April 6, 2012

Seeing Property For What It Really Is

It’s Friday desk clearing time for this blogger. “For young would-be homebuyers, this really is the best of times and the worst of times. Homes are more affordable now than they have been in more than four decades, according to the National Association of Realtors. On the other hand, young Americans aren’t exactly flush with cash. Newlyweds Mike and Jessica Sental landed a new home in Clifton, New Jersey, last summer. The couple was house hunting but having trouble coming up with enough for the down payment. They had about $30,000 stashed away, roughly 10 percent of the purchase price, but needed a little more to appease lenders. That’s when Mike’s parents stepped in with $15,000 worth of help.”

“‘With prices and interest rates so low, it was the perfect time,’ he said. ‘Now, we’re paying money toward something we own instead of throwing it away on renting.’”

“The median vacation-home price in 2011 was $121,300, down 40 percent from 2006, according to NAR. Many properties that were once attainable only by the very wealthy are now in range for the merely well-heeled. In Vail, Colorado, for example, a four-bedroom property listed at $2.8 million in 2009 recently sold for $1.35 million. A four-bedroom home in South Lake Tahoe, California, changed hands in early March for $540,000, after having sold for $875,000 in 2004.”

“Anecdotally, brokers report more traffic than they have seen in years. ‘There’s a confidence now that we’ve been through the worst,’ said Paul Suding, president of the Santa Barbara Association of Realtors. ‘People are ready to buy again.’ In fact, added Allison Turk, an agent with Miami Beach’s Esslinger Wooten Maxwell Realtors, ‘Buyers feel a sense of urgency to get into this market.’”

“History says prices are likely to rise. By not acting now, certain buyers run the risk of being priced out down the road. Indeed, said Suding, some are already asking, ‘Wait, did we miss it?’”

“Central Ohio’s Parade of Homes is marking its 60th anniversary by celebrating the ‘American Dream’ at the Meadows at Lewis Center. Guests will get a view inside more houses than they have in seven years, with 12 being featured. Floor-to-ceiling windows on the walls facing five acres of preserve area or a pond are a highlight of all the houses, which range from $400,000 to $700,000. Houses that average 4,000 square feet sit on half-acre lots.”

“Jim Hilz, Builders Industry Association of Central Ohio’s executive director, said another trend he hopes to bring back this year is a booming house market — also reminiscent of when the parade first began. ‘Without a doubt, the housing market in Delaware County is stronger than anywhere else in Central Ohio, and we’re excited to have the opportunity to be a part of it,’ said.”

“Nearly nine years after purchasing this home that even her real estate agent cautioned her against, Patty Benedict ’s not sorry she followed her heart. Although her house is too new to be a registered historic property, Ms. Benedict — an artist who makes Halloween miniatures — serves as president of the neighborhood association for the Harris-Kemper Historic District. She’s witnessed a growing interest in historic homes there as well as in the nearby Museum Hill neighborhood, some of which have been purchased by people who came from out of state or even out of the United States to have these homes here, she says.”

“‘I know people say ‘location, location, location,’ but you’ve also got to think about potential,’ Ms. Benedict says, noting that she sees a Harlem-like transformation as a possibility for St. Joseph’s Downtown area. ‘This is diamonds in the rough … these really cool, funky, neat neighborhoods that will skyrocket in value once our Downtown really pops.’”

“More than two dozen condominium projects, including five in Broward and Palm Beach counties, are being added to the South Florida skyline in the next few years, according to CondoVultures. By the end of 2012, as many as 10,000 units could be in the planning stages, the firm said. That’s nearly a quarter of all the existing condos that sold in South Florida last year, according to the Florida Realtors.”

“Developers insist the market will be improved, with demand for luxury units strong by the time they’re finished building. But when most of these condos are ready for occupancy in 2014 or later, they’ll be competing with the leftover supply from the housing boom. Livia Periu, a New York resident looking to buy in South Florida, said another housing bubble is possible, but she’s not overly worried.”

“‘You’d think the builders would have studied the market so we don’t fall into the same situation that we had before,’ she said.”

“Kalispell Realtor Paul Heidegger has been selling homes in Northwest Montana for 20 years, but he says he never heard of ’short sales’ here until a client asked him ‘out of the blue’ to set one up about five years ago. About 5-8 percent of foreclosed homes end up being sold by auction on the courthouse steps, Heidegger says. The rest stay with the banks. Out of 250-some cases he’s familiar with, Heidegger says he knows of only seven who successfully got a loan modification. Another 10 got their loan modified, but their monthly payments went up.”

