do you foresee in 2007 for the West Valley? A: ‘No one has a crystal ball…There’s about a $40,000 gap Valleywide between the price of homes being listed and what they end up actually selling for. I believe this gap is going to have to narrow before sales pick up, which means that home prices will have to come down even more than they already have.’”

“In metro Phoenix, there are 52,000-plus listings. And that figure doesn’t include the 10,000 to 20,000 spec homes sitting built and unsold. So the listing figure is lower than the actual supply of homes in the Valley.”

“Valley home prices are down about 5 percent from a year ago. But some home builders are offering incentives of as much as $100,000 to sell spec homes.”

“Sergio Arellanes and other undocumented immigrants spent the day contemplating their fate in Arizona after the governor signed a bill that could put companies out of businesses for hiring them.”

“‘A lot of people are planning to leave,’ said Elias Bermudez, president of the group Immigrants Without Borders. ‘A lot of businesses are in danger of shutting down.’”

“Many long-time illegal residents own their own homes. If they decide to sell and move on, their houses will add to the record 52,000 existing homes for sale Valley-wide.”

“Based on a normal monthly resale pace of about 5,000, metro Phoenix now has 12-month supply of homes for sale. A healthy housing market has a four- to six-month supply.”

“If even 1 percent of Arizona’s undocumented workers owned homes and then tried to sell them, it would add at least another month to the housing market’s oversupply of homes for sale and extend the slowdown by at least that much.”

“Northeast Phoenix has some of the most expensive homes in town, with some regularly selling for more than $1 million.”

“85028, from Dreamy Draw north to Cactus, and from Cave Creek west to Tatum. The number of sales in the area during the month of April - 40 - was equal to the previous year, and the median price was down to $333,000, compared with $377,000 a year ago.”

“85254, from Shea north to Union Hills on the eastern side of Tatum. The number of sales during April was up, to 147 from 136, and the median price was down, to $420,000 from $455,000.”

The Arizona Daily Star. “A program to step up enforcement on dangerous, dilapidated housing in unincorporated areas has been shut down indefinitely because there’s not enough money to pay for it. Two years ago, the Pima County Board of Supervisors unanimously ordered the creation of a Distressed Properties Task Force that was supposed to develop an enforcement program and recommend changes to county law.”

“The program never really got off the ground, apparently a victim of the slowdown in the housing market. Stepped-up enforcement was supposed to be paid for with building-permit fees, which have fallen off precipitously.”




What Do You Want/Expect Out Of This Housing Downturn?

Readers suggested a topic on what might be desireable effects of a housing correction. “I’d like to know what people want/expect out of this housing downturn. For example, in addition to a house at 2.5x income, I’d like to own a few multi-family properties to hold long term as a cash flow investment. So, I’d like to see enough lopped off of prices such that most people think RE is a bad investment and multi-family properties stop being seen as potential condo conversions and become income producing again.”

“I also realize for that to happen, it seems that this country would most likely fall into a very ugly recession if not depression.”

“Is it possible to ask for 30%-50% off of peak without bringing about economic depression?” One replied, “I think housing and incomes ‘have’ to come back in line, and I don’t think that this necessarily results in a despression.”

“Credit is already tightening up, and the disengagement between incomes and housing prices can only exist as long as there are lenders out there willing to overlook such an obvious risk factor.”

“It is worrying how deeply Wall Street has tied itself to sketchy mortgage practices, but in many ways it’s no different than how deeply they got involved with dot coms that didn’t even have a clue how to earn a profit. And we survived that.”

“Also, remember that a large majority of homeowners bought pre-2000 and are not HELOC’ed, and so are not directly affected by such a price reduction.” Another had this,

“Add together new and existing home sales for the 7 1/2 years since 1/1/01 and you get over 50 million dwellings changing hands. Obviously there’s double (and triple etc.) counting in there, but add in HELOC’s and I reckon that majority might not be as large as you think.”

From MarketWatch. “Sales of North American-built vehicles sank to the second lowest level in 14 years in June. Light truck sales continued to fall, hitting the lowest level since October 2005.”

