Forgetting ‘Lessons Learned’ In Florida
The Sun Sentinel reports from Florida. “Is this market, defined by a glut of for-sale signs in front yards and a leveling of record prices, reminiscent of the recessionary periods of the 1970s and ’80s, the pre-housing boom years of the late 1990s, or..none of the above?”
“‘We have never had a market..where the investor and speculative buying played such a role in generating the big numbers,’ said Lewis Goodkin, a Miami-based real estate analyst.”
“Wayne Archer, director of the center for real estate studies at the University of Florida, said the overbuilt condominium market in South Florida reminds him of the 1970s. ‘You get the sense that people have forgotten all the lessons that they learned,’ Archer said.”
“Looking to capitalize on the huge price appreciations, many people put their homes on the market. This year, the listing of homes for sale have doubled in Palm Beach County and tripled in Broward. But as values soared, so did property taxes, and people soon found that they couldn’t afford to move within South Florida.”
“Some homeowners are selling and leaving for Georgia, North Carolina and Tennessee, saying those states have a lower cost of living and a better quality of life. Michael Skiera, a native South Floridian, built a five-bedroom house on five acres near Boynton Beach for $300,000 in 2001. Two weeks ago, he listed it for $3.5 million because he and his family are moving to northwest Georgia.”
“‘The numbers are just staggering,’ Skiera said of the recent run-up in prices. ‘This has become the new California.’”
“Deerfield Beach analyst Jack McCabe expects the South Florida market to get worse before it gets better. The downturn, he says, reminds him of the 1980s. ‘People just quit buying,’ McCabe said. ‘Prices went down by 30 percent and stayed flat for years. The ones holding the bag lost a lot of money.’”
The Naples News. “As prices skyrocketed out of reach, many families reached for what seemed like a good option at the time: creative and exotic mortgages. Some are now paying the price and many are finding they cannot afford it.”
“The interest-only payment on the Valarie and Michael Thomasellis’ loan is now up to about $2,000 a month, almost 40 percent of their combined take-home income. ‘I didn’t understand the difference between the payment going up and the interest rate going up. That threw me and I don’t think it was explained to me properly,’ Valarie Thomaselli said.”
“Mortgage brokers insist all the specifics of each type of loan is spelled out in the paperwork borrowers must sign. ‘When they close the loan they specifically sign disclosures explaining the terms of the loan and the worst-case scenario,’ said Patrice Yamato, president of the Florida Association of Mortgage Brokers.”
“Chuck Kansy, who has been in the mortgage business since 1983, disagreed with Yamato’s assessment. ‘A lot of people who took the option ARMs now come to me looking for refinancing advice, and when I explain to them what their loan terms are they look at me like I am from Mars,’ Kansy said. ‘They have no idea what I am talking about.’”
“The areas that have the most to fear are the areas with a high percentage of option ARMs. According to a recent study, 26 percent of all mortgages in Naples were option ARMs.”
“Numbers from Fitch Ratings show that up to 80 percent of all option ARM borrowers make only the minimum payment each month. Meanwhile, the interest rates adjust each month, and after the initial fixed-rate period of the loan, the loans reset at much higher levels.”
“When that happens, Kansy said, the borrower has the option to either refinance into a fixed-rate loan or sell the property to pay off the loan. ‘The problem is lenders are paid to build in pre-payment penalties into the loans,’ he said. ‘The greater the pre-payment penalty - one, three or five years - the higher their commission.’”
“The notice of foreclosure is a telling figure, say industry observers. The number of homes entering the foreclosure process is on the rise, especially in the more middle-class Lee and Charlotte counties, said Keith Sipnick, a Realtor who also invests in pre-foreclosure properties.”
“Since the beginning of the year he has been sending roughly 200 letters, about 20 percent more than last year, to property owners facing foreclosure, about 80 percent of them in Lee and Charlotte. Most involve investors who bought multiple properties intending to flip them and then got caught in the slowing market, Sipnick said. A vacant condominium on Citrus Drive (is) one of the several foreclosed properties he has for sale.”
“‘I think it is inevitable that we see foreclosures,’ said (realtor) Greg Gorman. ‘With interest rates rising and as we stay in a soft market, it is just inevitable.’”
