“Leveling Off To What It Was Before Prices Went Crazy”
The Naples News reports from Florida. “Collier County single-family existing home sales dipped from 333 in November 2005 to 182 last month, a 45 percent decrease. Median sales prices for homes dropped by 13 percent from $479,800 in November 2006 to $415,200 last month. But it’s really not a dismal picture, if one approaches the numbers and patterns logically and systematically, said Realtor Brett Ellis in Fort Myers.”
“The market is leveling off to what it was in 2002 and 2003, before home sales and prices went crazy, Ellis said of Lee County sales. ‘This is positive,’ Ellis said Friday.”
“Naples Realtor Phil Wood is optimistic about sales. ‘Actually, this year looks like it could be the third best in history, a little ahead of 2003,’ Wood said.”
The Sun Herald. “This year saw a sudden slump in the housing market. Barbara Rainey, North Port’s Building Department’s administrative division manager, predicts within six months the city will begin to experience a slowdown in as it reflects with this year’s building permits.”
“Many homeowners who tried to refinance their homes found out their appraisals came out much lower than they was before the market slump. Many others who have tried to sell their homes, have had them on the market for more than eight months.”
“Real Estate investors also have seen the value of their investments drop. Building lot sales have slowed down. Recent data provided by a local Arthur Broslat, a Realtor in Murdock, said in November, there are 2,986 lots in North Port on the market, and only 10 have been sold.”
“Property owners are also having issues with their tax bills. According to Broslat, many of these tax bills were 100 percent higher than last year. This has also added to downward prices as many owners do not want to pay high taxes on land that has been losing value, Broslat said.”
The Tampa Tribune. “Frank Gregoire, a St. Petersburg property appraiser, couldn’t help but chuckle when an appraisal request came through his fax machine this month. It was sent by a California loan originator, and the message was clear: ‘Please call if unable to attain this value BEFORE INSPECTION.’ Photos of the property, the request said, could not include ‘unfinished construction or damage.’”
“Gregoire knew right away that the loan company was trying to influence his valuation of the home. ‘It was the most blatant request I’ve seen,’ said Gregoire, who is chairman of the Florida Real Estate Appraisal Board. He said he’s seen a recent spike in unethical requests like the one from California.”
“Professional appraisers say they’re under more pressure to value homes at specific, and often inflated, amounts. This type of fraud requires a string of real estate professionals willing to go along. A key to the scheme is having an appraiser willing to overvalue a property.”
“‘Without an appraiser coming in at the magic number, the fraud is stopped in its tracks,’ said Tampa police Detective Jim Bartoszak, who’s working on several loan fraud investigations.”
“Appraisers in such deals usually get little more than their typical appraisal fee of $300 to $500. So why would appraisers risk their licenses for so little? Richard Powers, president of the Appraisal Institute, said appraisers are tempted to overvalue a home when they’re starved for work.”
“Now that the market has cooled, there isn’t enough work to go around. ‘Appraisers who do this are often guaranteed more work from the client,’ Powers said.”
“The pressure to inflate an appraisal, he said, comes from mortgage brokers, loan officers and real estate agents, who are also competing for work in a slow market.”
“Phillip Wallen said such pressure prompted him to leave the business. Wallen worked as an appraiser in Pinellas County for 12 years and owned his own business. ‘Every day I would get calls that I needed to do an appraisal for X amount,’ Wallen said. ‘There are so many appraisers out there willing to give out whatever value a client wants. That makes it tough for the honest appraisers to compete.’”
“Scott Murphy, who owns an appraisal company in Sarasota, said it’s the loan officers that have pressured him to come up with a value to justify a sales price. ‘An appraiser may agree to go up 10 to 15 percent to ‘prove’ a value for a loan officer,’ Murphy said. ‘Before you know it, they get more and more business, and they’re committing serious mortgage fraud.’”
The Herald Tribune. “The sentencing of Taya Parodo closed the judicial door on Todd Kolbe’s scheme of artificially inflating property prices to defraud lenders.”