“General Motors Corp. posted a 21.3% plunge in June U.S. light vehicle sales. ‘As we look at the results coming in, the performance is capping off a second quarter for the industry that I think can best be described as a bit underperforming,’ Paul Ballew, GM’s top sales analyst, said in a conference call. ‘We’re dealing with the twofold impact of gas prices and the housing correction that is occurring in a couple of key states.’”

The Associated Press. “Late payments on home equity loans climbed to a 1 1/2-year high in the opening quarter of this year, while delinquencies on credit card bills fell, painting a mixed picture of how people are managing their debt.”

“‘There are still signs of consumer financial distress, which will continue throughout most of this year as the worst of the housing problem works its way through the economy,’ said James Chessen, the American Bankers Association’s chief economist.”

“On a brighter note, late payments on credit card bills dropped in the first quarter to 4.41 percent. That was down from 4.56 percent in the fourth quarter and was the best showing in nearly a year.”

“‘The improvement in credit card late payments is somewhat remarkable, given that the economy was not operating on all cylinders,’ Chessen said.”

The LA Times. “Credit counselors said consumers were paying the price for reckless attitudes about debt fostered by years of easy credit, particularly in the mortgage market.”

“‘It’s a monster we all created,’ said Todd Emerson, president of a nonprofit consumer credit management organization in Riverside.”

“During the housing boom, home equity loans gave many consumers a ready source of cash as the value of their property shot up. But with prices declining, quite sharply in San Diego and some other California regions, borrowers have less equity available to cash out by selling their houses or refinancing their home equity loans.”

“As a result, late payments on such loans rose to 2.15% in the first quarter, up from 1.94% a year earlier and the highest in nearly two years. On home equity lines of credit, the delinquency rate was 0.6%, the highest since mid-2003.”

“Emerson said the bankers’ report reflected a scary trend: Ten or 15 years ago, consumers made regular mortgage payments at all costs so as not to lose their homes.”

“‘People today, in order to keep themselves alive, they’re paying off their credit cards first rather than paying off their mortgages first in order to keep an open line of credit,’ said.”

“Many of those homeowners bought expensive properties with a ‘figure it out when they get there’ mentality, Emerson said. ‘Trouble is,’ he said, ‘they never figure it out.’”

The New York Times. “The wonderful world of leverage has lifted homeownership to near-record levels, and we thump our chests with pride at the prosperity and middle-class life that possessing a home implies. Hovering in the background, however, is a glaring statistic: Never before have homeowners actually had such a small ownership stake in the houses they occupy.”

“The reason is debt. Home prices have gone up a lot, but borrowing against homes has gone up even more in almost all of the last 20 years. ‘Owners’ equity,’ as the Federal Reserve calls the difference, is gradually eroding — a detail that millions of families ignore, focusing instead, perversely, on the rising dollar value of their homes.”

“When they sell, most still pocket a tidy sum after paying off their loans. But millions of middle-income families don’t sell; they take out another loan, which they often spend, surveys show. And then, as the margin of potential profit — a k a owners’ equity — shrinks.”

“At the end of the first quarter, the nation’s homeowners owned, free of debt, only 52.7 percent of their dwellings, down from 54.1 percent a year earlier and 57.5 percent at the start of the century. The decline occurred even though owners’ equity, measured in dollars, rose by an astonishing $4.3 trillion since 2000. Unfortunately, mortgage debt rose by $5 trillion.”

“‘Basically people are gradually consuming their capital,’ said Edward N. Wolff, an economist at New York University who studies household wealth. ‘It makes the middle class in particular more vulnerable. Their homes are still their biggest saving, and that is the bottom line.’”

“Even now, the illusion of rising equity obscures its erosion. For a family with a $50,000 mortgage and a house valued at $100,000, for example, the owner’s equity is 50 percent. Two years pass. The family borrows an additional $60,000, raising debt secured by the house to $110,000. The expected selling price, however, has risen to $200,000.”

“Home prices, however, must continue to climb for this merry process to continue. Indeed, millions of homeowners seem confident that they will do exactly that over the long run, despite the drop in recent months.”