Three editorials from Florida:
‘Mortgaged dreams. Why housing boom bets are going sour.’
‘The first rumblings of a property-tax revolt.’
‘Five signs of trouble bubble up at local level.’
“‘We have never had a market..where the investor and speculative buying played such a role in generating the big numbers,’ said Lewis Goodkin, a Miami-based real estate analyst.”
Try the 1920,s !!!!!
What he meant was even the speculative excesses in the 1920s didn’t allow 100%+ financing with only teaser rates, and liar-loans allow homeless, drop-outs, welfare to “own” 5+ “investments” at a time.
so true !
“Wayne Archer, director of the center for real estate studies at the University of Florida, said the overbuilt condominium market in South Florida reminds him of the 1970s. ‘You get the sense that people have forgotten all the lessons that they learned,’ Archer said.”
_____________________________________________________
“South Florida,” he said, ”is working off of a totally new economic model than any of us have ever experienced in the past” according to a realtor who predicted that a land shortage will support higher prices indefinitely.”
- New York Times, Trading Places: Real Estate Instead of Dot-Coms, 3/25/05
Florida housing is doomed. Inventory just keeps climbing!
Miami hits 65,000 listings!!
Check out the Inventory Tracker at http://www.homepricebubble.com
Crispy:
I never get tired of seeing this wonderful quote. Everyone I spoke to in S. Florida over the past few years spewed some version of this nonsense to me in response to me calling the market irrational. Oh well, tough shit if you waited past last summer to attempt to cash out your “investment.”
i predict housing price drops of 50% by the end of 2007, unless govt start lowering taxes (they are already cutting services in broward county) or, demand lower insurance rates (every insurance company will leave the state). florida is going to see alot of blood on the street.
Ben, the FAMOUS ….
Arizona-based Ben Jones, who runs a nationally known “housing bubble” blog (thehousingbubble.blogspot.com), agrees wishful thinking can’t overcome what he sees as negative fundamentals in Sacramento
Oops, the link did not go thru
http://www.sacbee.com/103/story/27874.html
I’m not registered, can someone just copy the article to here?
http://www.bugmenot.com/view/sacbee.com
I sent this piece to Jim Wasserman a few months back (it was a link from David’s site at Bubble Meter) and asked him to reconcile these comments. He emailed back and said thanks and they was going to research it. WOW. Did this make the front page?
Eleven months ago as the Sacramento-area real estate market stood at the beginning of a downturn, the National Association of Realtors said there was only one thing that could make the region’s home prices fall 5 percent.
That would be a simultaneous combination of 25,000 job losses and 7.8 percent interest rates, events the NAR called extreme and unlikely. The headquarters arm of a million real estate agents across the United States pronounced Sacramento’s housing market in “excellent shape with a potential for significant equity gains
______________________________
This is the section from the NAR I sent him.
This thing reminds me of Amarenth….
Sell too many naked puts, basically homeowners were doing something similar, gambling too much on the home prices going up indefinitely, or that they can predit the top and get out. However, there are no buyers when you want to sell to, causing a hard crash and bankruptcy. Weird…
Never thought I would see it so bad in less than a year. Now, I am as freaked out as stephen roach….
The big issue here is why did the NAR publish this piece with these “exteme” items as the only way Sac could go down? What and whose interest were they trying to protect?
Its the herd mentality. Human beings like being with other people who think the same, and believe the same. Partly that, and partly the huge bonuses, or huge commisions do create a conflict of interest. Therefore, I am expecting a lot of dominos to fall this year and the next. The fed’s and asian central bankers response is the key unknown. If bernanke pulls rates down to 1%, and to hell with $, other bankers may not have much leeway. Asian bankers have their own shit to deal with, they may still keep accumulating $ inspite of it being worthless, since it will allow them to compete globally in future.
Which means, like japan, we are very likely to see very low rates for a long future, and housing contiue to bust. It is very bad for retirees, and pension funds, since they cannot get any return anywhere. House prices will get some respite, but with homeownership still hovering near records, houses will become commodity and mcmansions slaughtered
What are your thoughts here C&C? I find the NAR to be pumping every market almost universally but do you feel there is an agenda specific to Sacramento? Perhaps political or big business related? just wondering.
Nice work Crispy (and David)!