“Of the eight people involved in the scam, Parodo is the sixth to be sentenced. Parodo acted as closing agent through her Bradenton-based title insurance company. Kelly Abercrombie, a Sarasota mortgage broker was sentenced to 15 months in prison. Mary Bolan, a Manatee County real estate agent, got six months, while Amy Samelson Kolbe was sentenced to four years’ probation for her role as a straw buyer.”
“Properties in Sarasota and Manatee counties were purchased for one price and sold to other members of the gang at much higher prices. In the process, Kolbe and other members of his gang produced fraudulent appraisals, earnings statements, income tax returns and rental agreements.”
“The bogus loans were ultimately exposed by Fannie Mae, the giant government-backed mortgage company, after the loans had been sold in the secondary mortgage market.”
“Home Star Mortgage Services, a New Jersey-based mortgage lender that Kolbe worked for, was forced to repurchase the loans, foreclose on the underlying properties and sell them at a $1.8 million loss.”
‘By now most Southwest Floridians have heard of Neil Mohamad Husani, Michael Tringali and their series of multimillion-dollar real estate deals that are now imploding. But few know anything about James Russell Crain, a Sarasota real estate agent and investor who used similar methods to buy seven houses in some of Sarasota’s toniest neighborhoods. All of the houses that Crain bought were initially purchased by Yanchek and then sold to companies and trusts that Crain benefits from at much higher prices. Those companies and trusts then used lofty appraisals to obtain bank loans far exceeding the value of the underlying real estate.’
‘Polk County’s building permit totals for single-family homes dropped in November, the most recent totals, and builders don’t see any immediate relief in sight. Last month’s 315 permits were nearly a 60 percent drop from 782 in November 2005. The inventory of new homes is at an all-time high, and the arrival of the holiday season has more people shopping the malls rather than considering a new move. And until January arrives, new home construction is at a near standstill.’
‘Recent reductions in home prices and widespread sales incentives offered by builders also have helped to entice potential buyers. But keep in mind where the figures of the building survey originate - the builders.’
‘It’s not to say that anyone is lying. But let’s face it, who really wants to report they are going to have really slow sales in the coming year? That doesn’t make for a fun New Year’s.’
my hope is the builders offering of incentives and lowering prices will put more pressure on these exisiting home sellers
ben happy new year thanks for all your hard work
This will happen, but given the media’s complicity with the builders’ deceptive use of incentives to hide falling market values. GIven a slowing pace of sales when market values are falling and sellers in denial fail to price accordingly, progress will be slow. But eventually the comps will reflect the truth, as buyers don’t have that much trouble figuring out whether a new home with a free car thrown in as an incentive is more valuable than a comparable used home offered at the same price but without the free car.
Especially when you take SOH into account.
Do you really want to pay RE taxes for the life of the home on that new car you took as an incentive? Shoot, I would throw in my car to lower the price of a home. When your taxes are based entierly on what you pay for a property, and you know you have a linear progression from there (3% per year), you would be a fool to not get the purchase price as low as possible.
You know that the wealthy are doing that down here. Instead of paying 5 mil for a home, how about I buy it for 2.5 mil, and I also, in a seperate contract, pay you 2.5 mil for the trash can that your selling me (as a totally seperate transaction).
People are blind if they think that this is not happening around them. Are people taking 50% off the purchase price? Probably not (at least not many). But are people taking 20-30% off with under the table cash (especially at the high end)? I would bet my life on it.
“in a seperate contract, pay you 2.5 mil for the trash can”
That’s not an anti-septic transaction either. Whoever sold the trash can had better be able to make good the sales tax that is owed from selling a $2.5 million item. Trying to hide money can be tricky business. What looks like a clever solution can often get people in big trouble.
Michael — from a number of higher-end transactions that I watched in central Florida, I suspect exactly the same thing.
