November 27, 2013

A Seemingly Limitless Amount Of Cash

The Union Tribune reports from California. “With the number of service veterans who choose to call San Diego home, their use of financing from the U.S. Department of Veterans Affairs play a huge role in the local housing market. Many veterans can take advantage of financing from Veterans Affairs to obtain their dream home in San Diego. Michael Deery, mortgage specialist with Citywide Financial Corp., noted that VA loans are the only program that allows 100 percent financing in any area. He also shared that many lenders may have easier qualifying and credit guidelines for veterans.”

“‘Most VA lenders only need a 620 credit score to offer 100 percent VA financing,’ said Deery. ‘We can also give a VA buyer a 3 percent lender credit to cover all their closing costs.’”

“For veterans buying in San Diego, the VA offers 100 percent financing on homes up to $500,000. VA loans of more than $500,000 are available but require a downpayment. Deery noted that it’s a good idea for a veteran to submit a personal letter with his or her purchase offer to tell the seller why they want to buy the property. ‘Some sellers will take great pleasure in having the opportunity to help our veteran families,’ said Deery.”

The Modesto Bee. “Even with the tougher lending requirements, there have been plenty of eager buyers in Stanislaus. ‘This past spring and summer was the craziest real estate market I’ve ever seen,’ said Bob Brazeal, who has been selling homes for 33 years. ‘Real estate values in our Valley dropped too low. As values firmed and started to rise, the investors came out of the woodwork. Local and Bay Area all-cash investors bought 50 and 100 homes at a time.’”

“Brazeal said fairly priced Stanislaus properties were getting a dozen or more purchase offers within a week of being listed for sale. ‘Now the market is catching its breath,’ Brazeal said. ‘We still have a lack of inventory, but it’s nowhere near as bad as it was.’”

The Sacramento Bee. “The tail end of the housing bust brought a frenzy of real estate investors to the Sacramento region, including multi-billion-dollar hedge funds. Now that the dust has settled, investors own about 80,000, or roughly one in four, detached, single-family homes in Sacramento County, according to a Bee review of parcel data from the county assessor’s office.”

“Investors have effectively taken over the real estate market in several economically depressed neighborhoods. In south and central Oak Park for instance, investors own about 55 percent of single-family, detached homes.”

From NBC News. “At a brand new housing development in Irvine, Calif., some of America’s largest home builders are back at work after a crippling housing crash. Lennar, Pulte, K Hovnanian, Ryland to name a few. It’s a rebirth for U.S. construction, while the customers are largely Chinese. ‘They see the market here still has room for appreciation,’ said Irvine-area real estate agent Kinney Yong. ‘What’s driving them over here is that they have this cash, and they want to park it somewhere or invest somewhere.’”

“Brian Yang, speaking from his home in China, said he purchased a home in Irvine this year, but he will wait five years, until his daughter turns 10, before moving his family to the U.S. He has several reasons for taking the leap. ‘Education in America is very good and world class, so the first one is for education, and I think the second one is for the property appreciation,’ explained Yang.”

“Yang and many of his colleagues, are also concerned about China’s political instability, inflation, even pollution. They are paying all-cash for real estate in California, using it as a safe-haven for their wealth. Yang was reluctant to talk about the money, but he admitted, ‘I feel the same way to some extent.’”

“The homes range from the mid-$700,000s to well over $1 million. Cash is king, and there is a seemingly limitless amount. ‘The price doesn’t matter, $800,000, 1 million, 1.5. If they like it they will purchase it,’ said Helen Zhang of Tarbell Realtors.”

As our CNBC camera crew interviewed Zhang, another group of potential buyers roaming the neighborhood models raised their brochures to hide their faces when they saw the camera. While no one would say specifically why certain families were shying away from the media, some alluded to the fact that many of the buyers don’t want any questions about where the cash is coming from.”

From Tom Dispatch. “Since the buying frenzy began, no company has picked up more houses than the Blackstone Group, the largest private equity firm in the world. In neighborhoods across the country, many residents didn’t have to know what Blackstone was to realize that things were going seriously wrong.”

“Last year, Mark Alston, a real estate broker in Los Angeles, began noticing something strange happening. Home prices were rising. And they were rising fast — up 20% between October 2012 and the same month this year. In a normal market, rising home prices would mean increased demand from homebuyers. But here was the unnerving thing: the homeownership rate was dropping, the first sign for Alston that the market was somehow out of whack.”

“The second sign was the buyers themselves. ‘I went two years without selling to a black family, and that wasn’t for lack of trying,’ says Alston, whose business is concentrated in inner-city neighborhoods where the majority of residents are African American and Hispanic. Instead, all his buyers — every last one of them — were besuited businessmen. And weirder yet, they were all paying in cash.”

“It’s also paved the way for the company to purchase a lot of homes very quickly, shocking local markets and driving prices up in a way that pushes even more families out of the game. ‘You can’t compete with a company that’s betting on speculative future value when they’re playing with cash,’ says Alston. ‘It’s almost like they planned this.’”

The San Francisco Chronicle. “In April 2012, I wrote a column about taking my eight-months-pregnant sister on Muni and the rudeness she encountered. Just one well-mannered rider out of dozens offered to give up his seat. Now, my sister is having an even more quintessential San Francisco experience: leaving.”

“No, it’s not because of that disappointing Muni experiment. It’s because my nephew, James, is getting too big for the closet his crib is wedged into in their one-bedroom Lower Pacific Heights apartment. Because rents and housing prices are increasingly out of reach unless your paycheck is signed by Twitter or Google.”

“And because in San Rafael, she and her husband are in escrow on a four-bedroom house with a nice backyard, a wrap-around deck with views of Mount Tamalpais and the guarantee that James will enter kindergarten at a top-notch, nearby public school. And they’re getting all this for the price of $376 per square foot.”

“In San Francisco, the closest match to that price is in the Bayview, where homes are selling for $361 per square foot, according to Patrick Carlisle at Paragon Real Estate Group. Homes in more traditionally desirable neighborhoods for families might as well be on the moon for my sister, a fifth-grade public-school teacher in Marin, and her husband, an accountant. The Marina? $1,074 per square foot. Noe Valley? $955. Cole Valley? $937.”

“My sister lives on California Street, barely in District 2 and a stone’s throw from District 5. The supervisors of those districts - Mark Farrell and London Breed - grew up in the city and intend to stay. But they lament that so many of their childhood friends have left.”

“Breed grew up in public housing in the Western Addition, where children were plentiful. Just two of those childhood friends remain in the city. The 39-year-old said she wants to have children, but can barely afford living here on her own - even on a supervisor’s salary of about $107,000 a year. ‘I miss what real diversity is,’ said Breed, who is African American, a group that has seen huge numbers of families leave. ‘Real diversity is families. Real diversity is kids outside playing and hanging out. Real diversity is poor people, rich people, middle-class people. Everyone feels the difference in San Francisco now.’”

Bits Bucket for November 27, 2013

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