Bad bets: The condo meltdown in Las Vegas mirrors Miami’s

Dec 29, 2009 | No Comments | Sean Mills

Though Las Vegas’ problems are on a much smaller scale, the boom and bust is fairly similar. Some blame South Florida developers, in part, for whipping up the frenzy.

Photos

BY MONICA HATCHER

mhatcher@MiamiHerald.com

LAS VEGAS — With foreclosures soaring and home prices in the tank, Miami and Las Vegas often compete for the dubious distinction of being [...]

Though Las Vegas’ problems are on a much smaller scale, the boom and bust is fairly similar. Some blame South Florida developers, in part, for whipping up the frenzy.

Photos

BY MONICA HATCHER

mhatcher@MiamiHerald.com

LAS VEGAS — With foreclosures soaring and home prices in the tank, Miami and Las Vegas often compete for the dubious distinction of being the nation’s hardest hit condo market.

Just a few years ago the two cities shared a reputation as invincible boom towns. Now both real estate markets are climbing out of an abyss of stalled condo developments, spiraling foreclosures and stymied sales.

Trying to figure out which is the biggest real estate loser isn’t so easy. But comparing the two markets puts into perspective just how unprecedented Miami’s condo explosion was.

“They built less in Las Vegas than in Miami,” but there are fewer potential buyers, said Marty Burger, president and chief executive of Artisan Real Estate Ventures in Las Vegas.

Vegas condo owners like Kathy Riggle, a retiree from Tucson, who bought a condo conversion sight unseen for $180,000 during the boom, have watched in disbelief as values have dropped by more than half.

“Will Rogers once said, `Buy land because they ain’t making any more of it.’ We got caught up in it like a lot of people,” Riggle said.

Her unit, now valued at $49,000, is in foreclosure because she can no longer rent it for enough to cover the mortgage.

Las Vegas analysts and builders blame South Florida developers, as well as other out-of-market players, for helping whip up the condo mania in the nation’s gambling mecca.

During the the boom, Miami development companies launched full-scale assaults on the Vegas market — complete with cocktail parties (hosted by gorgeous models) and million-dollar sales centers.

The developers dreamed of expanding their empires on the new Vegas condo frontier.

They figured frequent visitors to Las Vegas from Canada and the mega-population hubs of Southern California would buy second homes rather than continue paying for high-priced hotel rooms.

Faulty assumption, said Richard Lee, a Las Vegas analyst and vice president with First American Title Company.

And here’s another false perception the Vegas condo boom was built on: Locals, tired of traffic and long commutes, would seek a more urban lifestyle closer to the action on the Vegas Strip.

“There was no real demand that you could point to,” said Jack Winston, a consultant with Goodkin Consulting who cautioned several South Florida developers about their ambitious Las Vegas plans. “The people in Las Vegas, if they want to gamble, they have their own casinos in the suburbs. Permanent residents rarely go down to the strip.”

Just as in South Florida — hemmed in by the Everglades and the ocean — the vertical push out West was propelled by the belief that developable land was running out. Although Las Vegas is surrounded by empty desert, much of it is federally owned and off limits to development.

“Outside developers came here and really misjudged this market,” said Irwin Molasky, a veteran Las Vegas real estate developer, who also built the 84-unit Park Place condominium that sold out in 2001. “It is not a Miami market. We don’t have the South American trade, the New York trade, and they just thought, if you build it, it will come.

“And, unfortunately, they turned out to be wrong.” he said.

Aventura-based Turnberry Associates was one of the first to go vertical buying antibiotics online in Las Vegas with the four-tower Turnberry Place project. It rapidly closed out 770 units and made tremendous profits.

Others tried to mimic them.

“It was like the gold rush after that,” said Bruce Weiner, president of Turnberry Ltd., the residential division of Turnberry Associates.

But condos weren’t the only buildings sprouting on the Vegas skyline. There was also a casino building spree that pushed construction and labor prices through the roof, forcing dozens of developers to shelve plans. In the end, a fraction of what had been proposed actually made it out of the ground.

PROJECTS STALLEDIn Las Vegas, only 8,300 condominiums of 29,000 residential condo units planned since 1999 were built, most of them around the Strip. Only 13 high-rise projects, comprising 21 towers, went up. Six were Turnberry’s.

