Something Strange Was Going On
It’s Friday desk clearing time for this blogger. “With summer approaching, San Francisco real estate agents say the housing market is warming up. It’s not a seller’s market, though. The median home price in San Francisco was $617,000 in March, an 18.3 percent drop from the same month last year, according to the California Association of Realtors. San Francisco prices are not nearly as low, however, as what is being offered in other Bay Area cities, where sales are occurring at half the listing price in some cases, said Dale Boutiette, a broker associate with Paragon Real Estate Group. ‘I have to educate my buyers who are looking for 25 to 30 percent off the listing price, that that’s generally not going to happen,’ he said.”
“The real estate losses on the Peninsula are still rolling in at a steady pace. While Palo Alto — among other areas — was supposed to weather storm somewhat better than other towns, there are still plenty of houses around the Peninsula selling at a loss. Even in Palo Alto proper, a two-bedroom condo on California Avenue sold for $488,000 last month, but the previous sales price on the property was $600,000.”
“Rincon Hill developer Turnberry Associates has canceled its 40-story deluxe condo tower at 45 Lansing St., and asked the city to refund an $8.4 million affordable housing fee it paid when the building permit application was filed in 2007. At the time Turnberry President Bruce Weiner told the Business Times that the project would be the most upscale development Rincon Hill has seen, with ‘exotic marble baths, Italian Snaidero cabinetry, Gaggenau cooking appliances, Jacuzzi hydrotherapy tubs with built-in TVs, individual security systems and 12-foot penthouse ceilings.’”
“Since then housing values have plummeted an estimated 30 to 40 percent in San Francisco and downtown developments like Tishman Speyer’s Infinity and Lennar’s Blu have slashed prices in an effort to move inventory.”
“Designer Delia Seaman is fashionable, successful and regretful. Sales at her West Hollywood boutique are suffering amid the recession. Eager for rainy-day funds, Seaman has put her 1920s Spanish-style bungalow up for sale at an asking price of $999,000. After Realtor fees and closing costs, she’ll clear little or nothing beyond the $922,000 she paid for the property four years ago–and that assumes, optimistically, that she will get something close to the asking price.”
“Even more sobering, Seaman did some math showing that the $60,000 in yearly mortgage payments, insurance and property taxes she’s been shelling out exceeded what she would have spent renting a similar home at $36,000 annually. The tax deductions she got for mortgage interest and property taxes don’t come close to making up the $96,000 difference in cost over the four years, she says. ‘I feel like the whole housing dream is kind of a joke,’ Seaman says. ‘I paid in for four years and got nothing. I wish I’d never bought.’”
“Kelley Alexander is appearing on a new reality television series with something unusual at stake: her Sherman Oaks house. If she and her sister can beat four other neighborhood families on HGTV’s new reality show, Alexander gets a quarter-million-dollar windfall, which she says is enough to save her from a looming foreclosure. But if she loses the contest, the home will likely be gone.”
“‘We have a bad mortgage,’ said Alexander. ‘On the first day of [the show], they put foreclosure papers on my door.’”
“During the frothy years of the real-estate bubble, as ordinary homeowners sought a slice of the good life, interior designers were toasted like rock stars on reality series such as Bravo’s (since-canceled) ‘Top Design’ and HGTV’s ‘Design Star.’ The seductions of real-estate investing — a sleek, go-go world in which property values would supposedly never halt their vertiginous climb — have been covered on TLC’s ‘Property Ladder,’ A&E’s ‘Flip This House’ and Bravo’s ‘Flipping Out.’ And the careers of young agents angling to sell posh Beverly Hills estates have been lavishly detailed on Bravo’s ‘Million Dollar Listing.’”
“A few houses down, Jeff and Elizabell Marquez, are in somewhat better financial shape. They paid $740,000 for their modest home in early 2008 and have watched its value ebb ever since. ‘It’s lost $100,000,’ Elizabell said with a pained expression.”
“‘More than that,’ pointed out her husband.”
“With white tin ceilings, original woodwork, bay windows, and a $699,000 price tag, the two-bedroom apartment n Brooklyn would have been snatched up in a New York minute a couple of years ago. Instead, it’s been on the market for more than two months. On a recent spring weekend 14 buyers came through, and still no bids.”
