Risky Bets Sometimes Go Bad
It’s Friday desk clearing time for this blogger. “With relatively robust sales sparked by sales of distressed properties for much of this year, the Solano County housing market, reflecting a statewide trend, will moderate to a more sustainable pace in 2010, said Robert Kleinhenz, deputy chief economist with the California Association of Realtors. ‘It appears home prices are headed up a little bit from the trough (in April),’ said Kleinhenz. ‘It’s a welcome development.’”
“His comments come on the heels of some facts that reveal the extent of the national housing meltdown that began two years ago. The median sales price statewide in August was $293,000 — ‘Down better than 50 percent below the peak ($594,000) back in 2007,’ Kleinhenz said.”
“‘After experiencing its sharpest decline in history, we expect the median price to rise modestly next year,’ said Jim Liptak, president of the California Association of Realtors and a North County real estate agent. ‘2010 will mark the beginning of the new normal for California’s housing market.’”
“‘I’ve said many times that there won’t be a bell that rings when we’ve hit the bottom, but we’ve reached a point where it makes good sense to buy,’ he said. ‘It’s a good indicator when you see investors getting into the marketplace.’”
“Two years ago, Larry Igarashi bet he could build a sprawling house in Orange County’s foothills that would sell for at least $10 million. On Saturday, he put the eight-bedroom house in a gated community on the auction block and received a high bid of $6.6 million — less than he was willing to accept. Even at cut-rate prices, few multimillion-dollar homes are selling. With so many to choose from, even those with enough money are taking their time.”
“‘There’s no sense of urgency among buyers. I just didn’t expect this would happen,’ Igarashi said of the housing crash. ‘I don’t think Wall Street or even the president of the United States believed this could happen.’”
“By most measures, it’s a gem of a house in the Hayden Bridge area of Springfield. But, after more than a year on the market and a succession of price reductions totaling $90,000, it remains unsold. ‘t’s baffled all of us,” said Marie Due, Realtor with Barnhart Associates, who helped build the house and is trying everything she can think of to find a buyer.”
“‘The stand-alone custom builders don’t have the ability to buy a huge, gigantic plot of land and then divide it into $40,000 lots like Hayden does. They have to buy the lot for $125,000. Then, you’ve got (to pay) $20,000 or $30,000 for the permits and everything else. And that’s before you even put a shovel in the dirt. So you’ve got a total of $150,000 and you’re supposed to build a $100,000 house? Oops. That doesn’t work very well, does it? ‘Due said.”
“Home builders in Florida participating Thursday in a teleconference conducted by the National Association of Home Builders say they are concerned that there is not enough momentum in the marketplace to ensure a sustained housing recovery. Alberto Milo, president of the Urban Development Group in Miami, said…’The home buyer tax credit needs to be extended. It is the main incentive that is getting home buyers into the market and making them feel that this is the time to buy and not sit on the sidelines waiting for prices to decline further.’”
“Prices in his area have dropped 50 percent, from a median of $400,000 at the peak of the market to about $200,000 today. As builders have been reporting across the country, Milo said that the appraisal issue has been especially troubling for his business. He cited an appraisal on one of his new homes, which was under contract to sell for $205,000, that came in at an alarming $70,000 last week. That was ‘way under even the cost of producing that unit,’ he said.”
“Like many overinflated U.S. housing markets where the bubble has burst, Las Vegas appears ripe for the picking. Robert Horn of Olympia, Wash., has a Summerlin condo in escrow for about $150,000 and plans to rent it out. The unit is in great condition and sold for $425,000 in 2007, he said. ‘I came down here and basically started to look at properties,’ Horn said. ‘I knew it was a great market, a great place to live and have a place. What you can get for the money, you can’t pass it up.’”
“There’s a significant oversupply of available new units, estimated at 42,000 units for the entire market, including standing inventory, available lots and recently built homes in foreclosure, reported said Marta Borsanyi, principal of a Newport Beach, Calif.-based real estate advisory firm. That also includes 8,000 high-density units, the majority of which are condo-hotels and rentals.”
“Realtor Heather Peck is worried about banks flooding the market with foreclosed homes. If home prices plummet further, ‘We would become Detroit junior,’ she said.”
“The bursting the real estate bubble in the U.S. and the rise of the loonie are creating a ‘once-in-a-lifetime’ chance for Canadians to buy their dreamhome in sunny Arizona, says a former Winnipeg cop turned realtor.Besides cheap houses, Phoenix boasts over 300 days a sunshine a year, professional sports teams and first-class recreation facilities. As an added bonus, Arizona has a relatively benign climate — for a desert.”
