From Gangbusters To Zero
It’s Friday desk clearing time for this blogger. “Mr. Cai, a Shanghainese millionaire, owns three homes in Shanghai. Last year, Cai invested in a third home for $2,941 per square meter in the city’s central Xuhui district, or more than triple what he paid a decade ago. ‘Every year there are more and more wealthy Chinese. What are they going to do with all their cash?’ said Cai. ‘You can only buy property or start a company. Property is the safest way to go. Assuming that demand doesn’t change, there will be a shortage of supply in the private sector, resulting in an even sharper rise in home prices.’”
“Mr. Cai is thinking about moving into his new house and renting out his condo, which is now worth four times what he paid for it 10 years ago. But according to his calculations, the return on his investment would be appallingly low. He would have to collect rent for a half century to match what he could sell the apartment for today. Concerns about a property bubble, however, won’t push him to sell.”
“‘I don’t know what it’s going to be like in three to five years, but in 10, 20 years, I don’t think I’m going to lose,’ said Cai. ‘No way.’”
“While Oahu homeowners might not see much price gain over the next few years, the market is on its way up and the median single-family home could be worth more than $1 million by the dawn of the next decade, said renowned Honolulu economist Paul Brewbaker. ‘I think things are off and running again,’ Brewbaker said. ‘We are certainly at the point that the fear people had about prices falling a lot are pretty much over. There’s not going to be a double dip.’”
“‘The tragedy here is that a lot of people are waiting (to get into the housing market),’ Brewbaker said. ‘If they don’t act by April, they’ll miss the tax credits. If they wait beyond what the Fed is calling an extended period, they’ll be facing higher interest rates.’”
“Buoyed by a high-flying loonie and the quest to nest in summery climes, the flock of snowbirds chasing the sun just keeps on growing. ‘Florida residential property is at an all-time low as far as prices go, approximately 50% to 60% lower than they were two years ago,’ says Florida HomeFinders of Canada VP Brian Ellis,It is estimated that prices will need to rise dramatically to make it worthwhile to build new product. The prices that properties are being sold for today are far below replacement value, Mr. Ellis says.”
“‘What’s also interesting is the diversity of the buyers – their ages range from the late 20s to 70s, and they come from all ethnic backgrounds. Most want to buy rentals and generate an income, while looking forward to future appreciation,’ he said. ‘Luxury suites (with ocean views) are available at about half what they would cost in Toronto. Bagging a beachfront address has never been more affordable.’”
“A big green RV, called Your Money Bus, parked in downtown Fort Myers on Thursday and local planners took questions from people trying to get their finances in shape. Fort Myers resident Daniel Esteban came for advice because he is worried about losing his home. ‘The economy is so low and I am having problems with my mortgage company,’ said Esteban, an out-of-work construction worker. ‘I don’t want to go to foreclosure or bankruptcy.’”
“The foreclosure auction was still an hour away…inside the 1,900-square-foot house they built in 1968 for $110,000, and recently assessed by the town at $915,700, G. Stewart Baird Jr., 80, and his wife, Martha, 77, were in despair. Their home and the lovely spot where it sits - 3.9 acres of woods overlooking the Charles River in one of Boston’s nicest bedroom communities - was scheduled to be sold at auction that afternoon.”
“‘I guess we were just hoping things would turn around,’ said Martha Baird. Stewart Baird said they heavily mortgaged their home to pay for living expenses and to support their business in the hopes it would meet what now seem like overly optimistic revenue projections.”
“‘We thought we could do it,’ he said.”
“With less than six weeks before taxes are due, an estimated 16,000 former homeowners statewide will owe $15 million in extra income taxes this year and $29 million through 2012. The tax applies to what is called the ‘cancellation of debt’ that occurs when property owners lose their homes through foreclosure or arrange a short-sale. For the Roths, who continue to own a previous home and have other assets, their nearly $200,000 in losses does not cancel out their other holdings. The couple said they normally operate conservatively and only bought the home, which they lived in while their son continued to live in their first house, so they could sell it at a profit and pad their retirement accounts.”
“‘If we have to pay it, we’ll pay it,’ Phyllis Roth said of the taxes. ‘It’s less money to retire on, but it’s not the end of the world.’”
“When Jonathan Monschke discovered Yachats six years ago, he saw room for improvement, and he thought he might be the one to render it. He bought a home for his young family and land to subdivide for a housing development; he bought the town plaza and poured a small fortune into a riverside restaurant. And then he watched it slip through his fingers until all was lost.”
“Today, to drive through town is to pass a half-dozen grim reminders of projects stalled, abandoned or in foreclosure. Monschke lost everything, including his home, and now awaits word on the Yachats River House, which has been in foreclosure for one year. ‘We were caught off guard,’ Monschke says. “We could have handled the economy if we hadn’t had the cost overruns, and we could have handled the cost overruns if the economy hadn’t tanked, but we couldn’t handle both.’”
“‘Yachats went from gangbusters to zero. From a steady stream of sales, one every month or two, to not selling anything for three years. That’s what killed us,’ he said.”
“Tom Herskovits rode a wave of rising real estate prices into Cincinnati. Herskovits was a Chicago investor who came here to pursue condo conversions. Apartment prices were rising here, but still seemed cheap compared to Chicago. Herskovits planned to sell out units within three years and was ahead of schedule when the local condo market evaporated in 2008. Bank of America foreclosed on his Covington property last fall. He’s now negotiating a global settlement involving three banks and both properties and will likely move to Florida when the deal is done.”
“‘The basic assumptions we made about pricing still hold,’ he said. ‘People just stopped buying.’”