The Asian central bankers will keep the party going as long as there’s something in it for them - the something is that we keep borrowing money to buy gadgets while they build up their infrastructure and industrial capacity and buy up all the natural resources they can. This situation could go on for years until the U.S. has nothing left to offer.
*were (going to…) I need to review what I type.
M. Thomasellis said, “I didn’t understand the difference between the payment going up and the interest rate going up. That threw me…”
This puzzles me….how can you not understand how an ARM works and the relationship between interest rates and pmt? Is’nt that the point of an ARM, Adjustable Rate Mortgage? What am I missing? He has got to be kidding, right? There is no way this is true, right? That is un…f##n..believable! Thomasellis has to be nominated to some type of housing bubble hall of shame. Ben, can we get a housing bubble hall of shame page?
There’s going to be a lot of people like this “Playing stupid”, now that their screwed. They will be acting like victims. This kind of press, will only help steer other people away from these toxic loans and further reduce the buying power out their. Hopefully, people will start to demand affordable prices and refuse to overpay. We need a national movement from buyers to get prices inline with incomes. Sellers should wait to sell their house first, then negotiate just as hard when their the buyer.
Absolutely they will act like victims. Who will take the blame for their own stupidity and who would want their families and friends to look at them like they are THE biggest jacka$$? Really! These stupid sheeple will be able to play the victim quite easily.
“…now that their screwed.”
“…reduce the buying power out their.”
“…when their the buyer.”
Awesome use of satirical grammar to demonstrate what “Playing Stupid” would look like!
LOL, yeah apparently a lot of people don’t like to read, whether it be mortgage docs or books.
I enjoy the schadenfreude as much as anyone, but it wouldn’t hurt us to show a little compassion in real life. (Not to the point of bailouts, though!) Face it, we’re all one brilliant idea away from doing something really stupid.
Absolutely not. The more we coddle the FB’s and take it easy on them the less of a lesson they will learn. It’s like raising a child. If they don’t learn about consequences of actions they become useless, spoiled kids. If the FB’s are bailed out of their situation or made to feel like “it wasn’t their fault” they’ll just go right back out and buy a new McMansion in a couple of years. Plus, they have been enjoying the fruits of their HELOC’s over the past few years. I mean enormous TV’s and Caribbean cruises are fun. Time to pay the bills.
It is more complicated than you think.
many people simply didn’t do the math. they thought “hmm… the interest goes up 2%… so my payment will go up 2% too”. (obviously, they don’t know how to use a calculator.
They don’t realize that if you have an IO loan, and if it goes from 4% to 6%, that your monthly payment goes up 50%! (FWIW: I had a realtor tell me that the payment goes up 2% in above case. and realtors are “experts” to the common folk.
additionally, there IS a difference between the interest rate going up and the payment going up.
In many of the Option ARMs, you get a teaser rate, that adjusts right away. But your payment doesn’t go up. So many people think their interest rate is staying the same. Instead, the extra gets added to their principal…. then they have no idea why their loan balance is going UP. Many on THIS BOARD even don’t know that the interest rate can go up, but not the payment.
Option ARMs truly are confusing and relatively complex financial interests. They never should have been marketed to the general population.
excellent post — thanks. wasn’t the 1920s bubble the last time these “relatively com[plex financial [instruments]” were used?
“They never should have been marketed to the general population.”
Perhaps replacing “marketed to” with “turned loose on” would be more apt.
House Inspector,
Thanks for clarifying the issue. Never in my wildest mind blowing binge drinking imagination would I ever have thought buyers actually believed that their payments would go up only 2% not 50%. It makes sense now; a lot of these buyers are not just GFs; they are simply retards; no, knuckle dragging Neanderthals.
Man…, its worse than I thought. Sorry for the rant; your insight is overwhelmingly shocking. Deep breaths.. wuuuusaaah….wuuusaaah…
When I closed on my home, I carefully went through all the paperwork while the realtor and mortgage broker watched me.
I checked each line, doing the mental math necessary. Both the mortgage broker and realtor acted like they were seeing an act of God when I caught a math error.
They informed me that they had never seen anyone figure the math out in their head. And this was just simple arithmetic - it’s not that I was figuring out logarithm tables in my head like Gauss.