“‘No natural disasters. We don’t have mudslides, earthquakes, hurricanes. And it’s a dry heat,’ Diane Olson added with laugh.”
“Homeowners around two southeast Chandler subdivisions say they are worried about their property values as developers shift to building smaller homes in an effort to attract buyers in a depressed housing market. People bought homes there with the expectation that the neighborhood would remain on the same scale, said Reid’s Ranch resident Sean Stecker, and downscaling the remaining homes would hurt existing residents’ property values.”
“‘When my wife and I purchased our home here, the plans for this neighborhood and the ones around it were quite upscale,’ Stecker wrote to city officials. ‘Their proximity to my home, which is considerably larger and consequently more expensive, will hit my family personally from a financial perspective, as the overall value of this immediate area goes down.’”
“Michael Smith, who owns a Reid’s Ranch home, said the subdivision was marketed to him as larger homes on larger lots. ‘Clearly this action flies in the face of that claim…These new small models would not fit visually with the current homes - they will be dwarfed by the existing homes,’ according to Smith. ‘The smaller product will be a drag on already dramatically reduced home values.’”
“For the fourth straight month, bankruptcy filings for the Phoenix metro area hit a yearly high. The 2,472 filings, mostly by consumers, in September marked an 85 percent increase from the same month a year ago, according to the U.S. Bankruptcy Court in Phoenix. Statewide filings also reached a yearly peak.”
“Greg Stark, a certified financial planner in Scottsdale, participated in a program sponsored by The Arizona Republic Tuesday night during which advisers made themselves available at no charge to answer money questions. Unlike past programs, where investment and retirement questions often dominated, debt issues were on the minds of many callers, Stark said.”
“‘The tenor right now is credit, especially residential mortgages,’ he said.”
“John Burns Real Estate Consulting, a California firm that analyzes the U.S. housing market, is not part of the chattering class that thinks the bottom is here or near. The company warns in its most recent newsletter that it sees a ‘massive supply of homes’ coming down the pike via foreclosure.”
“What sort of ‘massive supply’ numbers are we talking about? Pretty, um, massive: One out of every 10 U.S. homeowners is behind on mortgage payments, John Burns Real Estate estimates. Not one in 10 homeowners with mortgages. One in 10 homeowners, period.”
“Foreclosure sales at auction in Denver last month dropped 29.3 percent compared to the same time period last year, a statistic that some experts believe is one of several indicators that the local housing market is beginning to stabilize. However, a Realtor who specializes in selling foreclosed property says many leading banks are delaying going into the foreclosure process and that the numbers aren’t what they seem.”
“Personal experience has led Bob Costello of Denver Foreclosure Brokers…thinks that banks aren’t foreclosing as quickly as they should, which is altering the number of foreclosures. ‘At some point banks will have a whole boatload of these things, the question is just when they will unload them,’ he said.”
“Another theory Costello has for the lack of foreclosed properties is that the banks are simply overwhelmed by the number of people who are behind payment on their mortgages. But as he pointed out, people have been predicting a flood of foreclosures for a while and it has yet to hit. ‘It’s all a little bit goofy right now,’ he said.”
“There’s debate in Minnesota and elsewhere about how well a federal program to promote mortgage modifications for troubled homeowners is working. On Thursday, the federal government said its Making Home Affordable program had achieved a key milestone of handling some 500,000 trial modifications and had reached the goal nearly one month ahead of schedule.”
“Michell Vojacek, coordinator for St. Paul’s mortgage foreclosure prevention program, said that in some cases, troubled homeowners seeking modifications through the federal program face lengthy waits to get into a trial deal. In other cases, homeowners who complete the trial program find themselves being offered full modifications with worse terms, Vojacek said.”
“‘It’s kind of all over the board depending on the lender,’ she said. ‘We are seeing some folks that are getting good, fixed-rate loan modifications, and we’re seeing some that aren’t.’”
“The Congressional Oversight Panel…warned that the program seems sure to prove ineffective. The panel simply said that they’ll be swamped by changes in the market. The economic crisis and rising unemployment is pushing many more prime mortgages, even those given to the most creditworthy borrowers, into default. From July 2007 through the end of August, 1.8 million homes were lost to foreclosure and 5.2 million more foreclosures were started, the report said.”
“The program ‘is going to have a fairly marginal effect,’ on the foreclosure crisis, said Laurie Goodman, senior managing director of Amherst Securities in New York. ‘At the end of the day, you’re going to have relatively few successful modifications.’”
