June 19, 2013

Price Is No Longer A Factor

The Tampa Tribune reports from Florida. “Big-money investment firms called hedge funds are calling real estate agents daily seeking to buy homes before they’re even listed for sale on the Multiple Listing Service. Realtors report that investors are buying homes they wouldn’t have touched several months ago, including townhomes and homes in the upper $200,000s and $300,000s. Most investment firms don’t buy townhomes, real estate agents say, because they prefer easy-to-rent single-family homes. However, Tampa real estate broker Dale Hunter is noticing big investors snapping up townhomes lately, including one firm that bought up a $300,000 townhome in Tampa.”

“MLS statistics show Blackstone Group and Fundamental REO, a New York firm started by a former Goldman Sachs banker, rarely went above $200,000 when they started buying in Hillsborough County last year. But in recent months, about a quarter to a third of their purchases have been above $200,000, with a few dozen over $300,000. A big question is just how deep the Tampa Bay area’s market for rental homes is, especially for the $200,000-plus homes hitting the rental market.”

“David Kirschner has been renting out single-family homes in Carrollwood and southern Pasco County for decades and wonders that, too. Rental homes in the area fetch about 70 cents to 80 cents per square foot, so a typical 1,500 square foot home might rent for at least $1,050, Kirschner said. MLS records indicate Blackstone Group has bought at least 49 houses with 3,000 square feet or more of living space, a size that normally would command more than $2,000 a month. Renting those out for more than $2,000 a month might start testing the area’s limits.”

“He also shares a worry with many others in the real estate business: what will happen when the hedge funds sell off their homes for a profit in a few years? The fear is they will flood the market and cause another housing slump. ‘Will the market be able to absorb it? Hopefully, the demand will be there,’ he said.”

The Herald Tribune. “Two of the largest real estate investors in the country are manipulating home values across Southwest Florida through rapid price inflations that could form another bubble here, an analysis shows. The Blackstone Group and rival Colony Capital have bought 522 single-family homes from Parrish to North Port since last fall, spending nearly $84 million on those deals, according to a Herald-Tribune review of property records.”

“The strategy has created a slew of potentially adverse impacts — from fewer short-sale approvals to a rise in home squatters and bidding wars among buyers — all resulting in what some analysts consider dangerously false inflation. ‘They’re out to buy as many homes as they can, and price is no longer a factor,’ said Jack McCabe, a real estate consultant in Deerfield Beach.”

“Most troubling to some, the firms routinely outbid owner-occupiers by paying significantly more for houses than what the same properties fetched just months earlier. Colony, for instance, bought one home in May for $172,000. The same residence sold the previous November for $64,000 — a markup of 275 percent in six months. The two-bedroom, one-bath home measuring 1,013 square feet was built in 1956 and valued by the county at $66,500 last year.”

“Colony took the same tack when it bought a home in Venice in April for $136,000 — an appreciation of $62,500 over its last sale, shortly before Christmas. Then, it sold for $73,500. The Herald-Tribune’s analysis shows Blackstone, too, has overpaid — sometimes significantly compared with market rates — for many of its homes. In May, it paid $265,000 for a five-bedroom in Sarasota that was built in the 1980s. That same house changed hands just two months earlier for $185,000.”

“Blackstone spent $142,000 for a home on Radnor Place in Sarasota in January. Less than two months earlier, the 1,400-square-foot house went for $79,000. With dozens of similar examples of Blackstone purchases in excess of market rates, some Realtors fear the region could again be crippled by the artificial price appreciation that was a staple of the mid-2000s real estate run-up. ‘These purchases are ridiculous,’ said Robert Goldman, a Realtor, real estate attorney and developer in Venice. ‘I think the strategy is going to backfire in their face. I just don’t see how they can charge enough rent to recover these prices.’”

“Already market watchers say they are concerned that Blackstone’s purchase prices have influenced so-called ‘comparables’ — similar transactions that appraisers use to value homes. The more houses Blackstone buys at inflated prices, experts say, the more those prices will be used as a gauge to the value of all other similar properties nearby — a phenomenon that could skew prices throughout the market.”

“Bulk buyers last year paid an estimated 45 percent more than assessed value for the 5,289 foreclosures they bought in Florida. As more of those institutions now turn to short sales and traditional listings, industry analysts believe prices will balloon marketwide. ‘These big companies are paying way over market in general,’ said Shannon Moore, broker and owner of Green Lion Realty, which works with smaller competing investors in North Port. ‘What they’re paying at auction is ridiculous. It definitely seems like they could be creating another false bubble.’”