“Suzanne Allred, a Salt Lake City real estate agent, blamed the weak foot traffic last Sunday to spring weather and the Utah Jazz playoff game happening at the same time. The 2,300-square-foot house with designer colors and French doors she was showing was listed for $485,000.”
“‘It’s not the same market it was two years ago when this house would have sold in about two seconds,’ she said.”
“Standing on the concrete stoop with the sun in her face and a plate of barely touched cookies just inside, Allred figures the market will rebound given time and patience. ‘I’m hopeful,’ she said. ‘Everything’s just taking longer than it used to.’”
“During March, Norfolk County single-family home sales fell 9 percent from March 2008 and the median price declined 22 percent to $315,000. Plymouth County single-family home sales were off 7 percent and the median price fell 9 percent to $260,000, making Plymouth County the most affordable area of any suburban Boston region. Rick Coughlin, president of Weymouth real estate company Coughlin & Co., said more buyers are discovering that the South Shore offers real estate bargains.”
“‘They’re seeing the prices, and it’s amazing to see how much is on the market for under $300,000,’ he said.”
“The Lehigh Valley housing market began deteriorating in 2007, with prices dipping on sluggish sales following years of strong sales and double-digit gains earlier in the decade. The trend continued in March. Loren Keim, president of Century 21 Keim Realtors in Allentown, said there remains a disconnect between buyers and sellers that has hamstrung the market. Many sellers still think their homes are worth a fortune, and many buyers think they can get them for half the listing price, he said.”
“Also hurting the market are prospective buyers who are reluctant to enter a deteriorating market, he said. ‘Buyers are on the sidelines waiting for the right time to buy, but there are a lot of reasons to buy right now,’ Keim said.”
“Mary Lorah, a mortgage broker, said distressed sales will reduce values in neighborhoods. Newly built homes where buyers paid a premium are most likely to see a steep price slide, she said, similar to buying a new car that depreciates when you drive it off the lot.”
“‘People haven’t even moved into the house, and we’re telling them it’s not worth what they built it for,’ Lorah said.”
“Kosciusko County Board of Realtors has begun a campaign aimed at boosting the public’s confidence in the local housing market. The effort is called the ‘Surround Sound Campaign.’ It involves local radio and newspaper ads, billboards and online marketing with messages like, ‘Eight out of 10 economists believe home prices will rise in the next five years. The other two are life-long pessimists.’”
“‘We’re just trying to tell the real state of real estate,’ said KBOR member Bev Ganshorn, ‘not what people have heard.’”
“Home-buyers sued KB Home in Phoenix federal court Thursday, claiming the builder conspired with Countrywide Financial to inflate appraisals for home sales in Arizona and Nevada. The class-action suit focuses on home sales in the two states since 2006, alleging Los Angeles-based KB Home steered home buyers to Countrywide, which then steered them to LandSafe Appraisal Services, a wholly owned subsidiary of Countrywide. LandSafe then used appraisers who would ‘come in at whatever number was necessary to close the deal at the price desired by Countrywide-KB,’ the lawsuit says.”
“The lawsuit was filed on behalf of a handful of Buckeye and Surprise residents who bought homes from KB in 2006. KB Home has seven communities in the Tucson area, and the builder recently launched a line of homes priced as low as $90,000 to $100,000 in an attempt to compete with foreclosures.”
“‘People were deprived of their ability to make an accurate assessment of their purchase,’ said Rob Carey, managing partner of Hagens Berman Sobol Shapiro’s Phoenix office, which filed the suit. ‘This is an explicit agreement to try to rip off borrowers, between the lender and appraisers.’”
“Brian Tuttle’s plan was to build 15,000 homes and 4.2 million square feet of retail and office space on a 5,800-acre tract of land in the extreme northeast corner of North Port. Now it looks as if market forces will kill the project long before a single home or supermarket rises.”
“Some market watchers were not surprised by Tuttle’s default. George Kelce, whose family owned the land for 32 years before selling it in 2000, said Tuttle greatly overpaid. ‘These guys paid $10,600 per acre just one or two years after South Florida Sod paid $2,000 per acre,’ Kelce said. ‘Doesn’t that make you think something strange was going on?’”