In my industry, if you give ADVICE to people, you have to be licensed AND have E&O insurance (errors and omissions). Your realtor friend obviously is too lazy to learn their own industry so that they will not be giving sh!t advice to people. There is some negligence there! However, if it is in the fine print, these people have no recourse. Especially if they must sign after they were SHOWN a worst-case scenario:
current payment: $2000/mo
worst case sceanrio: $8000/mo
Hmmm… let me think…..sounds OK (:-/) to me (maybe they were feeling flush because they got a 50 cent/hr raise and now make 10.00/hr) Yippee!
The last time I went house serious house shopping in 2003(did not buy-I rent), I memorized the fixed rate amortization tables. I know it sounds really nerdy, but these high pressure people are experts at distraction and it was easier than trying to use a calculator and make a costly mistake. Also you could catch them right away if they made a mistake. It also gave me an unexpected edge, it really weirded out bankers, brokers and RE people, they thought I was doing the math in my head.
When the option ARM’s became popular and I could not memorize those, so I decided I would stay away from them altogether.
It’s easy to to the fixed rate calculations in your head. Approximately speaking, every 100K you borrow @ 6% 30 years will be $600 per month.
If you borrow 250K, that works out to what? $1500 per month. Then add annual taxes divided by 12, about 100 for insurance (Not in Florida) and perhaps HOA fees and presto! It gets you a ball park figure right quick!
I visited a realtor one time and popped out the correct figure when he used his calculator and made a mistake. Duh! I thought he did this all day long!
it wasn’t an accident that he made that “mistake”
I understand the sense of puzzlement, but I have to say that I’m not surprised. As incredible as such an ignorance may seem I can actually believe that when she says she didn’t understand that she MAY actually be telling the truth. I have had to give up trying to have even have a conversation with some people (people who appear otherwise intelligent) about money because they literally can not command the very basics of any kind of financial terms.
“The interest-only payment on the Valarie and Michael Thomasellis’ loan is now up to about $2,000 a month, almost 40 percent of their combined take-home income. ‘I didn’t understand the difference between the payment going up and the interest rate going up. That threw me and I don’t think it was explained to me properly,’ Valarie Thomaselli said.”
And this moron votes, drives, and breeds. God help us.
I’ve said before that part of the approval process for getting an arm should be for the applicant to take and pass a basic math test, maybe one on a 4th or 5th grade level.
Why don’t people who are going to buy a house spend a few minutes researching the demographics on the neighborhood and $20 on a personal finance book that explains the different mortgages and that the interest and prop tax deductions only return about $1 for every $3.50 you spend paying them? Oh I forgot, most people are morons, lazy, and want instant gratification.
-And they can’t read.
That’s a combined income of $5000/month, $60K/year. A married couple with $30K/year jobs think they can afford a house? Give me a break. Where do people who make $15/hour get off thinking they can do this and not get totally screwed?
The article says they make $90,000 a year between the two of them.
Although those people clearly ride the short bus to work, I hope that it’s not unreasonable that DINKS should be able to afford a house on $60K/yr take-home. Five years ago, $60K per year take-home would buy you a really nice house on my street here in S. Tampa, where house now sell for $500K-plus. It is the greed and instant-gratification thing that blew prices totally out of proportion with incomes. And since the general consensus is that there is no way in hell incomes are going to catch up to home prices in the short run, the effect will be that prices plummet back to levels where $60K per year (which is more than the median household income for a family of four in my zip, one of the most affluent in Tampa) will buy you a comfortable home.
Unfortunately, for idiots like these people, who seem to be in the majority, it will mean financial ruin.
I don’t know where you stay dustartist. In many parts of the country, you can get a new, starter home for $50-75K or a nice, used home for $125-150K. These are very affordable on a $60K income.
And this moron votes, drives, and breeds. God help us.
—
I share your sentiment exactly.
God will help us. This is Erutpar - rapture in reverse: All their material possessions go bye-bye, while they are forced to go on living.
I had a great conversation last night with a local educator, the summation of which is that we are entering a post-literate age. There is a huge population leaving our schooling system (whether they drop out or graduate) with poor to zero literacy in basic math, language and communication skills. These post literates are easy prey for every kind of marketing cheerleading ponzi scheme because they don’t have the math and reasoning skills to understand the big picture behind the situations they get led into. Along with a huge immigrant population that came here with similarly weak skills, these sheep will be shorn by smart operators from the government on the macro scale down to the local realtor.