“Real estate broker R. Gilliam Kittrell III in Raleigh, North Carolina, answers the phone these days on the first ring. That’s when it rings at all. Mortgage rates near historic lows aren’t producing more buyers, said Kittrell, who recited terms on a rate sheet on his desk which he said were almost unprecedented in his 30 years as a broker. ‘These rates may stimulate the market but they haven’t yet,’ said Kittrel.”
“The median price of an existing home was $177,700 in August, down 12.5 percent from a year earlier, the National Association of Realtors reported. Falling interest rates help support prices from declining more, said Scott Buchta, a mortgage strategist in Chicago. ‘It lets people pay more for a house,’ Buchta said.’
“A U.S. unemployment rate of 9.8 percent in September, the highest in 26 years, and expectations that home prices have further to fall is discouraging buyers. So are forecasts that foreclosures will continue rising, said Jack McCabe, a real estate consultant in Deerfield Beach, Florida. ‘The low rates are a good sign, but you look at everything else and this is like no other real estate downturn in history,’ said McCabe. ‘People who thought they were taking advantage of deals a year ago have lost 20 or 30 percent. They were what you call knife catchers.’”
“In one town, it’s shiny new appliances, fluffy carpets and gleaming countertops. In another, it’s older homes - some in blighted neighborhoods - and most without any luxurious amenities. But the idea is the same: Offer cash to homebuyers. It wasn’t just the stainless steel, the abundance of closets and the customized flooring for the Garcia family. More than $3,000 from the village of Manhattan and other financial incentives from the developer sealed the deal for them when it came to buying a new home. They just moved in a few weeks ago from Naperville because Garcia’s law practice is based out of the south suburbs, as is his church.”
“‘There are a lot of developers out here,’ Garcia said. ‘Getting that incentive helps very much.’”
“The Garcias aren’t the only ones taking advantage of Manhattan’s housing stimulus program….His neighbor Russ Ondo Ondo used the $3,500 to furnish his new townhouse. ‘Without that, I would be living in an empty home,’ said Ondo.”
‘Garcia, on the other hand, used the cash for closing costs. ‘We didn’t have to put out a cent,’ Garcia said.”
“The number of metro-east residents filing for foreclosure increased during the past two months, but numbers are still below figures recorded earlier this year. Al Suguitan, executive director of the Greater Gateway Association of Realtors in Glen Carbon, tracks the housing market in Madison County and surrounding counties. He said that although some economists have declared that the nation’s recession is over, a relatively high foreclosure rate coupled with a 10 percent unemployment rate is not going to help the nation’s housing market.”
“‘If this is what we call a jobless recovery, that is not going to be very beneficial for millions who are out of work,’ Suguitan said. ‘That’s not going to be very beneficial for them unless they can be retrained and positions open up. The quicker the economy can gain its footing in terms of the service and manufacturing sector, I think you’ll see that the number of unemployed go down. I think what is key is to the housing recovery is an employment recovery.’”
“While Leslee Chapman waited to see if her bid on a house would be accepted earlier this year, she began to question if she even wanted it to be. Chapman, 28, says she likes living in her rented townhouse in south Fort Myers. She has a good job, but worries this is a bad time to make a long-term commitment, even with an $8,000 first-time homebuyer tax credit baiting the hook.”
“‘I really did feel a lot of pressure to buy something because prices are so low and I wanted to take advantage of the tax credit,’ Chapman said. ‘I finally had to ask myself if I wanted this for myself or because of outside pressure.’”
“Chapman decided renting is just fine, for now. Across Southwest Florida and beyond, thousands are reaching the same conclusion. The American dream of homeownership has lost some of its sparkle amid the foreclosure crisis.”
“Ted Schiafone and his family are living in a rental home in Miromar Lakes, near Estero, after they sold a vacation home in Wisconsin. Schiafone said he assumed he would shop for a new home, but now he isn’t so sure. ‘You always thought you could get your money back if you needed to sell,’ he said. ‘That’s not the case, now, and with rental rates being what they are, we are probably paying about a third of what we would pay for a mortgage.’”
“Renting a home is an acceptable alternative and makes sense for more people every day, said Joe Gyourko, professor of real estate at the Wharton School of the University of Pennsylvania. Too often, the expectation everyone should own a home leads people to reach beyond their means, Gyourko said.”
“The government even seems to encourage the stretch, offering Federal Housing Administration-backed mortgages with down payments as low as 3 percent, he said. ‘I don’t know why the government keeps encouraging the FHA and others to say there is no real reason to put much equity in your home,’ Gyourko said. ‘Highly leveraged bets on a home are very risky, and risky bets sometimes go bad and hurt the people who make them.’”
