February 24, 2014

True Last Week, Also True Last Decade

The Orlando Sentinel reports from Florida. “Orlando-area home prices dropped in January from a month earlier and the inventory of listings increased, edging the area closer to becoming a buyer’s market. The median sales price during January for homes in the core Orlando market, which includes mostly Orange and Seminole counties, was $149,950 – down from $160,000 in December, according to a report by Orlando Regional Realtor Association. A year ago, median prices for the Orlando market were $127,000.”

“Sales were down from a year earlier too. In January, members of the association closed on 1,800 sales – an 11 percent decrease from a year earlier. The market had a 5.5-month inventory of listings during January – the highest level since February 2011.”

The Tampa Tribune. “It may feel like the region’s once-hot housing market has hit the brakes, but an economist for the state’s leading Realtors group insists a recent month-to-month drop in existing-home sales isn’t cause for alarm. Realtors are feeling the effects from a slowdown in buying by the likes of Blackstone Group’s Invitation Homes. They slowed their buying dramatically recently, though, because housing prices rose so much that the investors couldn’t get the financial returns they wanted. ‘I think what you’re seeing there is investors retreating from this market,’ said Florida Realtors chief economist John Tuccillo.”

“Short sales — sales in which the home sells for less than what’s owed on the mortgage — also were down by 46 percent statewide in January when compared with this time last year. They’re dropping in tandem with the overall rising prices for houses, Tuccillo said. Tampa Realtor Mary Diaz wonders if many of the short sales never went through and the banks took the houses back. She said she’s noticing more bank-owned properties hit the market in Brandon, especially.”

“An early report card on how rental-home powerhouse Invitation Homes from Morningstar gives some clues on how some of Invitation Homes’ rental homes are performing. The company started with a pool of 3,207 homes in October, all of which were occupied and generated monthly rental payments of $4.2 million. By January the company had 252 vacancies and its monthly rent collections had fallen to $3.9 million, Morningstar’s report says. That’s a vacancy rate of 7.9 percent.”

“Morningstar had expected a vacancy rate of 8 percent all along, but the issuer of the bonds, technically called Invitation Homes 2013-SFR1 Trust, expected a lower vacancy rate of 6 percent, Morningstar said.”

The Tampa Tribune. “As development hot spots such as Miami overheat, market watchers say foreign investors are increasingly spending their yen, yuan and loonies in Tampa Bay — even as the source of their spending remains largely hidden from view. One in four foreign buyers of American homes, townhomes or condos last year chose Florida, spending more than $6 billion, Realtors’ data show. About $370 million of that was spent in Tampa Bay.”

“Realtors here have done everything from hosting social outings for Russian prospects to chartering tour buses for Chinese buyers hoping to scout out suburban homes. It’s hard to quantify just how much money flies into local development or transactions from spenders outside our borders. Investment advisers here say foreign money is typically tucked inside shell companies or equity funds. ‘Foreign capital is oftentimes very secretive,’ said John Stone, the director of multifamily housing and foreign investment for commercial real estate brokerage Colliers International. ‘They don’t trust easily.’”

“Brokers say that spending has boosted South Florida’s skyline, fueled a new boom for waterfront condo skyscrapers — and led prices there to soar. By last month in South Florida, developers had proposed or begun building more than 25,000 condos across 187 towers from Jupiter to Key Biscayne.”

The Buenos Aires Herald. “Economically speaking, over the last 20 years, when the kettle has started to whistle in Argentina, fast-talking Miami salesmen have flocked to Buenos Aires to draw in real estate investors. The pattern is repeating itself now, but profits are often exaggerated. Even if people manage to licitly send money abroad to buy and let out an apartment, long-distance investors usually have to face management costs and are obliged to front maintenance expenses, which chip away at profits.”

“A high-end apartment in central Miami goes for about US$700,000, while in the suburbs, an average one sells at US$400,000. Mcafka developer Fernando Levy Hara says that for a two-bedroom apartment in the booming central Miami, maintenance and tax expenses rise to between US$200-400 per month each, meaning that from rent of ‘US$1,800 per month, you are left with an income of US$1,000, or between four and five percent of the initial investment.’ When administration fees are deducted, the figure drops to US$880 a month — not a mouthwatering number.”

“Such returns are chipped away further by the commission charged by local banks to receive money from abroad, which is obviously exchanged at the official rate. All this assumes business is conducted in adherence to Argentine law. When asked if Mcafka offers guidance to potential investors seeking to send money to Miami for real estate projects, Levy Hara said that developers don’t look into the source of cash.”

“Those who already have offshore, often undeclared bank accounts, are the target clients for real estate development and investment companies such as Key International for their Brickel 1010 luxury tower development, although some do have rent transferred directly to Argentina. Asked how relevant Argentine clients were to the company, Sales and Marketing Director Liliana Paez told the Herald: ‘They’re very important; people from countries that are having problems are some of our biggest clients, they’re in the top 10 buyers, for the world.’”

“Levy Hara said the US tributary system ‘makes no distinction between foreigners and locals’ when it comes to real estate except for the inheritance tax, ‘which is fairly high.’ ‘There are zero restrictions for foreigners, it’s an open market,’ Key International Vice-President Inigo Ardid agreed.”

The Palm Beach Post. “Federal mortgage backer Freddie Mac issued its monthly housing market outlook yesterday and it’s not looking good for homebuyers in South Florida. According to the report, homes in Palm Beach, Broward and Miami-Dade counties are ‘not affordable’ for most families under current underwriting standards. ‘We’ve gone from talking about how cheap housing was to how expensive it is in a very short period of time,’ said Jack McCabe, chief executive of McCabe Consulting and Research in Deerfield Beach. ‘Flat incomes, no job creation and higher housing costs are the elements that break markets.’”

The News Press. “Home prices were rising, credit was easing, speculators were losing their fear of failure and greed was just starting to be fashionable again. Yes, all that was true last week, but it was also true last decade: 2004 fits the bill just about as well as the present. Now presenters at The News-Press Market Watch are wrestling with what to say about the year just gone by and what’s coming next — and thinking about how things turned out last time around.”

“‘In 2004 and 2005 there was optimism, and I have to admit that I joined with everyone else and drank the Kool-Aid and thought and hoped the increase in the market at 50 and 60 percent a year would never stop,’ said Randy Thibaut, who handles sales and development of large tracts of land. ‘But I realized, deep down, that it couldn’t last forever.’ Now, he said, ‘It’s starting to feel a little like déjà vu all over again. The difference is this time I’m not drinking the Kool-Aid.’”

“Residential real estate broker Denny Grimes said one difference between then and now is the increased availability of market data that would show the risk of a bust. But in the end that likely won’t be enough because the lure of easy money is just too hard for some to resist, he said. ‘Not long ago there was a helicopter picture of a black SUV going down the highway throwing money out the window,’ Grimes said. ‘You can yell at the people on the road, ‘Don’t take it’ all you want. They’re going to take it. But when the music stops, you better have a chair.’”

Bits Bucket for February 24, 2014

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