“One thing that became apparent to him over the past four years was that the nation’s foreclosure system wasn’t working properly. A victim himself, Heidegger gets very emotional about how foreclosures hurt people. ‘People are willing to talk to the public about their stories,’ he said. ‘There’s no more shame. They’re angry about what happened to them.’”

“When a person’s home payments are ‘underwater,’ it often doesn’t make sense for people to modify their loans, Heidegger said. But people want to stay in the homes where they raised their families, which ‘creates an ethical dilemma’ for Realtors, he said. Heidegger also said he knew of cases where the bank still went after homeowners following foreclosure to recoup the difference between the mortgage and the eventual sale price.”

“‘People have emotional ties to their property,’ said Gordy Lister, a Realtor at Keller Williams. ‘But home ownership is also a business decision. Sometimes people need to wipe it clean and start all over at a new location.’”

“Nuno Pinto is 40, out of work and contemplating a step he thinks is the only way out of his family’s financial plight: personal bankruptcy. Pinto, like many Portuguese, is financially stranded. He has no income, and gets by with the help of his elderly parents. He’s close to defaulting on his mortgage and, along with his partner and 9-year-old daughter, faces imminent eviction. ‘I’m here to see if I can get what’s my last chance; personal bankruptcy,’ says Pinto.”

“Pinto is one of the more than 670,000 Portuguese who last year defaulted on their loans, a 5 percent jump on the previous year. Defaults on consumer credit amounted to (EURO)1.53 billion ($2 billion) in January, a 14 percent increase since last May’s bailout. It’s the highest level of unpaid private debt since the Bank of Portugal started keeping detailed records 15 years ago. Total debt, that taken on by the state, companies, and individuals, stood at 418 percent of annual GDP last year.”

“While everyone is trying to cool the real estate market prices for those starting a new life, the cost of a space underground for the dead is surging to incredible heights. The cost of life after death in a cemetery is rocketing. Taofeng Cemetery in Beijing’s suburban area, which is widely believed to be one of the lowest priced in Beijing for urns, costs 25,800 yuan for only 0.7-square meters of land. The exorbitant price of Beijing’s cemeteries has even has forced some residents to seek resting place for the elders in adjacent Hebei province. Even public cemeteries, financed and operated by the department of civil affairs, the price is also out of reach for most ordinary people.”

“In some extreme cases, families who cannot afford to buy a small piece of land as a resting place for their deceased even dig a grave and install a tomb in their courtyards or community. A student in Shanghai reportedly feared going back home as one of her neighbors buried his parents’ ashes in the community and installed a tomb. The man justified his move saying ‘I cannot afford to buy a grave. What can I do?’”

“Seventy per cent of under 35s in Sydney will be excluded from the housing market, a UK housing expert says. The figure makes up part of a new report, Homes for All, which found that Australia’s housing market is in crisis. Co-author Dr Tim Williams says governments need to reconsider tax incentives and policies that encourage investors to push house prices higher. It recommends that negative gearing and untaxed capital gains be reconsidered by the government in an effort to drive down house pricing for first-time buyers.”

“‘We’ve been giving more and more money effectively to people who are in homes,’ he said. ‘We’re squeezing younger people out but at the same time we seem to be enabling people to buy two, three and four.’”

“He said that about 30 years ago it took three times the median salary to buy a house in Sydney, whereas it now took nine times. This is a higher ratio than London or New York, the report said. ‘We’re constraining supply, and shovelling up demand to people who already have money, and making it more difficult for their children to access home ownership,’ he said.”

“From an outsider’s perspective, Williams says the property market is fundamentally, and uniquely, distorted. ‘I remember my head reeling when I discovered how generous negative gearing was. There’s nothing like it in the known world in terms of its generosity and in terms of its middle-class welfare.”’

“By adding to demand for housing - people’s ability and willingness to pay for housing - negative gearing had inflated house prices for decades. ”I just think it’s an astonishing gift to the wealthy and it has perverse effects on the housing market. You are squeezing young people out of home ownership while some people have two, three or four units - the incentives are just wrong.”’

“All this distortion has resulted in an astonishing fact: 22 per cent of people now own 55 per cent of the homes.”

“It’s hard to ignore the mathematics, which says only one-third of people - those who do not own a home - stand to gain from lower house prices. Politicians know this. But parents also know that their property gains come at a cost: their children’s property pain. Fixing the housing affordability crisis facing young people demands a fundamental revolution in community attitudes - away from viewing housing as a get-rich-quick scheme to seeing property for what it really is: a place to live. As any gambler knows, the first step to recovery is admitting you have a problem.”

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