 

Another 4,800 units are stalled in their tracks or otherwise yet to be completed, including almost 900 residential units in the vaunted CityCenter development, a $9 billion mixed-use project of shimmering hotels, condominiums and retail space that sits on 68 acres adjacent to the strip. The units are scheduled to begin closings in the first quarter of the new year.

As in South Florida, several developers were caught mid-construction when the market froze. Others, like Turnberry, which finished the two-tower Turnberry Towers in 2007, were stuck with unsold units.

“We were about 50 percent sold out in the second tower when Armageddon set in,” Weiner said. Turnberry’s partner in the venture, Prudential Real Estate Investors, ended up paying off the banks and taking ownership of the project, which still has about 250 of 636 units unsold, he said.

Another Turnberry project, the $3 billion Fountainebleau Las Vegas, with its 1,000 condo/hotel units, filed for bankruptcy in June.

PERFECT TIMINGJorge Perez of Miami’s Related Group, sensing an impending market implosion, pulled out at the last minute. He said his decision to cancel plans for a $3 billion mixed-use project called Las Ramblas was one of the smartest he ever made.

 

“The market was clearly showing signs of decline and the demand for construction services was so great that construction prices had been inflated to the point of making our project unfeasible,” Perez said in an e-mail. “Instead of taking the immense risk, I decided to sell the land at a huge profit.”

Perez also nixed ICON Las Vegas, a separate two-tower project in which three-quarters of the 502 units were pre-sold.

His timing was not as good with ICON Brickell, his $1 billion mega-condo in the 400 block of Miami’s Brickell Avenue. Although the project was completed in 2009, only about 100 sales in the 1,800-unit towers have closed. Perez has recently suggested that he may soon turn the project over to lenders in a “friendly foreclosure.”

Unlike the bulk of Miami’s new condominiums, which are clustered around the downtown area in stunning high-rise towers, most of the new Las Vegas projects are mid-rise buildings and condo/hotels perched on top of casino hotels.

In that sense, the problems plaguing the Las Vegas market have been less visible than the darkened condo towers of Miami and are obscured by massive LCD screens and the glitz of surrounding buildings.

Several real estate watchers estimated at least 1,000 Las Vegas units remain unsold, excluding apartments in CityCenter and other condo hotels. About 4,800 additional existing townhomes and condos also were for sale in November, according to the Greater Las Vegas Association of Realtors.

Since the condo model was relatively untested in Las Vegas, the volume of building was huge. But Miami’s building boom was far, far more expansive.

During the boom, developers had filed plans to build 85,000 new units throughout Miami-Dade County. The final count, according to Bal Harbor-based research firm Condo Vultures, has been about 23,000 units since 2003, more than double the amount built in the previous 40 years.

In the greater downtown area, where most new construction is located, developers still had almost 8,500 units to sell at the end of September. There are an additional 16,700 existing condo and town homes listed around Miami-Dade County as well.

Miami is burning off its excess supply of condos nearly twice as quickly as Las Vegas. The median price for an existing condo in Las Vegas stood at $72,500 in November and $149,000 in Miami-Dade.

Thousands of foreign investors, many from Latin America and with long-held ties to South Florida, have helped jump-start new condo sales. Although its just as hard to get a condo loan here as in Las Vegas, Las Vegas does not have hordes of foreign buyers willing to pay cash.

Also, lenders have begun allowing South Florida developers to sell units for less than the amount needed to repay their loans. That lowers prices for buyers.

Bulk buys, or the purchase of large blocks of condos for deep discounts by investors, have also taken off in Miami but not in Las Vegas.

“They haven’t gotten to the point of capitulation yet in Las Vegas,” said Peter Zalewski, a consultant with Condo Vultures. Burger, of Nevada-based Artisan Real Estate Ventures and also the leader of Related’s ICON Las Vegas project, said prices are all over the lot in Las Vegas — from more than $1,000 a square foot at CityCenter to $80 a square foot. Not even Miami, where new construction maxes out at about $500 per square foot, matches the lofty prices of CityCenter.

“There is a lot of cash out there ready to buy bulk, but they are ready to buy bulk at much cheaper price than developers and banks are willing to sell for right now,” Lee said.