From bairen above:
“I’ve said before that part of the approval process for getting an arm should be for the applicant to take and pass a basic math test, maybe one on a 4th or 5th grade level.”
Unfortunately, this pretty much sums up the California High School Exit Exam (CAHSEE).
More bitch’n and moan’n in the Letter to the Editor section of the PNJ about property taxes and insurance rates. One example:
Paying the price
Betty Weymann feels she may have to sell her home? Well, good luck.
State Farm of Florida asked for a 79 percent average increase, and the Office of Insurance Regulation awarded an increase that averages 53 percent statewide. My hurricane insurance last year was $1,169.12, and this year it is $6,106.24. My calculations say that’s an increase of 422 percent! How can they get away with charging that much?
I thought we will just have to drop hurricane coverage, but State Farm says no. If you drop hurricane coverage you have to drop all your homeowner’s insurance. I can choose whether or not to have flood insurance or car insurance with State Farm, but I can’t drop hurricane coverage from my homeowner’s policy?
Citizens Insurance’s charge on my bill is for $427.44. That’s more than I am being charged for my non-hurricane insurance!
Downtown Pensacola, Pensacola Beach and Gulf Breeze all fall into that high-priced category. When your policy is up for renewal, lookout!
If we have to pay that price for insurance, then there will be a whole lot of other things that we will NOT buy! How will that be for a “trickle-down” effect?
I can’t believe that no one has commented on the greedy assclown trying for a 10 bagger(!) in 5 years (300K to 3.5M). If I can find the listing, I’m going to send the realtor an offer for 315K.
Please Lord tell me there are not comps to support that asking price.
The house according to the listing is 6500 square feet plus w/high end kitchen, etc. That works out to about $46/square foot to build. Bullshit. Even the worst tarpaper shack in Mesquite, TX cost more than that to build 15 years ago, much less 5. The editor of that story was asleep at the switch.
-
ask you you shall receive -
Michael Skiera, 48, a native South Floridian, built a five-bedroom house on five acres near Boynton Beach for $300,000 in 2001. Two weeks ago, he listed it for $3.5 million because he and his family are moving to northwest Georgia.
“The numbers are just staggering,” Skiera said of the recent run-up in prices. “This has become the new California.”
4786 E RIDGEWOOD RD
BOYNTON BEACH, FL 33436
MLS ID#: R2712901
$3,500,000
5 Bed, 5.5 Bath
6,568 Sq. Ft.
Estimated payment:
$17,698 Per Month*
Single Family Property, Area: 4520, County: PALM BEACH, Year Built: 2001, Central air conditioning, Swimming pool(s), Fireplace(s), Dining room, Den, Laundry room, Hardwood floors
This listing is brokered by: Illustrated Properties R.E.
Office: (561)272-4015
Thanks. Amazing isn’t it how this jerk has plenty to say about it being the “new California” but he’s got his hand out waiting for his share.
Does Florida have Google millionares to support those prices ?
It doesn’t matter. If you dig a bit you’ll find that there are a total of less than a thousand employees who became millionaires from Google’s IPO. They really don’t make much of a difference to the overall real estate market in the Bay Area, leave alone California.
“‘The numbers are just staggering,’ Skiera said of the recent run-up in prices. ‘This has become the new California.’”
Many don’t seem to realize that being the “new California” ain’t a good thing.
Are you as amazed as I am at people who make comments like that and allow their “cost basis” to appear in print? Does this guy really think that anyone will pay his price after he basically said himself it was ludicrous.
Something doesn’t add up. There’s no way someone could have built a 4200 sq ft house on 5 acres in Boynton Beach for $300K in 2001. The house itself would have cost more than that.
typo?
Zillow says:
09/22/1998: $165,000
“Sweetheart” Sales?
Maybe he paid $165K for the land. 1998 was when we bought our house in Boca. Back then, you could probably get a nice new 3,000 sq ft house in Boynton, on 1/2 an acre, for about $300K. So to get a lot 10 times as large, with a house 50% larger, three years later for $300K would seem impossible. That said, $3.5 million is dreaming.
$165K Land + $300K Construction = $465K.