NYCBoy — there hopefully will be a ton of fraud prosecuted but this type, where it is up to the county tax collector or appraiser to pursue the cheat, probably will be waaaay under-prosecuted due to lack of motivation, lack of resources, and local political connections.
“Many homeowners who tried to refinance their homes found out their appraisals came out much lower than they was (sic) before the market slump.” - Barbara Rainey, North Port’s Building Department’s administrative division manager
God bless the government. Without government make-work jobs, where would people like this find employment?
The Tampa Tribune. “Frank Gregoire, a St. Petersburg property appraiser, couldn’t help but chuckle when an appraisal request came through his fax machine this month. It was sent by a California loan originator, and the message was clear: ‘Please call if unable to attain this value BEFORE INSPECTION.’ Photos of the property, the request said, could not include ‘unfinished construction or damage.’”
Save that fax. When the class action suits by MBS purchasers, some of them big money pension funds, come rolling along, paperwork like that will ge golden.
The paper shredders are working overtime at these boiler rooms.
What many mortgage brokers may not realize is that there are appraisers out there who ARE saving those faxes, and many are being forwarded to lender watch lists and others who are accumlating evidence.
Thanks! That is what I like to hear - There are still some honest ethical people in this country.
I hope the appraisers understand that they are going to be the scape-goat du jour for a lot of crooked lenders and real estate agents. “I am only did what I did because the appraisal came in at x amount of dollars. It was all the appraiser’s fault.” Never before has a group of people put themselves in a more precarious position.
The phony appraisal is the foundation of all the real estate fraud. Without it there is no fictitious “value” that can be placed on the home. Therefore the appraisers stand to be the first ones with their necks in the noose.
Cut to Season 4 of the Sopranos. Running for his life he shouted, “I’m just the appraiser”.
Hmmm…. seems somebody learned there lessons from the last downturn.
what is the breakeven or mean year ?
2001 or 2002 ?
the charts are hard to justify
“Naples Realtor Phil Wood is optimistic about sales. ‘Actually, this year looks like it could be the third best in history, a little ahead of 2003,’ Wood said.”
The trend is still down. I guess next year they’ll say “2007 was a little ahead of 2002″.
The amount of fraud really disgusts me. It doesn’t surprise me though. What Greenspan did by lowering rates to 1% and holding them there has fostered all of this. Kick in the lending industry that grew up around low rates and “tailored” their products for boom markets and you really have the makings of a massive fraudulent bubble.
The people like many of us, hard working savers have been ridiculed as naysayers, but all the while we have been logical and not willing to strap ourselves to financial instability or crazy lending schemes. We will have our day in the sun, but I am still mystified as to how an entire society went off its collective rocker in this real estate cycle.
It seems like the banks were targeting the sub-prime ,and even illegal alien buyers market as the ‘market of last resort’. The great unwinding has a long way to go, but…..
As with LTCM, there will be promises, and public declarations..
” We will now enact legislation so this will never happen again”
A return to 2003 prices makes sense for a lot of FL real estate markets. In 2001, prices were honestly undervalued in a lot of spots if you look at buy/rent numbers. 2003 seemed to be a proper ratio in that regard, and it was also during a time when most of the second home buyers were actual end users, not pre-construction speculators.
I would agree. I do beleive it was undervalued where I live than. The market way overcorrected up and now its going to go down. Especially on the high end properties. There just isnt enough people who cany buy these properties.
I don’t think its the high end that is going to take the worst beating. Honestly, you have different problems at the very high end. There is really a fixed pool of buyers that can purchase homes above, say, 3M dollars. That pool is not really changing that much.
I would contend that it’s the middle range that is going to take the worst pounding in this downturn. 250-800K (in S. FL area), is the most poised for a fall, imho. This is where the use of creative financing seems most prevent, as well as where the flippers concentrated their efforts. Flipping a 10M dollar home is just out the range of possiblity for almost everyone, especially these “day-flippers” who are just middle america playing RE tycoon (with income between 40-150K). They can’t get a loan to flip a mansion; even in this crazy market!
