The Darwinian World Of Real Estate
It’s Friday desk clearing time for this blogger. “A landmark bill aimed at reducing mortgage foreclosures is now perhaps the strongest law of its kind in the country. According to Keali’i Lopez, director of the state Department of Commerce and Consumer Affairs, there were some 6,000 foreclosures in Hawaii last year. Melba Amaral and her husband had defaulted on their mortgage and were in danger of losing the Kalihi Valley home they had lived in for 15 years. ‘You imagine burning your house. Thinking, ‘okay, you want my house? Then I’ll burn it down,’ Melba Amaral said. ‘But the only problem here was that you never knew when you were going to get that eviction notice.’”
“Oakland resident Sara Kershnar has been trying to get Wells Fargo bank to modify her home loan for two years. After the bank allegedly lost some vital documents ‘three to four times,’ Kershnar, began to think they were ‘negligent.’ She began to get angry. Kershnar had an opportunity yesterday few homeowners in her shoes get: She got to vent her anger and grill Wells Fargo CEO John Stumpf about the bank’s policy on foreclosures.”
“Stumpf maintained that Wells Fargo has modified 700,000 loans and has forgiven $4 billion of shareholder capital to keep people in their homes. ‘I get it,’ he said. ‘There is a lot of pain.’ ‘It’s not pain. It’s exploitation,’ responded Kershnar, adding that the bank intentionally gave out loans to homeowners, knowing that those loans would fail.”
“Joe Ray’s neighbors came to his defense after the bank foreclosed on the home he’s lived in for 60 years. Ray, 70, recently took on Chase Bank and lost. After trying for eight months to get a loan modification on the Flagstaff home where he’s lived since he was 11, the bank foreclosed. Ray got into trouble with his mortgage not because he took cash out of his home, rather, he told us that along the way he decided to refinance with an adjustable rate loan. When that rate spiked, he said, the trouble began.”
“‘I grew up in a time when we all trusted our bankers,’ Joe Ray told 3 On Your Side.”
“Even in the Darwinian world of real estate, there are limits to what is considered socially acceptable, agents said. While neon-red placards declaring ‘Bank Owned!’ might be a way to entice a bargain-hunter on the mainland, such fire-sale tactics are frowned upon in southern New Jersey’s wealthiest enclaves. ‘I’ve never seen a foreclosure sign in Cape May,’ said Dagmer Chew, the broker and owner at Homestead Real Estate in Cape May. ‘I’ve never used a foreclosure sign. I think it would not be a nice thing to do if it was in someone’s neighborhood.’”
“Chew recalls a recent sale of a distressed property for $600,000 in a neighborhood surrounded by nearly identical homes that sold for $1 million. ‘Everyone in the neighborhood lost $400,000 in comps,’ she said. ‘It’s not fair to them.’”
“Helen Hanna Casey, whose Pittsburgh-based company is the nation’s fourth-largest real estate firm, illustrates the divide with a binder of designer paint swatches that sits on her desk. Many customers, even at lower price levels, are expecting not only granite countertops, but homes decorated in those dreamy hues. Many of those expectations, she said, are the remnants of the pre-recession housing bubble that set expectations high and prices even higher in many parts of the country.”
“If the local market does face a challenge, Casey said, it’s likely the smaller-than-normal inventory of homes on the market. Homeowners that might want to sell or trade up seem to be sitting on their hands. ‘People are afraid they aren’t going to get the price they want,’ Casey said.”
“The era when large second homes are the economic driver for Pitkin County’s economy is likely a thing of the past, the former senior demographer for Colorado told local officials. ‘The dominance in the economy of the super-rich and the large second homes is likely to weaken significantly,’ Jim Westkott said in an informal meeting with the Pitkin County Commissioners, Aspen City Council and planners with both governments.”
“A 2004 study the Northwest Colorado Council of Governments determined that second-home construction and homeowner spending accounted for 41 percent of the 19,204 jobs in Pitkin County. The boom in the second-home market went bust after the recession hit in October 2008. ‘The people that were a very big part of your market lost a lot of money,’ Westkott said.”
“Aspen mayor Mick Ireland, a disciple of Westkott’s, challenged his mentor’s core assumption. Ireland said he’s not convinced Aspen and Pitkin County is looking at a ‘new world order or a new normal.’ ‘We could easily see another speculative bubble,’ Ireland said.”
“This acre of dirt is rich in history. It was the figurative summit of the city’s frenzied condominium boom of the 2000s, and ground zero for the bust stemming from the financial crisis in 2008. But most important, One Bloor East stands—or, rather, just lies there, for the moment—as an emblem of Toronto’s unkillable condo market. For that bust was quickly reversed by a stunning resurgence, despite a punishing recession.”
“On Nov. 13, 2007, hundreds of people line up on the sidewalk for the opening of the neighbouring sales office for One Bloor East. Many of those in line are stand-ins, hired by real estate agents, and they’ve been waiting in line for days. Just before the office is due to open, the crowd groans as sales staff hike the range of condo prices advertised on a sign outside—$300,000 to $2 million becomes $500,000 to $8 million. Agents squawk into cellphones to their head offices or clients overseas, then barge in and place orders anyway.”