Burger and partner John Tippins, a broker with NorthCap Commercial property, are among them. Caught in the stare-down, they decided to use their expertise in managing, selling and leasing Las Vegas condos still held by developers.

“We said, since we can’t buy the units at the moment, let’s keep our foot in the door,” Tippins said. “We think we can do a better job operating these buildings than some outside company.”

As for which market will mend more quickly, most analysts said it’s hard to tell.

For Weiner, so many unsold condos in South Florida will be tough to sell off.

But “as bad as it is,” he said, “I think South Florida will absorb its condos probably as fast, if not faster, than Las Vegas.”

Source Article

More homes are poised to hit the market

Dec 21, 2009 | No Comments | Sean Mills

A ’shadow’ inventory of properties close to foreclosure or seized but not yet for sale has been growing.
A supply of 1.7 million homes headed for sale because of foreclosure or delinquency looms over the nation’s housing market, which could dampen progress toward recovery should the Obama administration fail in its efforts to aid struggling homeowners, [...]

A ’shadow’ inventory of properties close to foreclosure or seized but not yet for sale has been growing.

A supply of 1.7 million homes headed for sale because of foreclosure or delinquency looms over the nation’s housing market, which could dampen progress toward recovery should the Obama administration fail in its efforts to aid struggling homeowners, researchers said.

A variety of measures to keep discounted bank-owned properties off the market — including moratoriums on foreclosures by major lenders and federal initiatives aimed at keeping people in their homes with mortgage payments they can afford — has helped increase a backlog of so-called shadow inventory 55% in the year ended Sept. 30, according to a report released Thursday by First American CoreLogic, a Santa Ana-based real estate research firm.

Read More » »

American Dream 2: Default, Then Rent

Dec 15, 2009 | No Comments | Sean Mills

PALMDALE, Calif. — Schoolteacher Shana Richey misses the playroom she decorated with Glamour Girl decals for her daughters. Fireman Jay Fernandez misses the custom putting green he installed in his backyard.
But ever since they quit paying their mortgages and walked away from their homes, they’ve discovered that giving up on the American dream has its [...]

PALMDALE, Calif. — Schoolteacher Shana Richey misses the playroom she decorated with Glamour Girl decals for her daughters. Fireman Jay Fernandez misses the custom putting green he installed in his backyard.

But ever since they quit paying their mortgages and walked away from their homes, they’ve discovered that giving up on the American dream has its benefits.

Both now live on the 3100 block of Club Rancho Drive in Palmdale, where a terrible housing market lets them rent luxurious homes — one with a pool for the kids, the other with a golf-course view — for a fraction of their former monthly payments.

Read More » »

House Flipping Makes a Comeback

Dec 9, 2009 | No Comments | Sean Mills

SCOTTSDALE, Ariz. — Four years after the collapse of the U.S. housing bubble, flipping homes is back in fashion.
Jon Mirmelli, a Phoenix real-estate investor, learned late in the morning of Sept. 28 that a never-occupied custom house on the northern fringes of this Phoenix suburb was going up for auction around noon the same day. [...]

SCOTTSDALE, Ariz. — Four years after the collapse of the U.S. housing bubble, flipping homes is back in fashion.

Jon Mirmelli, a Phoenix real-estate investor, learned late in the morning of Sept. 28 that a never-occupied custom house on the northern fringes of this Phoenix suburb was going up for auction around noon the same day. The six-bedroom home, built on a three-acre desert plot, has a kitchen with two dishwashers, four ovens, “antibacterial” copper sinks, and a master “spa” bathroom with space for a flat-screen TV visible from the tub.

The minimum bid, as set by a unit of Citigroup Inc., which had a $1.3 million mortgage on the home, was $379,900. After several minutes of bidding among investors and their representatives, some wearing shorts and flip-flops, Mr. Mirmelli won the home for $486,300. A week later, he agreed to sell it for $690,000 to a woman who moved in this month.

During the housing boom, millions of Americans tried to make money by buying and then quickly reselling new houses and condominiums. That kind of flipping stopped several years ago as home sales stalled amid a surge in foreclosures and curtailed lending.

Now, a different breed of flipper is proliferating: one who seeks bargains at foreclosure auctions. Unlike the boom-time flippers, the latest generation needs cold cash, lots of local-market knowledge and strong nerves.