My prediction is that the high end will droop, but not crash. Low end will droop, but not crash. Mid range is where we are going to see a crash. People making from 50-100K just cannot afford homes 500K+. Lenders will write the loans, but they will once again “find God” and realize that traditional lending standards were a good idea. And then the house of cards collapses.
This is all, btw, totally opinion and just my take on the market here in S. FL.
Florida prices seemed low to us when we bought in 2002. That’s why I really didn’t consider ‘03 to ‘05 a bubble; it was more like an “upward correction” to bring prices more in line with what you pay in places like NVa. Fat, dumb and happy, we watched prices go up at an amazing pace, and would probably still be there but for the hurricanes.
To me 500 to 800 is high end in cape coral. I bought my first house here in 98 for 67,000. It was a 2/2 1car garage fixer. I wanted something nicer so in 04 I bought a 3/2/2 with a pool for 149,000. Great shape. To rent it it would cost me the same so buying made sense. I sold the 2/2 in early 06 for 180 amazinginly to flippers who put about 15k into it and still have it and will for a long time if the bank doesnt take it.
Your assesment sounds about right but in my opinion the relative pricing and price tiers will impact the higher and lower end of the market. All price ranges went nuts in the RE frenzy and all need to correct. For the upper/McMansion range the %age drop may not be as bad as it will be for the lower end. I have seen $hit boxes looking for wish ful prices by the day dreamers/flippers/upto the neck in debt owners.
May 2007 bring the sanity in the RE market!
I think your analysis sounds spot on, I do think the condos may get hit harder, we drove our boat down from FT lauderdale to Elliot key last night, the numbers of those towers with only a few units lit up suprised even me. I would love to know what the real vacancy rates are in those things.
The problem is that with all the overbuilding in FL, rents are likely to come down. Maybe not immediately, but after the flippers are foreclosed upon there will be a HUGE oversupply of housing in many markets.
Rents are coming down, that’s for sure. I just spoke to someone renting a 2/2 condo downtown (last sold for ~500K) for 1400/mo. Those same units were 2200/mo just last year, so rents are definately falling, and falling fast.
Ugh, how much “hugeer” can our oversupply get? If it gets much bigger, they are going to have to measure it in decades instead of years. Perhaps a factorial will present a better pricture. (We only have 10! (! is factorial) months of housing left, be happy. Too bad 10! is 3628800. But it looks much better on the NAR headlines, don’t you think).
Honestly, how much more oversupply can we possibly get. Is there a record for months of inventory on the market at one time? If so, how much longer to we exceed it?
“The problem is that with all the overbuilding in FL, rents are likely to come down.”
It’s already happening in central Florida.
Recent data provided by a local Arthur Broslat, a Realtor in Murdock, said in November, there are 2,986 lots in North Port on the market, and only 10 have been sold.”
Well it looks like the odds of selling a vacant lot in northport are roughly the same as hitting the daily number. Who knew the lottery could be so lucrative.
In some part of the country its 01, others its 00 … others its 98 or 97. In charlotte NC (my current home for 4 years) from 98 to 02 it went down. 02 to now it barely kept with inflation (which was kept artificially low). So Either way its all the same to me. But other places like sacramento etc 97-98 is the final target IMHO.
Cool.
Cow_tipping.
1997 or before in Monterey County.
A Sarasota apt-building manager who is a friend of my NYC hostess was in here half an hour ago telling me that Sarasota is “booming”. I said Sarasota is Foreclosure City. After some discussion, it appeared the building she manages is one of the few rental-apt buildings in Sarasota that hasn’t been bulldozed to make way for luxury condos. When I gave a few figures (made up, but probably close to the truth), she came to agree that there could be a lot of “investment” property going begging.
“”But it’s really not a dismal picture, if one approaches the numbers and patterns logically and systematically, said Realtor Brett Ellis in Fort Myers.”
“The market is leveling off to what it was in 2002 and 2003, before home sales and prices went crazy, Ellis said of Lee County sales. ‘This is positive,’ Ellis said Friday.”’