“The tax code has played its own special role in all of this. Congress changed the law in 1986, allowing individuals to deduct on their tax returns only those interest payments on loans tied to housing. Interest on other loans no longer qualified. With that big change, borrowing against one’s home to buy a car or an appliance or clothing or a vacation became cheaper, after taxes, than standard consumer credit.”

“‘What surprises me,’ said Lee Price, chief economist for the House Appropriations Committee, ‘is that more people haven’t mortgaged higher percentages of their equity.’”

“The culture of ‘own your home free of debt as soon as possible’ had endured for decades. Through the 1960s and ’70s, owners’ equity ranged from 65 to 70 percent. As recently as 1983, some 52 percent of American homeowners who were 55 to 65 years old owned their homes without any mortgage debt. By 2004, however, that percentage had dropped to 36 percent, according to Federal Reserve data.”

“The first sharp decline in owners’ equity, nearly three percentage points, came in 1990 as home prices dropped while borrowing held strong. The decline then continued, despite the housing boom, although at a slower pace, a fraction of a percentage point annually during most years. And then last year, another steep drop in equity kicked in, as home prices weakened but owners kept up their borrowing.”

“‘You might end up without enough pension income to pay off your mortgage, or enough equity to draw on if health costs get out of hand,’ said Conrad Egan, president of the National Housing Conference. ‘But people seem to be saying, ‘O.K., I’m willing to live in that kind of environment.’”




A Drop Of Half The Value Is Not Unrealistic Right Now

The Destin Log reports from Florida. “A Destin doctor who has had his pulse on the Destin real estate scene for more than 30 years has slashed the asking price of his bayfront home by $1 million. Now, the home that Darlene and Dr. Mike Raim live in carries a listing price of $1.79 million. It was $2.79 million. ‘We’re trying to get someone’s attention, shock value,’ Raim said.”

“When the Raims put the house on the market in August 2004, it was listed at $1.9 million. But with the Destin real estate market at the time red hot, with prices shooting up almost by day and some buyers snapping up homes before the for-sale signs even went up in the front yard, Raim figured the house and land would fetch more.”

“In March 2005, he upped it to $2.2 million. In the summer of 2005, to $2.49 million. In the summer of 2006, he asked $2.79 million. It’s listed on the tax rolls today at $1.5 million, he said.”

“Pat Fisher, an independent broker representing the Raims, said they had offers in 2004 and 2005, ‘but they just didn’t work.’”

“Fisher said that at a meeting about commercial real estate a few weeks ago with three bank presidents, ‘they wanted to let us know they are still lending money but that appraisals are on coming in lower than the contract price.’”

“She cited an example: ‘I had a house listed on the bay, $1.75 million, an excellent house. I got a contract, waited two weeks for the appraisal, and it came in 30 percent low. It killed the deal. In my 10 years in real estate, I’ve never had that happen.’”

“Mary Anne Windes, a veteran broker in Destin, said in an e-mail interview, ‘The trend is that prices are moving to the same level that they were in 2003. As you will recall, 2004 and 2005 saw tremendous and often unrealistic growth. The market has now corrected itself. Many properties doubled in value during that time, so a drop of half the value is not unrealistic right now if a seller needs to sell.’”

The Orlando Sentinel. “A prime site zoned for an office tower and a hotel with residential units in downtown Orlando is back on the market, though the developer says he’s prepared to build the offices.”

“The market for residential condos has…gone cold, and even demand for Orlando office space has cooled in recent months, according to downtown real-estate specialists.”

“‘It’s an open-bid process,’ with no set asking price, It’s an open-bid process,” with no set asking price, Toledano said.”

“The market for office space in the core downtown area has softened, however, in just the past three months, according to specialists in the Orlando office of Cushman & Wakefield of Florida Inc. ‘The faucets have turned off a bit,’ said Rick Solik, senior director of office brokerage services.”

“A survey recently completed by the company estimates that the central business district’s Class A vacancy rate was 14.5 percent during the second quarter, with a ‘negative absorption rate’ during the quarter of 88,345 square feet, meaning that more people were moving out of offices than moving in.”

The Miami Herald. “Flashy Key Biscayne trader John Devaney has temporarily stopped allowing customers to withdraw money from his four Horizon hedge funds, which invest in subprime mortgage securities, in a bid to avoid a fire sale at depressed prices.”