He didn’t get this property for 300K. No way. Bullshit. The story is probably written wrong. He probably built the house for 300K on the property which he must have paid several million for. It’s 5 acres.
http://illustrated.leadmaxx.lantrax.com/Search/index.cfm?Action=Details&DetailListingID=398831
-
Sale History & Tax Info
Sale History & Tax Info Sale History
09/22/1998: $165,000
No other sale data is available
2005 Property Tax $8,221
4786 Ridgewood Rd E, Boynton Beach, FL 33436 One week change: -$54,645
ZESTIMATE™: $1,233,083 (What’s this?)
Value Range: $1,072,782 - $1,479,700 - Last updated: 09/15/2006
http://www.zillow.com/HomeDetails.htm?city=Boynton+Beach&o=North&state=FL&zprop=46597653
There is a possible glitch, folks. In 2001 in Boynton Beach, IMO, you just could not build anything that would pass building inspection at that time for $46 per square foot, assuming the land was worth zero. There are no bsements in this area. Something is missing here.
excuse me. that location is off of military, next to a canal in boynton. for 3+ million dollars? and, between military and congress. even most gated communities in boca are not worth 3+. they think they are dan marino or something.
then to ask 10X the cost it was built? anyone in pbc knows that military is not worth living next to. crazy folks!@&
300k only to build the house. 5 acre today itself is “worth” ~ 1.5-2 mil there..In miami it is ~400-500k/acre (at least at the peak)
3.5M still is way high!
Not on topic, but since there’s no topic threads, apologies……
Anyone on Ben’s site with some experience in TX concerning property taxes, assessment, and such. I’m looking at a house and the ad valorem taxes are HIGH. However, I’m going to pay cash so there’s no mortgage to record. How much “wiggle room” is there in the process and what could I expect?
Thanks in advance
Contesting the tax assessment is quite common. We were never not sure where all the money went at least in Dallas, as the police and city employees went for years without a pay raise, there’s potholes everywhere, code enforcement is a joke, yet there’s always money apparently for developers, the Dallas Cowboys owner (talk about a panhandler!) and garbage like that to “enhance” the city’s image.
Where is the place. Don’t forget, you won’t pay any state income taxes.
Ben, FYI, there’s a good article in the LA Times Business section today about once hot market for flippers going flat or negative.
“‘We have never had a market..where the investor and speculative buying played such a role in generating the big numbers,’ said Lewis Goodkin, a Miami-based real estate analyst.”
Hey dumbsh!t, guess where my blog name comes from?
[Groucho Marx, portraying a 1920s era Florida land hawker in the movie The Cocoanuts]:
“You can get any kind of house you want — you can even get stucco. Boy, can you get stucco.”
http://en.wikipedia.org/wiki/The_Cocoanuts
does anyone know what % speculators were in prior markets?
Another pertinent question is how many non-US citizens were involved in the last bubble. Notice that the 24 year old Donald Trump in Sacramento is from Russia. BTW, he’s trying to generate traffic on that blog by posting more crap. I think the light went on in his head that he can maybe make money off it it. I agree with the others who say do not support that in any way by posting or clicking ads. Let the thing shrivel up and die.
When my freind was buying her new house in Arizona (to live in) the agent told me he had investors from outside of the USA buying houses 5 at a time.
Yes. He can make 5 cents an hour while he makes license plates while serving his sentence for fraud. I believe just about any felony conviction can get you deported if you have only a green card or became a citizen after you were 18. Wonder if/when he became a US citizent?
That’s the beauty of the whole scheme….Anyone ,Illegal alien, drug lord, etc could get a loan. Citibank is actively seeking illegals with a tax number to buy homes…bundle the whole load of crap loans ,and give it to Fannie Mae.They’ll all retire to their private island while the masses complain about ‘unfairness’ ,and how this was allowed to happen….They’ll wait another 20 years and when it starts all over again they’ll do the same thing.
I asked the California AG for an opinion.
in 87 they drifted out cause the tax laws changed
also oil patch was out by 85 and mid west was never in the game
this time everywhere/everybody played
“The interest-only payment on the Valarie and Michael Thomasellis’ loan is now up to about $2,000 a month, almost 40 percent of their combined take-home income. ‘I didn’t understand the difference between the payment going up and the interest rate going up. That threw me and I don’t think it was explained to me properly,’ Valarie Thomaselli said.”
