July 9, 2013

Taking Away The Kool-Aid Bowl

The Herald Tribune reports from Florida. “Are you feeling confident? It would seem so, judging by the data released late last month by the University of Florida’s Bureau of Economic and Business Research. ‘It’s worth noting that perceptions of current buying conditions are at a post-recession high of 93. The last time it reached this level was April of 2007, when it was 97. This was the beginning of the collapse in the housing market,’ said UF survey director Chris McCarty.”

“McCarty said that the housing market has been helped by lower interest rates, but there has been so little building that pent-up demand has become considerable. ‘Recent buyers have good credit scores and typically put 20 percent down on their homes. This means that we will not see the massive foreclosures that led to the last recession,’ McCarty predicted. ‘The Fed has seen the economy through dangerous economic times, but the economy is now operating normally. There was nothing normal about 2008.’”

The Bradenton Times. “With more than 55,000 homes in foreclosure sitting vacant, Florida has more than the next five states combined, according to RealtyTrac. While home sales and average prices have seen modest gains, much of the ‘good news’ includes sales by hedge funds and other investment groups that have been buying and selling homes in the state, with some properties changing hands several times, without an owner or renter taking occupancy.”

Investors Business Daily. “With no more than beautiful renderings to go on, buyers are signing up for a bunch of new luxury condominiums planned in and around Manhattan, as well as condo-popular cities Miami and San Francisco. Many are two years from completion. Buyers often sign contracts before ground is broken, recalling the frenzy of last decade’s boom years. ‘Unlike the last boom where projects appealed to the masses, this latest boom is targeting high-end buyers,’ said Condo Vultures principal Peter Zalewski.”

“Of scores planned, 24 towers with more than 3,400 units are under way in South Florida, he says. Amid limited resale inventory, Condo Vultures estimates that beyond South Florida’s 141 proposed towers touting nearly 18,800 units, another 20,000 new condos will be unveiled by October — the vast majority in Miami-Dade County.”

CBS Miami. “Condo king Jorge Perez said on national television recently that he would be collecting 100% deposits on new condos he is building in South Florida. On Tuesday. his company, the Related Group, backtracked on that policy saying the deposits are more like 50% to 80%. Still, all the deals are cash and business is booming.”

“Carlos Rosso, in charge of Related’s condominium division, smiles as he confirms he is indeed sold out. ‘They see it as a savings account. A little piggy bank. They are giving money and in two three years they are going to have a brand new apartment in Miami.’ Rosso said.”

“Rosso believes the days of 20% down for condos are gone. Banks are not interested in taking on the risk. Once the market becomes saturated with condos again demand for loans may return. The buyers investing in cash condos right now are expected to rent the units once the take them from the developer. The idea is the return rates will be better than traditional stocks and CD’s. When that changes, flips will likely follow.”

The Tampa Bay Times. “Eight big investors from New York, California and beyond have led an unprecedented land rush, gobbling up 4,000 local homes since early last year with more than $560 million in cash, a Tampa Bay Times analysis has found. When Steven Howe, an aluminum contractor, moved into one of Blackstone’s nearly 300 Pinellas County homes, he saw what he called a ‘nightmare’: Haphazard electrical wirings, a leaky roof, an attic devoid of insulation and a front door he couldn’t lock.”

“When he complained, he said, Blackstone’s Invitation Homes quickly dispatched contractors he thought were unlicensed, and whom he refused to let inside. Within weeks, he said, the firm had sent out licensed contractors to fix up the home, but he worried the same problem was happening elsewhere on a massive scale. ‘If they’re doing this to me,’ Howe said, ‘what are they doing to people who have no knowledge of construction?’”

“In one Valrico subdivision, Josette Paresi recalled when her next-door neighbors moved out in the middle of the night, leaving their yellow cookie-cutter home abandoned for months. In January, when American Homes 4 Rent bought the home for $250,000, Paresi expected the new owners would finally cut the overgrown lawn, clean the pool and fix a falling-down fence. But after four months, the home has only sunk further into disrepair. The buyers were thousands of miles away, in Malibu, Calif.”

“The firm, a brainchild of billionaire Public Storage founder B. Wayne Hughes, did not return messages or emails this week seeking comment. ‘It’s horrible. They bought a lot of properties and now they’re being irresponsible about it,’ Paresi said.”

“As home prices in the region climb and inventory dries up, the nation’s largest mortgage lenders are gambling on the future of the housing recovery, a Herald-Tribune analysis shows. Banking giants from Wells Fargo to Fannie Mae are routinely paying top dollar on the auction steps to hold onto their own distressed properties, outbidding cash offers and paying well above assessed value, according to a review of thousands of Southwest Florida auction purchases. They are speculating that the properties will appreciate even more in the next couple of years.”

“In some cases, lenders this year have bid up to 600 percent more than a property’s worth to retain foreclosures — one of the primary reasons the acquisition costs for competing real estate investors also has spiked in recent months. In the 12 months ending June 1, 4,865 foreclosures were auctioned in Sarasota and Manatee counties. Lenders outbid third-parties to keep 3,754, or 77 percent.”

“Most industry analysts attribute the change in direction to the so-called ‘Blackstone effect.’ ‘Why sell for pennies on the dollar to Blackstone, when they can do it themselves now,’ said Joe Adamaitis, president of the Gulf Coast Mortgage Bankers Association. ‘Blackstone set the market, and now banks are taking advantage of the opportunity. They now have all of the top variables to control the market.’”

“Industry analysts fear that the trend could suffocate short sale and loan modification approvals for delinquent borrowers. ‘These homes are going for more on auction than they could ever get on retail,’ said Matt Weidner, a St. Petersburg foreclosure attorney. ‘The banks can control prices and inventory, and trickle these properties onto the market at their own pace.’”

Palmetto Bay News. “Checks earmarked for thousands of Florida foreclosure victims are finally in the process of being sent out and hundreds of millions of additional dollars more are being earmarked for new housing programs statewide. Yet there is a growing debate about where most of the money is going and if foreclosure victims are really getting their fair share.”

“Weston foreclosure defense attorney Roy Oppenheim said millions will be going to the courts, and will actually help speed up future foreclosures statewide. ‘A lot of money is going to the court administrative process to speed the foreclosure process up even more… to fund the rocket dockets. It’s a complete and utter joke… for people illegally losing their home and for the destruction of the legal system.’”

The Orlando Sentinel. “Since the beginning of last year, the median price of existing-home sales in the core Orlando market has increased 37 percent. But mortgage rates have suddenly shot up. ‘We do think that, as rates go higher, there will be additional affordability issues,’ said Brad Hunter, a Florida-based economist for MetroStudy Inc. ‘Everyone is getting nervous now as the Fed is taking away the Kool-Aid bowl soon,’ he said.”

“‘I think the major equity players, like Blackstone [Group], that brought volume purchases to the real estate industry will retreat from the purchase of individual homes,’ said Owen Beitsch, senior principal of Real Estate Research Consultants Inc. of Orlando. ‘This asset class is simply much too management intensive, and the spread between cost and return is decreasing.’”

“And even though mortgage lenders stand to earn more money with higher rates of return on their loans, borrowers would not find it easier to qualify for home loans should interest rates keep rising, said Rob Nunziata, president of Orlando-based FBC Mortgage LLC. ‘With some of the new regulations taking effect soon, such as QM — qualified mortgage — I think you will see lenders actually tighten guidelines as opposed loosen them,’ he said.”

Bits Bucket for July 9, 2013

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