“His firm, United Capital Asset Management, which has assets of about $570 million, took the extraordinary step of suspending redemptions after many Horizon investors in recent days ran for the exits as volatility in the structured debt market spiraled.”

“A spokesman for United Capital said the temporary halt on fund withdrawals is aimed at protecting investors from losses. ‘We didn’t want to be in a situation of being forced sellers in a market that’s very unfavorable,’ the spokesman said. ‘We thought if we dumped, that would be a disservice to everyone in the portfolio.’”

“In January, United Capital Markets was selected as the lead underwriter to develop the $4 billion oceanfront Briny Breezes community in Palm Beach County.”

“Miami-Dade County’s budget-builders will fashion a spending plan this summer that cuts a state-mandated $224 million, but a panel of private experts already has some ideas about where to begin.”

“Among them: Slash the Miami-Dade County Commission’s budget in half. Freeze all county salaries.”

“Those suggestions, gathered from a panel convened by The Miami Herald, are likely to bump up against real-world concerns, like union contracts and politics. And to be sure, County Hall has squandered millions in botched housing deals and flawed contracts, money that could have come in handy during tight budget times.”

“Since 2000, property taxes have risen 118 percent in the county, Former Miami-Dade Commissioner and Miami Mayor Maurice Ferré noted. ‘Where has that money gone?’ he asked.”

From Hernando Today. “The county laid off five employees from its development department Monday and has lost another 40 or so in the past few months through attrition.”

“County Administrator Gary Kuhl, in making the announcement at Tuesday’s county commission meeting, said he and staffers have been exploring ways to reduce costs and this was one result.”

“The development department is an enterprise fund, which means its revenues are dependent on fees from permits and construction. With the downturn in the housing market, money became tighter and it became necessary to trim staff, Dupree said.”

“‘We cannot be in a position where our revenues are less than our expenses,’ she said.”

The Sun Sentinel. “Dozens of South Florida senior citizens have lost millions of dollars of their savings because their brokers bet wrong on risky mortgage-backed securities after promising them a stable investment.”

“Coral Springs lawyer Darren Blum said Tuesday that his firm is representing about 25 investors who had invested $20 million with Brookstreet Securities, a California firm that has brokers in at least a half-dozen South Florida offices. Many investors are planning legal action to recover their losses, and for damages and attorney’s fees.”

“‘We’ve had people in their 80s in here in tears,’ Blum said. ‘These people are devastated.’”

“The seniors invested in securities called collateralized mortgage obligations, or CMOs. Some independent brokers working in Brookstreet offices pitched the CMOs to wealthy seniors at dinner seminars and condominium meetings.”

“‘They presented these as very safe, like a bond, paying 7 to 8 percent,’ Blum said. The CMOs the brokers invested in, however, were complex and highly speculative, he said.”

“Brookstreet has said the money was lost in part because of too much securities trading on margin, or borrowed money. The value of the CMOs declined, Brookstreet said, as the so-called subprime mortgage market worsened.”

“The margin losses mean that investors not only lost their funds, but could owe money that was borrowed to trade in their accounts. Blum said he talked with one client Tuesday who has about $12 million in margin losses.”

From Money Central. “For the repo man, business is always good. But lately, it’s been better than good.”

“As the subprime-mortgage collapse blares in the background, ‘recovery service agents’ have been cleaning up the wreckage of another subprime-lending mess: that of the auto industry, which in its own competitive bid for buyers has been extending longer, costlier loans to people unable to keep up with their payments.”

“A survey…said monthly repossessions by subprime lenders increased 15% last year.”

“Repossession agents in areas hit by foreclosures say they’ve been picking up vehicles both from people struggling to keep their homes and from those now left without work: construction workers, pavers, landscapers and real-estate agents.”

“‘It is actually stunning the number of cars we’re taking from people who are supporting the local real-estate market,’ said J. Patrick Altes, the president of a recovery agency with offices throughout Florida. ‘It’s almost the type of thing where we see it and you wonder if anyone else sees it. It’s like they turned off the spigot.’”




Bits Bucket And Craigslist Finds For July 4, 2007

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