Investors compete mostly with other full-time professionals who monitor foreclosure auctions at county courthouses across the country. The bidders often haven’t had a chance to inspect the property or determine whether it’s occupied by tenants, who may be hard to evict.

Sometimes “you have half an hour to make a half-million-dollar decision,” says Damon Lines, an executive at PostedProperties.com, a Phoenix firm that provides information to foreclosure investors and bids on their behalf. “That’s something most people can’t or aren’t willing to do.”

In the states where home prices have fallen the most, many local online medicine without prescription real-estate markets are dominated by foreclosed property, dragging down the value of neighboring homes. Barclays Capital estimates that banks and mortgage investors have 639,000 foreclosed homes for sale across the U.S., largely concentrated in Florida, California, Arizona and Nevada. That’s equivalent to more than 10% of expected U.S. home sales this year.

Flippers swoop in at public auctions of foreclosed homes, known as trustee or sheriff sales. In many states, the lender sets the minimum bid, and takes possession of the property only if no one bids more. In the past, the minimum generally was about equal to the mortgage balance due. But in today’s market, in which many home values have dropped far below the loan balance, lenders wouldn’t attract investors if they set the minimum at that level.

So lenders, or the loan-servicing firms that represent banks and investors, are increasingly likely to set the minimum much lower. Their goal is to tempt others to buy the house and spare banks the headaches and costs that come with taking possession.

Sean O’Toole, chief executive officer of ForeclosureRadar.com, a research firm, estimates that in November about 21% of homes sold in trustee sales in California went to investors rather than to a foreclosing lender, up from 6% a year earlier. The trend is similar in some other areas with high foreclosure rates, including Phoenix and Miami.

The advantage of such an outcome for the bank is that it gets money for the property right away, even if it isn’t enough to cover the loan balance due. The bank doesn’t need to make repairs to the home, cover the taxes and insurance, or pay real-estate-agent commissions.

The risk for banks is that if they set the minimum bid too low, the home might end up selling for much less than they could reap if they took ownership of it and sold it themselves. But with some 7.5 million U.S. households behind on their mortgage payments or in foreclosure, many lenders are overwhelmed. They’re negotiating with distressed borrowers and figuring out how to sell the growing supply of foreclosed homes.

“The banks are so screwed up,” says Mr. Mirmelli, the Phoenix investor, that they don’t always have a clear idea of the value of the property they are foreclosing on.

To help them set the minimum bid, banks often consult with local real-estate agents and use software that estimates housing values. American Home Mortgage Servicing Inc., which collects payments and handles foreclosures on behalf of banks and loan investors, uses a formula designed to “achieve a fair value for the property and induce third-party bidders,” says Christine Sullivan, a spokeswoman for the Coppell, Texas-based firm.

American Home starts with a broker’s estimate and subtracts the expected costs of taking ownership of the house and selling it. The minimum bid is above the net proceeds American Homes believes it could get by acquiring and selling the property itself, she says.

Outside the Maricopa County court building in downtown Phoenix, trustees, companies that are hired to handle foreclosure auctions, offer as many as 600 or 700 houses every weekday. A typical auction lasts only a few minutes. On a recent afternoon, a few dozen bidders and onlookers were clustered around a trustee employee seated on a lawn chair conducting auctions. He kept track of the bids on a laptop computer perched on one knee.

Many of the bidders are regulars at the sale, bidding for themselves or on behalf of investor clients. “We’re all kind of like a little dysfunctional family,” says Steve Mutsaers, a representative of PostedProperties, who was wearing black sunglasses, a white polo shirt and gray plaid shorts. During the summer, Mr. Mutsaers says, he wears a sombrero to cope with temperatures well above 100 degrees.

People who attend trustee sales here and in other foreclosure hot spots around the nation say the auctions have recently been attracting more bidders. “Properties are getting bid up,” says Hal Feinberg, a Phoenix property investor. “You can still get good deals, but you’ve got to be more patient than you were a year ago.” He and other investors in the Phoenix area say they have been flipping a lot of the homes they buy to Canadians taking advantage of a weak U.S. dollar.