“Dennis Black, a Port Charlotte real estate consultant, agreed: ‘Some of these guys had stupid money behind them and were chasing anything they could get.’”
“Being rich during a recession can almost be as bad as being poor. The only difference is that the rich have more to lose. RealtyTrak recently reported that the foreclosure rate on homes valued at more than $729,750, also known as the jumbo-mortgage limit, rose 127% in the first ten weeks of this year compared to the same period a year ago.”
“The fact the rich are now losing their homes is a signal that the real estate market has further to fall. The new foreclosure data shows that many high-end homeowners are running out of resources for keeping their homes. That means the portion of the home market with the most expensive houses is beginning to collapse. If it follows the pattern of the rest of the sector, prices will correct downward quickly and brutally.”
“The merger of two of Denver’s largest real estate brokerages is expected to have major implications for the South Metro area. Leeann Iacino, CEO for Prestige Real Estate Group, said merging enables the companies to reshuffle and spread costs around to keep up with the sluggish housing market. ‘The world is changing dramatically as we speak, and if you’re not adapting by decreasing costs and gaining momentum, you’re behind,’ she said.”
“Despite foreclosures all over the country, Plainview — and most all of Texas, for that matter — have not seen a significant drop in home sales. While there has been a slow down, real estate agents are still extremely busy, said Lynn Goddard, president of the Plainview Association of Realtors. ‘The media has made this out to be a problem for the whole country when it really isn’t,’ Goddard said.”
“‘For the most part, everybody is on the same page about getting houses priced right,’ she said. “Now we’re comfortably busy. It’s not as fast-paced as it once was.’”
“Goddard doesn’t think it’s a ‘doom and gloom’ housing market for Plainview. ‘People are always moving to Plainview,’ she said.”
“Having spent 20 years down the human mineshaft that is financial counselling, Tony Devlin thought he had seen it all. But this time, he says, it’s worse. Devlin describes his clients as being ‘under significant strain’ or ‘quite distressed’ or ‘highly agitated.’ For instance, the couple who both lost their jobs in the space of 24 hours. The construction subcontractor who hadn’t had any work in months and was trying to pay a $1500-a-month mortgage with his credit cards. And the middle-aged professional woman who found herself owing more on her house than it was worth was ‘highly agitated.’”
“Stress has also spread east, infecting previously inviolable suburbs like Leichhardt, where local paper The Glebe reported 19 home repossessions early this year. ‘Paradoxically, most of the big borrowing was done by the higher earners,’ explains Mike Rafferty, senior analyst at Sydney University’s Workplace Research Centre. ‘Now that those people have lost their bonuses or been sacked, you’re seeing forced sales.’”
“Those forced sales are sending property prices south in some of the most blue-ribbon boroughs. According to Australian Property Monitors, Mosman prices are down 21 per cent on last year, Woollahra is down 24 per cent and Bronte is down 30 per cent. In Melbourne, Toorak dropped by 14 per cent, Kew by 8 per cent and East Melbourne by 35 per cent.”
“‘Despite the Government’s assurance that Australia is well placed to weather the storm, the fact remains that Australians are, per capita, two to three times more leveraged into property than the US or Britain.”
“‘In the US they had cheaper houses on higher incomes than us,’ Martin North, managing consulting director at Fujitsu Consulting, says. ‘In other words, we had to borrow more to buy our houses. To make matters worse, the first home owners’ grant is enticing buyers into the market at precisely the wrong time, at the end of a bubble and when interest rates are artificially low. That’s how the sub-prime crisis started in America. People must remember that the recession has only begun.’”
“The late 1990s and early 2000s were an era of abnormally high returns and soaring asset values, all of which was fuelled by debt. ‘Debt went up astronomically, thanks to low interest rates and money supply growth and the proliferation of financial instruments like collateralised debt obligations, which made it faster for money to get about the economy,’ says Satyajit Das, a risk consultant and author. ‘This made it seem like there was a lot of money out there, which fuelled the asset bubble. But it wasn’t real. It was a false multiplier. We were living in an age of ponzi prosperity.’”