Oh come on sweetie, you simply “had to have” that 100% scale playhouse to show your friends, and you weren’t interested in the loan details…until now. Don’t think for one minute that playing the “victim card” is going to help!
http://www.venturacountystar.com/vcs/county_news/article/0,1375,VCS_226_5017456,00.html
Real estate industry adjusts to slump
Responses range from consolidating companies to opening a branch office
By Jim McLain and Jenni Mintz, jmclain@VenturaCounty.com; Star.comjmintz@VenturaCountyStar.com
September 24, 2006
A real estate appraiser for 22 years, Katherine Owen is sure she can devise a way to guide her small company through the housing slowdown, even though her business is off 30 percent this year.
Steven Ross, a Realtor for a mere 18 months, says he’s confident, too, but admits he’s working a lot harder now. He knocks on 100 to 150 doors a day around Newbury Park, trying to drum up listings for his portfolio at Coldwell Banker.
Owen, owner of California Appraisal Group in Agoura Hills, is using foreclosure appraisals to make up for some resale appraisal business that’s dried up. She’s handling 40 to 70 appraisals a month, hasn’t had to lay off any of her five employees and doesn’t think things will get as bad as they did in the early ’90s.
Ross has sold four homes this year and has three listings. He loves the business but is amazed it got so tough in just a few months. Rejection is an everyday occurrence.
The end of a five-year boom market that saw seemingly insatiable demand more than double home prices in much of Southern California is rattling mortgage lenders, appraisal businesses, home inspection services, title insurance companies and others dependent on real estate sales.
While prices continued to climb in August — Ventura County’s median price for all types of homes was $598,000, up 1 percent from the previous year — sales were down 31.8 percent over the same period.
The latest monthly figures from DataQuick Information Systems reflect what has been happening much of this year: prices inching upward while sales fall off. Economists began forecasting a so-called “soft landing” at the peak of the real estate frenzy, noting that the blistering pace could not be maintained over the long term.
On Tuesday, reality hit when Countrywide Financial Corp., the country’s largest mortgage lender and the county’s No. 4 employer, announced it was slashing its U.S. work force 5 percent to 10 percent in all departments except sales and support staff.
Countrywide has more than 56,000 employees, with about 5,700 in Simi Valley, Thousand Oaks and Westlake Village.
Countrywide’s situation is hardly unique. Throughout California, escrow offices that mostly operate in title insurance companies are reducing staffing by 10 percent on average, said Kim Dawson, a director of the California Escrow Association and west region escrow administrator in Oxnard for LandAmerica Lawyers Title.
The reductions are coming faster than in previous slumps, she said, because many companies are publicly traded and face constant investor pressure to keep profits growing. The trouble is no one knows how long this soft market will last.
“You don’t know if it’s a hiccup or a trend. I mean, people have been saying for the last five years that, OK, it’s going to slow down,” she said.
“It never did until now, and people are like, ‘Oh, what do we do?’ We have seen a drastic decrease in business.”
Starting to work part time
Because sales are off 10 percent at Joe Kapp Real Estate in Ventura, some of the office’s 10 agents are starting to work part time. Owner Joe Kapp said he’s also had to cut one of his two employees’ hours.
The business today is depending more on property management and appraisal service, a diversification strategy that saw it through earlier downturns.
“I just think it’s a natural turn in the cycle,” Kapp said. “I don’t think it’s anything too serious.”
He added that the market cycle is related to interest rates, and as long as interest rates remain steady, there is no reason to worry. Kapp predicts that the market will remain soft until at least the first quarter of 2007.
George Blair, owner of Checkpoint Inspection Service in Ventura, said the slowdown has “radically” affected his business.
When the market was hot, he was juggling 10 to 12 inspections a week, but these days he’s down to three or four a week.
Still, Blair could be in much worse shape. He sold a home inspection company in Long Beach to a company that operates real estate-related businesses in November.
If he still owned that business, Blair said, he would probably have had to lay off at least one of its three employees. It’s just him and his wife on the payroll in Ventura.
“They were acquiring home inspection companies nationwide and ? we couldn’t have timed it any better,” said Blair. “The real estate market is cyclical, and as you go through the cycles, different opportunities present themselves.”