I wonder how someone who had Ellis as a buyer’s agent for a 500K house about a year ago would feel reading that comment now?
Phil, couldn’t agree with you more. There will be a lot of Realtors who are going to be representing their same clients in a sale and they will be, how do I say, not thought of fondly.
Home Star Mortgage Services, a New Jersey-based mortgage lender that Kolbe worked for, was forced to repurchase the loans, foreclose on the underlying properties and sell them at a $1.8 million loss.
LMFAO!!!!!!!
Death-spiral,
Agreed, but for the money involved, Kolbe’s gang didn’t get much real jail time. Rob a liquor store for a couple hundred and you could face 4-6 years.
“Some will rob you with a 6-gun and some with a fountain pen”
Woody Guthrie - I believe
To Richard Powers/Appraiser. Why would appraisers risk it if they get roughly the same fee? Well, duh, Richard….the appraiser who goes along with what the realtor wants and says, “Sure. If that’s the number you want…,” gets all the work he can handle. Same applies to realtors and mortgage brokers which is why we have this current mess. The appraiser who says, “Sorry, I can’t appraise it at that because it would be unethical,” gets nada and his kids get bread and soup for dinner. We have been in “carpet-bagger” land for 6 years.
When I sold a condo in West Hollywood a few years ago, we discovered that termites, in a previously treated area, appeared to be coming back. As you can imagine, that would mean BIG delays and a lot of aggravation because the whole complex would need to be tented. Everyone packing stuff away, moving into hotels for a few days, etc. Sheeesh. The condo complex had been tented four times in 18 years. The year before, in order to save the complex from being “tented” once more, the condo association agreed on the heat treatment process. Heat treatment doesn’t work. Not for long anyway. After I pointed out the termite problem, our realtor smiled and said, “Don’t worry. I can get that cleared.” You see, he had a “pet” termite guy who would issue a certificate of compliance -termites or not. I can guarantee you 100% that termite guy had all the work he could handle. It’s a win-win situation. All he has to say if any challenges him is, “There were no signs when I inspected.” Just as the mortgage broker who “complies” gets all the work he can handle. “Under the current circumstances I felt the appraisal was reasonably price.”
Now, some might say I should have protested that it wouldn’t be fair to the buyer but, in truth, the damn termites would be back anyway soon enough. That brings up another problem with the current boom (and now bust). This particular condo complex was built in 1978 during (yet another) boom before the bust period. Builders couldn’t get enough timber which had been correctly treated and thus, after a few years, the termites, which are more numerous than illegal immigrants in California, started to feast on untreated or badly treated wood.
Here’s a prediction. Just wait until the termites discover the abundant bounty of untreated and badly treated wood used in construction during this current building frenzy. Lots of termites saying, “Yummie!” Finally, don’t feel too sorry for the guy who bought that condo, I sold for $325,000. 5 years it’s worth $750,000. Not bad and you can kill a lot of termites for $425,000.
Mike,
Very good post,
thanks
Fortunately for us, termites don’t like redwood. House was built in 1918, all redwood construction, and we have the little bastards, but they chew slowly and, in most areas, not at all.
In my area, I’ve seen only a couple of wood-frame condos and, like yours, they were older. These days, though, there are lots of frame single-family houses. Very few old-time Floridians will even look at a modern wood-frame structure here — we want only concrete block — and that is the first stipulation the real estate agent hears.
Best way to tell immediately if a house is “sticks,” in central Florida anyway, is to look at the exterior where it meets the ground. If there is an inset at the ground, so the wall expands out a bit as if a box plopped on a too-small frame, that is called a “stucco-cut” and it means a wood-frame house. Stucco cut supposedly minimizes the risk of termite damage. There are some frame houses built without the stucco cut, but no one in their right mind, IMO, would go near one of those. Old cracker houses were frame houses built on top of a concrete box frame or pillars, as a barrier.