“‘There are so many people who’ve been hanging on and feeding properties,’ said Bill Blackham, chief financial officer for Al Neyer Inc. ‘But there’s only so long you can justify doing that. There’s probably more defaults coming.’”
“One of the first signs that Washtenaw County’s housing boom was decelerating came about five years ago when the national building companies started to sell off unsold lots. Pulte started to pull out of Ypsilanti Township, where it had loaded up on lots and options to acquire still more. Centex slowed there, too. Both slowed their pace near Chelsea, and Toll Brothers dropped some options near Saline.”
“It was hard to picture the county’s phenomenal growth slowing. But by the end of 2006, new single-family construction had fallen to 513 units, a 70 percent drop from 2004. And the fall-off continues. ‘Nobody’s picking up land here,’ said Jim Porth, a commercial broker at Thomas Duke Co. of Farmington Hills. That includes the big companies: ‘I haven’t seen any sign that they’ll come back to town.’”
“Asset quality has been hurt by increased troubled loans and repossessed real estate, which three out of four Omaha banks reported at the end of 2009. Of the 26 banks in the study, 20 had more loans, 21 had more deposits and 19 had higher capital levels at the end of 2009 than a year earlier. Nineteen had higher net incomes in 2009 than in 2008. But 20 of the banks also had more troubled assets.”
“TierOne is working to increase its capital under an order from the Office of Thrift Supervision. The bank plans to sell 32 of its offices, including nine in Omaha, one in Papillion and three in Council Bluffs, a step that would reduce its size and boost its capital, said Michael Falbo, who was named chairman and CEO of TierOne in January.”
“He said the 2009 losses came from writing down the value of troubled real estate loans in Florida, Arizona, Nevada and South Carolina, and the process of getting rid of the problem loans continues. ‘I think we’re close to through,’ Falbo said, but it’s difficult to determine the value of property in those markets. ‘Nobody’s willing to take a chance on what the value may be.’”
“Investors, hard-money lenders and mortgage brokers attended a conference last week at the Monte Carlo to discuss the industry and opportunities they are expecting in 2010. Leonard Rosen, who hosted the seminar, said the market is imploding with $300 billion of $1.8 trillion in commercial mortgages in arrears in metropolitan areas. Las Vegas has the highest percentage of troubled commercial real estate in the country.”
“‘There is going to be a huge commercial crash, and that’s happening now,’ said Rosen.”
“Lenders are no longer loaning 65 percent of the value of the property. That is down to 50 percent, he said.”
“Looking for value in the Massachusetts housing market? Bargain hunting for homes in the Bay State has never been easy. Even though home prices fell about 20 percent from the market peak in 2005 to the bottom last year, that’s still far less than what many other regions experienced. The median prices for a single-family home in Massachusetts was $285,000 in January, and the state continues to have some of the highest prices in the country.”
“In Southborough, the median price has dropped 31 percent to $390,000 from $565,500. But Barbara Heisler of Heisler and Mattson Properties in Southborough said the scale of that decline was exaggerated because so many lower-cost homes made up the recent sales data. She said a truer picture of home prices is probably around 20 down.”
“‘Hopefully we are at the bottom and we are probably not going to shoot up like crazy,’ Heisler said. ‘If we can hold the bottom it will be nice for everybody.’”
“When does compassion for the downtrodden become indulgence for the deadbeat? The Tampa Bay housing boom slogan, ‘No Credit, No Problem,’ has been replaced by the housing crash credo ‘No Payment, No Problem.’”
“But if the government’s helping hand is stabilizing the Tampa Bay housing market as a whole, the statistics don’t reflect it. The problem isn’t just fresh mortgage defaults, but the system’s inability to process and purge older foreclosure cases from as long ago as 2007. As hard as it is to say, hundreds, if not thousands, of homeowners have stayed in their houses and condos long past the expiration date, milking the public’s trusts.”
“In one notorious case, a Tampa Bay homeowner has clung to his upscale home after refusing to pay his $3,000 monthly mortgage for 2 1/2 years. That’s $90,000 in unpaid interest, principal and escrow.”
“Some argue the market is too weak to handle a flood of repossessed homes. That’s no longer entirely true. Home sales rose across Tampa Bay in 2009. Economists and demographers predict population growth will resume in dribbles this year. What’s more, foreclosure-prevention programs have been failure prone. Some studies show more than half of homeowners initially helped re-defaulted within a year.”
“Compassion is always easier on someone else’s dime. Do-gooderism has its place, but it can quickly become do-nothingism.”
“The commercial real estate industry in Middle Georgia took a powerful hit in 2009, and some say it will take years to see a significant improvement. Various pieces of property slated for big shopping complexes a couple of years ago, are overgrown with weeds and bushes. Some strip shopping centers that were built during that time are still vacant. Other planned commercial and office developments have never gotten beyond the drawing board.”
“‘There are niches and there may be pockets of places where people did fine, but overall as a general rule you will find that most commercial brokers will tell you that ’09 was a pretty poor year,’ said Guy Eberhardt, an associate broker who works with clients throughout Middle Georgia. ‘It’s a government sponsored recession and nobody knows what (the federal government) is going to do. … Until consumer confidence comes back, and until retail sales come back, development is not going to come back.’”
“There are no sales of commercial properties because there are no buyers, Eberhardt said. ‘If (the government) would get out of the way and let the market take care of itself, it would,’ Eberhardt said. ‘You have your foot in this murky water and you’re trying to find the bottom. You are scared to step out because it may be 6 feet deep and it may be 16 feet deep. That’s the uncertainty just killing the market because nobody knows where the bottom is.’”