Buying at these auctions is perilous. There are no public viewings, so bidders often can’t know how much damage may have been done inside a house by occupants facing foreclosure. “We’ve seen everything,” says Doug Hopkins, chief executive of PostedProperties. “We’ve seen people pour concrete down the toilets.” Unless they’ve done their homework, bidders also don’t always know whether they’re buying a home subject to a lien from another lender, which can happen in cases where the borrower took out more than one home loan.

View Full Image

Joshua Lott for The Wall Street JournalInvestors in Phoenix gather at one of the 700 auctions that take place here each weekday.

Because of such complexities, many of the bidders are people with experience in the property business. Jon Goodman, a real-estate lawyer in Boulder, Colo., for example, has bought 19 properties so far this year with other investors and sold 11 of them.

In February, the group won an auction for a home in Commerce City, Colo., near Denver, by bidding $142,000. Only afterwards did they discover that the previous owners had stripped the house of a toilet, much of the carpeting and a kitchen range. They replaced the missing items and made other minor improvements, eventually selling the house in May for $209,000. (The loan balance on the house had been $265,663.)

Mr. Goodman says their expenses came to about $24,000, including about $8,000 for real-estate commissions. That left a pretax profit of about $43,000.

The foreclosure auction was handled by American Home Mortgage Servicing. Ms. Sullivan, the spokeswoman for American Home, says the firm believes it didn’t underprice the home and it received “a fair, market-value price for the property.”

In Miami, a group of investors led by Oded M. Kaiser recently bought a condo at auction for $170,000. Two weeks later, they flipped it for $330,000. The loan balance was about $466,000. A spokeswoman for Litton Loan Servicing, which handled the sale on behalf of mortgage investors, declined to comment.

Not all flippers come out on top. Mr. Goodman says one of his legal clients, bidding on his own, unwittingly bought a house that was still subject to a first-lien mortgage. To gain control of the property, the client had to pay off the first mortgage. As a result, says Mr. Goodman, the client, who declined to be named, is likely to have at least a small loss on the deal.

Last summer, Phoenix investor Greg Thielen bought a home at an auction and later found that the former owner had stripped out air-conditioning units, granite countertops and kitchen cabinets, and uprooted palm trees from the lawn. Repair costs came to about $30,000, leaving Mr. Thielen with a small loss on the purchase. “It’s not as easy as people think,” says Mr. Thielen.

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James R. Hagerty/The Wall Street JournalInvestor Jon Mirmelli in the kitchen of the Scottsdale home he flipped.

The Scottsdale property bought by Mr. Mirmelli was supposed to be the dream home for Brad and Michelle McCaughey and their three children. Mr. McCaughey, who grew up in Ann Arbor, Mich., was a minor-league hockey player and coach after graduating from the University of Michigan. About nine years ago, having moved to Phoenix, he says he discovered “a passion for real estate.” He became a real-estate agent and began investing with his father and brothers-in-law in rental properties. Soon they had a dozen homes.

In 2005, Mr. McCaughey and his wife paid about $500,000 for three acres of desert land and began building a home. By the time the house was nearing completion in 2008, the family rental-property business was in trouble because financing and other costs were exceeding their income.

The McCaugheys started selling their rental properties and put their own house on the market. They hoped to avert a foreclosure by getting Citigroup to accept a short sale, in which a home is sold for less than the loan balance due. Before they could find a buyer, though, Citigroup foreclosed on the home, and it went up for auction at the Maricopa County Courthouse this past September.

Citigroup initially set the minimum bid at auction at $1.3 million, far more than the market value, given comparable sales in the neighborhood. Then, on the morning of the sale, Citigroup lowered that minimum to $379,900. PostedProperties, which monitors Web sites for such price changes, sent out an email on the opportunity to Mr. Mirmelli.

Developments Blog

• A Reluctant House Flipper Yearns to Buy and Hold

Mr. Mirmelli has his iPhone set up so he can call up the address of a home due to be auctioned, see a map of the neighborhood with a tap of his finger and then see panoramic photos of the street with another tap. While he researched the home, one of his partners drove out to see the exterior and make sure there were no occupants. A PostedProperties employee bid on their behalf and won the house for $486,300, a sum that then went through the trustee to Citigroup.