While many view the sales drop-off as a sound transition from a frenzied housing market to one that’s more normal, there are signs of trouble in some parts of Southern California, said Jack Kyser, chief economist for the Los Angeles County Economic Development Corp.
Consolidating offices
Real estate companies that once had two or three offices are consolidating into one to save money, he said. Also, numerous subprime lenders in Orange County are slashing staffs and returning office space to landlords.
Kyser said some small developers are walking away from nonrefundable property deposits, averaging $200,000, because they can’t afford to build or fear their projects won’t sell.
Still, Kyser thinks the current market is very different from the early 1990s when there was a real estate free-fall, because employment in Southern California is strong and home prices are stable. He thinks the market will be soft for at least two years and knows many people in the industry are worried.
“The whole real estate food chain is fretting about this slowdown,” said Kyser. “Title insurance companies, termite extermination firms, property appraisers, mortgage people, loan processors ? They’re all concerned.”
Well, not quite everyone. Mike Hobbs and Dan Harris, partners in the Oxnard mortgage brokerage Mortech Financial Group, said their business has remained good all year.
Hobbs said he closed 24 loans in August, his best month in three years. Good mortgage people and real estate agents, he said, figure out how to do business in a soft market while mediocre ones fail to act out of fear.
‘Just opened a branch office’
“Everybody’s getting in the down elevator syndrome. I mean the doom and gloom that’s attributed to this or attributed to that,” said Hobbs.
“The market for those who are working it properly, agents as well as mortgage companies, we’re swamped, we’re slammed. We just opened a branch office in Arizona.”
Mortech is relaunching its Web site, http://www.mortgagepolice.com, which, Hobbs said, will feature consumer-advocacy information and debunk errors he and his partner find in advertising and media real estate stories.
“We’ll put our own spin on it,” he said.
Home sales statewide should approach 500,000 this year, down from 628,000 in 2005, said Vince Malta, president of the California Association of Realtors.
Because the state’s economy is considerably stronger and more diversified than it was in the early 1990s, Malta expects this downturn to end quickly with home prices in most areas remaining close to today’s levels.
Buyers holding out for significant price reductions, he said, will be disappointed.
“We don’t anticipate any significant declines in price and feel buyers ? will come back,” Malta said. “We’re anticipating that to occur by early next year. They’re going to finally figure out that the market isn’t going the direction they feel it’s going.”
Unemployment rate stable
Despite the market’s ups and downs, the unemployment rate in Ventura County’s real estate sector has remained stable for five years, said Abel Alcocer, a labor market consultant with the California Employment Development Department.
Under real estate, rental and leasing activity, the county’s employment figures over the past five years have ranged from 4,100 to 4,500, with little month-to-month change, he said.
In August, there were 4,400 people employed in that category, down 100 from the previous year.
Those numbers, however, might not say a lot about real estate unemployment because the Employment Development Department category also lumps in workers involved in leasing cars, heavy equipment, furniture, major appliances, costumes and formal wear.
Alcocer could not break out real estate-related fields.
Jim Miller, a broker and appraiser at James Miller Real Estate and Appraisal in Ventura, said his business has dropped off, but he is diversifying to cope.
“A lot of people need appraisals for different things, such as estate appraisals and property dissolutions,” he said. “The need for appraisals is more than just buyers and sellers.
“Your veterans have a tendency to survive. This market can be very difficult for newcomers.”
Owen, the Agoura Hills appraiser, agreed.
“We were able to sustain back in the ’90s,” she said. “We’ve seen this roller coaster happen before.”
txchick57,
Thanks for the response…it’s located in East TX.
You need to reply to the proper thread; she may not see this.
From the Sun-Sentinel ref: “As real estate values soared, elected officials in most jurisdictions didn’t trim the tax rate enough to offset the increases. Some didn’t even try.”
Pap. Almost none tried. Show me any who did. Virtually all of these parasites saw the godsend as “manna from heaven” and spent or committed all of it. If you live in Florida, please vote against every single incumbent on the ballot. Throw ‘em out. Your grandparents were not wrong about that; neither should you be.
Way to go Ben. Finally getting the recognition…. http://www.sacbee.com/103/story/27874.html