“Now jump to the summer of 2009. Condo sales in Toronto have plummeted by more than half. The next scene is set on March 24, 2010. It’s a low-key party for select real estate agents being held by Great Gulf to open its sales office for One Bloor East. ‘We aren’t opening to create lineups,’ declares Bruce Freeman, Great Gulf’s executive VP of sales and marketing. The company doesn’t have to; it has already sold almost 85% of its 693 units.”
“The average new condo in Toronto now costs about $500 a square foot. That translates into about $250,000 for an entry-level one-bedroom of just over 500 square feet, and maybe twice that price or more in One Bloor or even ritzier downtown developments. Before monthly fees, that is. How did this happen? Is permanent condo mania the new reality? Or is the market headed for another crash—a real one this time?”
“Karen Martin, a lawyer in Vancouver, lived in a condo for 11 years before finally accepting that she wasn’t suited to the lifestyle. ‘When I bought the condo, I didn’t realize that you get no independence whatsoever when it comes to making decisions,’ says Martin. ‘If you’re in a minority in the group when something has to get done, such as painting, and you don’t like it, you have to suck it up.’ Martin was also shocked at how dirty some of her condo neighbours were. Some even let their pets pee in the building.”
“Ken Grunberg, who works in Toronto, found out too late that the unit he bought in 2007 wasn’t nearly as large as advertised. When he and his partner measured the area before replacing a linoleum floor, they discovered it wasn’t 700 square feet after all. ‘We trusted what the real estate agent said,’ says Grunberg. ‘But our condo is actually only 560 square feet if you don’t count the balcony and bathroom.’”
“Jonathan Reilly, president of English Bay Law Corp., in Vancouver, points out a nightmare scenario that happened in Vancouver a couple of years ago. Shortly after the financial crisis of 2008, prices for pre-construction condos in several markets fell abruptly, in some cases by 20%. In some cases, lenders withdrew the mortgage pre-approval, because the condo was now worth less than the loan amount. The harsh reality? Those buyers still had a legal obligation to buy the condo units at the price agreed to: if they walked away, they would not only lose their deposit, but the builders could sue for the difference in price, Reilly says. ‘If you have to pull out of a presale contract, you’re often out of luck. The magnitude of the losses can be huge.’”
“Spain’s unemployment rate jumped in the first quarter of this year to 21.3 per cent, a eurozone record and the country’s highest level since 1997, with more than 4.9 million people now out of work. The country is struggling to move from dependence on the construction sector - which supported growth for years until the financial crisis popped Spain’s property bubble - plus make the economy more competitive and reduce national debt.”
“In a working-class Madrid district yesterday, people waiting to sign up for benefit payments said they saw little hope of finding new jobs for years. Johnny Albuja, 29, was laid off from his job cleaning offices when the company he worked for lost a contract, but only expected to get unemployment benefits for three months since he worked for the company for just one year. Over the past year, his father and brother had also been laid off from a metal works company as demand plummeted.”
“‘The situation is really difficult right now,’ he said. ‘You can’t live well, you still have to pay the mortgage and it’s tough to get by.’”
“I was thumbing through the April 25 edition of Arkansas Business, and something caught my eye in the column about real estate transfers. The column focuses almost exclusively on higher value commercial and residential sales, as it did in this particular week. What was striking about the report was that all of the half-dozen homes — one at north of a million bucks and the others high into six figures — featured in the column had been sold for a loss. One of the six had been repossessed by the lending institution, which ate $150,000 in the foreclosure and re-sale.”
“So much for the high end, by Arkansas standards. By the index of celebrity, out-of-state property, well, there are problems there, too. A nugget of a headline on my Internet homepage led me to spend a few minutes eyeing the real estate travails of some of the best-known names in entertainment. For example, actor Pierce Brosnan had been trying to sell a Malibu, Calif., pad for $3.9 million, and it didn’t move, nor is it moving at $3.5 million. Michael Jackson’s sister, Latoya, is in foreclosure. Scarlett Johansson paid $7 milion in 2004 and sold last year for $3 million. Nicholas Cage is belly up on a number of properties. Near Nashville, singer Sheryl Crow paid $4.5 million for a nice little spread that didn’t meet the reserve price of $1 million when she tried to auction it. And on and on and on.”
“Now, the mid-range, as it were. The wonderful lady next door decided last autumn that, as an empty-nester with new, titanium knees, she shouldn’t bother with stairs any longer. She purchased a condo and said her good-byes, except she’s back every few days or so to make certain the ‘For sale’ sign is still up. She listed her house for a certain price, then cut it, and when it didn’t move she had the carpets replaced and interior and exterior painting done. When it still didn’t sell, she cut the price again. She’s still waiting.”
“For about 16 of the 19 years we’ve lived in our home we watched ‘For sale’ signs go up on our street, only to see ‘Sold’ strips pasted across them within a week. A few houses away from us, a neighbor took down her sign after several months. Two others, not including the lady next door, have been angling to sell their homes for almost as long.”
“‘If you want a fast sale, you almost have to agree to give it away,’ said my pal, Bruce Lindeman, an economics professor at UALR.”