After expenses of about $54,000, including real-estate commissions and minor repairs, Mr. Mirmelli and his partners expect a profit of about $150,000 on the flip. “It turned out to be a very good return,” he says.

A spokesman for Citigroup declined to comment on the transaction.

The McCaugheys, who formerly owned the house, are now renting a smaller home. Mr. McCaughey now works for a telecommunications service and is thinking about going back into hockey-related work.

Over a bowl of soup at a Paradise Bakery & Café in Glendale, a suburb of Phoenix, Mr. McCaughey says he sees a lot of real-estate bargains now and may jump back into the market at some point. As for the losses he’s taken on his former holdings, he says: “It is what it is. You deal with it.”

Source article www.wsjonline.com

Foreclosures Spread to Middle Class

Nov 2, 2009 | No Comments | Sean Mills

Foreclosures Spread to Middle Class
Forget the subprime-mortgage borrowers. This latest wave in the foreclosure crisis is hitting homeowners hurt by unemployment.
The foreclosure crisis may be coming to a middle-class neighborhood near you. As joblessness continues to rise and as a person’sunemployment lasts on average 6.5 months, roughly 3.4 million homes are expected to go into [...]

Foreclosures Spread to Middle Class

Forget the subprime-mortgage borrowers. This latest wave in the foreclosure crisis is hitting homeowners hurt by unemployment.

The foreclosure crisis may be coming to a middle-class neighborhood near you. As joblessness continues to rise and as a person’sunemployment lasts on average 6.5 months, roughly 3.4 million homes are expected to go into foreclosure by the end of 2009. That’s up from 1.2 million homes in 2007, according to RealtyTrac, a subscription-based site that tracks foreclosures nationwide. “We’re not out of the woods yet,” says Rick Sharga, RealtyTrac’s senior vice president.

Sharga recently spoke to NEWSWEEK’s Nancy Cook about the various waves of the foreclosure crisis, the future of homeownership and why the Obama administration’s loan-modification program won’t stem this latest crop of foreclosures. Excerpts:

What’s online prescriptions this new “wave” in the foreclosure crisis?
The first wave was caused by bad loan products, while the second will be driven by unemployment. Right now, we’re at the beginning of wave two. There are virtually no more foreclosures that are the result of subprime lending. The demographics of the foreclosure crisis are changing and affecting people who were blue collar and entry to midlevel white collar. We’re now seeing foreclosures on properties with higher loan values. Probably the single best predictor of the areas hardest hit in next wave will be where you will see rising unemployment rates. The third wave is going to involve borrowers who had adjustable rate loans, in which they had the option of deciding what payment to make including interest-only payments. These loans are going to default at ridiculous rates, and that wave will go from the middle of next year until 2011.

If more middle-class people are expected to lose their homes, is the geography of the foreclosure crisis also expected to change?
We’re already seeing some shifts. Four or five states—California, Nevada, Florida, and Arizona—will always be among the top in the foreclosure parade. They overbuilt and overpriced those homes and sold them with horrific loans. What’s happening now is that you’re seeing places like Michigan and Ohio that were devastated by unemployment have an increase. Those foreclosures are much harder to salvage because those people have no income.

But even as the numbers of foreclosures rise, the housing market seems to be stabilizing.
We will see a L-shaped recovery in the housing market if this scenario plays out until 2013 and if the financial institutions meticulously manage the disposition of these properties. We won’t see a huge dip in home prices, but you also won’t have a huge run-up in the building part of the industry that contributed a fair number of jobs to the economy. The housing market will not feel healthy for a few years. This is not a short-lived recession.

What will this mean for the future of homeownership?
We had sort of gotten to an illogical point with the high levels of homeownership. In practice, it turns out that not everyone can afford a house. I think there is more of a realization among potential homeowners that they won’t do it until they can afford it.

If more people will rent, what will this mean for the rental market?
People assume that apartment rentals rates will go up, but in many markets in the country, the rental rates are the lowest they’ve been in years. In Las Vegas, Arizona, Florida, and California, people now rent a whole house instead of an apartment, so these cycles have an affect of lowering apartment rental prices and increasing vacancy rates.

Do you think the Obama administration has done enough to prevent foreclosures?
By sheer volume, the Obama administration’s plan is really having a minimal effect. The administration’s loan-modification program won’t have any success with the types of foreclosure you see now. If you’re unemployed, you don’t qualify for a loan modification.