The Orlando Sentinel. “With about half of all resales these days closing as cash deals, and a quarter of all properties going for more than their asking price, the region’s house ‘flippers’ have been selling hundreds of homes and condominiums in the past year to equity companies and institutional investors, an Orlando Sentinel analysis has revealed. Local radio ads now advertise: ‘Do you want to make a ton of money buying and flipping houses?’ The real question, though, may be: How much longer can the investor frenzy continue?”

“‘Right now a bubble is not a serious concern, but we can’t sustain the 20 percent price gains,’ said Ron H. Richards, whose family has been in Orlando for generations and whose company is now one of the most prolific flippers in the region. ‘We saw a nice spike in prices, but a lot of the larger groups are not finding the returns they thought they would.’”

“The biggest buyer of flipped homes in the four-county Orlando metropolitan area has been an investment group affiliated with Blackstone Group LP. A review of 57 recent Central Florida home purchases by the New York-based investment group found that it chose to deal with a broad pool of sellers rather than one source. The group paid a median price of $110,950 for the properties.”

“‘The No. 1 concern with institutional investors is that they control big swaths of real estate and, if they decide at some point that it’s time to sell, how that’s going to affect these markets,’ said Daren Blomquist, VP for RealtyTrac. ‘To me, it always makes me nervous when there are large corporations that control big pieces of real estate. It’s like Shadow Inventory Part II.’”

The News Journal. “Sales of vacation homes in the U.S. rose 10.1 percent in 2012 from the previous year, according to the National Association of Realtors. Anne and Brian Fuselier searched about a year and half before they finally found their dream second home. The Orlando-area couple’s patience paid off. They waited out the market and snapped up a three-story, $600,000-plus home nestled along the Mosquito Lagoon south of New Smyrna Beach. Bill Roe whose firm brokered the Fuseliers’ purchase, said second home sales represent about 30 percent of his business, with the buyers mainly from the Central Florida market.”

“And Roe said his agency’s total pending sales are up more than 100 percent over last year. Roe said that there was a ‘ton of money’ lying around after the housing bubble burst and the economy was slumping. Now that home values are on the rebound, he believes many people are looking to invest that cash in other ways than buying municipal bonds or taking the plunge in the stock market. ‘So what’s that leave? It leaves real estate. And most of them wanted to buy that second home anyway,’ he said.”

“Pre-preliminary tax roll estimates released last month by Volusia County Morgan Gilreath’s office last month forecast the county’s property values would increase about $800 million this year — a 2.3 percent increase. Values are estimated to rise in almost every city, including New Smyrna Beach, with a $124 million or 3.8 percent uptick over last year. ‘The message is: if you want to buy real estate in Volusia County or probably anywhere in Florida, you may already be a little bit late, but you’re not too late,’ Gilreath said. ‘Come on down and buy.’”

“Gilreath said while sellers should feel more comfortable putting their homes on the market than they did last year, they may want to wait. While he couldn’t forecast exactly how much property values would rise next year, he believes the increases will only continue. ‘If you can hold on to it, prices are going up,’ he said.”

From Miami Today. “Experts say the economy is on the mend, yet home foreclosure filings are still on the rise in Greater Miami. Much of the reason, they say, is because property values are rising, making it more appealing for banks and other lenders to initiate proceedings to seize financially distressed properties. ‘Banks are seeing good values, so they’re trying to get their money out’ of distressed properties through foreclosures, says Dan Mackler, a lead attorney with the Gunster law firm in Miami who has represented banks and investment groups in the process.”

“The number of properties receiving a foreclosure filing in Greater Miami was 21% higher in April than it was the same time last year, according to RealtyTrac. Of the 55,896 properties in some stage of foreclosure in Greater Miami, only a small fraction — 2,215 — are for sale, RealtyTrac reports.”

“Mr. Mackler says that’s because banks have tended to hold foreclosed local properties without putting them back on the market as they have waited for housing prices to rebound. Meanwhile, Greater Miami and Florida as a whole continue to have some of the highest foreclosure rates in the country — and one of the unfortunate byproducts of that trend has been a glut of vacant properties.”

“In some markets, investors have been reselling previously foreclosed properties — a practice known as ‘flipping’. That includes Miami, where property flippers have been churning out profits at an average of more than 35%, according to RealtyTrac. Data show the highest foreclosure rates in the area have been in the suburbs around the city, places such as Kendall, Hialeah and North Miami. ‘A lot of them have come from South America,’ Mr. Mackler says about the cash buyers. ‘They see [Miami properties] as a safe place to [invest] their money and let it appreciate for three or four years and sell it.’”

Bits Bucket for June 19, 2013

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