Source Article Newsweek

Housing bottom? Analysts wary

Oct 28, 2009 | No Comments | Sean Mills

If intervention continues by the feds we are just going to put off the inevitable correction until….?  I know this is for the east coast and most people will say this does not pertain to me or where we are but the biggest foreclosures and pain in real estate are concentrated in the coastal states or [...]

If intervention continues by the feds we are just going to put off the inevitable correction until….?  I know this is for the east coast and most people will say this does not pertain to me or where we are but the biggest foreclosures and pain in real estate are concentrated in the coastal states or west coast.  (i.e. Florida, Nevada, Arizona and California)  Over 50 % of the loan origination for the distressed housing is in major cities in the west or in coastal states.  Do a little leg work check out www.lpsasap.com and run the  numbers for the auctions in your area for today, one week and for the last 30 days then you tell me if you this we have seen the end of this. -Sean

Housing bottom? Analysts wary

For months now, it appeared that Southwest Florida real estate prices had bottomed out.

But two analyses commissioned by the Herald-Tribune suggest that a second wave of home foreclosures looms and will likely cause a new flood of homes for sale — and even lower prices, possibly lasting through 2011.

Zillow.com analyzed monthly median home values in Southwest Florida since the start of the decade.

The online home valuation service found that the rate of decline in markets from Bradenton to Punta Gorda has slowed to the point where it is statistically flat, meaning it rose or fell by about 1 percent or less from July to August.

That would seem to imply the bottom many real estate experts have noted, but Zillow’s chief economist thinks that the results only point to a respite before the new wave of foreclosures pushes prices down again.

“In Sarasota metro, there is a fair bit of supply of for-sale homes, and since we suspect that there is a high number of foreclosures ready to stream in, that will continue to keep the inventory of for-sale homes high and thus prices low,” Zillow’s Stan Humphries said. “I expect prices will dip down in the coming months.”

“This is what a bottom would look like,” Humphries noted. “You should take some comfort in the fact that these numbers look good, but I would not say it is completely behind us in Florida by any means.”

The second analysis — this one by California-based RealtyTrac Inc. — looked at foreclosures within various ZIP codes in the region.

It found that despite banks’ growing ability to both forestall and to more quickly process distressed properties, the rate of foreclosures is still growing. Foreclosures also are rising in traditionally strong segments of the Southwest Florida real estate market.

Foreclosures in downtown Sarasota and on Lido Key, for example, were up 51 percent in the third quarter from a year ago.

That could be an indication that it is no longer just investors or buyers with marginal financial strength who are suffering. Prime borrowers — those with good credit scores and traditionally strong finances — are being hit, many the victims of the region’s 12.5 percent unemployment rate.

“Rational, reasonable, intelligent people that normally take great pride in paying all of their bills on time are deciding to turn in their keys and walk away from their homes,” said Jack McCabe, a Deerfield Beach-based housing analyst who correctly predicted the housing downturn.

But many regional real estate experts do not buy this gloomy scenario.

They argue that the growing interest of buyers — demonstrated by a 30 percent increase in sales during July, a 23 percent rise in August and a 42 percent jump in September in the Sarasota-Bradenton market — will help ameliorate the effects of rising foreclosures.

Budge Huskey, the Southeast region executive vice president for Coldwell Banker’s parent NRT LLC, also has data that suggest the growth in foreclosures could dampen or lower prices in Southwest Florida.

But Huskey argues that the market’s future is unwritten because historically low interest rates will continue to govern buyers. He also notes lenders’ growing sophistication in handling distressed properties.

Rising markets

 

In real dollars Zillow’s analysis of the Southwest Florida real estate market found median home values actually rose in three local markets from July to August:

• By $500 to $221,700 in Punta Gorda.

• By $1,000 to $91,100 in Port Charlotte.

• By $1,200 to $120,700 in Bradenton.

The biggest decline was just $700 in Englewood.

But Zillow’s median home values — derived from a formula that includes both homes that have sold and those not on the market — have been greatly influenced by historically low interest rates and the $8,000 first-time home buyers credit set to expire at the end of November, said Humphries, the company’s chief economist.

At the same time, the list of foreclosures continues to grow in Florida.

There are more than 200,000 mortgages in the state that are substantially delinquent, but in its most pessimistic view of the potential for the Sunshine State, a California lender processing services company predicts that number could rise to 900,000.

Applied Analytics — which tracks more than 40 million mortgages nationwide — predicted that those high levels of foreclosures could persist throughout 2010.

The company expects the total to then fall slowly through 2013 to roughly 500,000.

Huskey has data that suggest a similar track for foreclosures in Southwest Florida.

“We are at delinquency and default rates that are higher than anything we’ve seen in years,” said Huskey, who works out of Sarasota. “Many buy prozac of the models suggest that defaults will peak in the second half of 2010 and into 2011.”

Huskey’s models show that there will be more loan defaults this year than in 2008.

But “the ultimate impact will be largely influenced by the direction of interest rates,” Huskey said. “Fortunately, interest rates are at historic lows, but there is a general belief that rates will begin to escalate as we move through next year.”

Although the increasing trend of delinquencies and defaults is unmistakable, Huskey believes that the final impact is uncertain.

Lenders are becoming much more effective at loan modifications and short sales, transactions where the lender agrees to accept less for a property than what is owed to avoid a foreclosure.

Banks also are better capitalized now and will control the release of foreclosures over time to minimize the losses on their balance sheets, Huskey said.

Foreclosures in some of the region’s neighborhoods have been snapped up to the point where there are more buyers than homes for sale, Huskey noted.

That may help keep inventory levels low at some price points even when the new wave of foreclosures hits, he said.

The prime problem

 

During the second quarter, delinquency rates on conventional prime mortgages were up in every category when compared with a year before, the Mortgage Bankers Association reported.

During the second quarter, a majority of loan delinquencies were represented by prime mortgage products.

Prime mortgages that are past due have increased from 3.73 percent in 2008 to 6.01 percent this year. Prime mortgages in foreclosure have risen from 0.61 percent of all such loans to 1.01 percent.

Prime mortgage foreclosure inventory more than doubled during the last year — from 1.42 percent to 3 percent.

RealtyTrac’s analysis for the Herald-Tribune found delinquencies and defaults rising by double-digits in most areas of the region.

Foreclosures rose by 38 percent along western Cortez Road in Manatee County and by 17 percent in Charlotte County’s Rotonda community.

That supports the case that McCabe — the Deerfield Beach housing analyst — has been making for months: that the first wave of foreclosures may be slowing, but that the new wave of foreclosures will push in, driven by a fresh crop of adjusting subprime mortgages written during the boom and by rising unemployment.

The recent “bottom” in pricing is a “short-term thing,” McCabe said.

“We are three-and-a-half years into this unfolding case and you can say there were five years of the build-up, so we’re looking at at least two more years before we work through all of this,” he said.

Foreclosures in the last 24 to 36 months were laden with subprime and investor-owned mortgages — the most risky. Nationwide, there are as many as 8 million adjustable-rate mortgages poised to reach their first-term adjustment within the next two years, and as many as 12 million during the next five years, McCabe said.

“There are a lot of foreclosures in limbo and a lot of lenders are allowing people to live in them so they do not have to assume the risk,” he said. “These are the next big shoes to drop.”

Source Article

Mountain of modifications

Oct 19, 2009 | No Comments | Sean Mills

Mountain of modifications
Industry tries to keep up with avalanche of troubled mortgages
SAN DIEGO (MarketWatch) — Millions of homeowners are struggling to make their monthly mortgage payments and the continued deterioration in the job market guarantees millions more will be at risk in the coming months.
That is putting a huge burden on mortgage-modification programs, both those [...]

Mountain of modifications

Industry tries to keep up with avalanche of troubled mortgages

SAN DIEGO (MarketWatch) — Millions of homeowners are struggling to make their monthly mortgage payments and the continued deterioration in the job market guarantees millions more will be at risk in the coming months.

That is putting a huge burden on mortgage-modification programs, both those run by the government and an increasing number operated by private industry, which are in a struggle of their own to stay ahead of the tide of potential foreclosures.

A housing counselor helps a homeowner facing foreclosure assess payment options, at a Housing Rescue Fair in Dallas, Texas. (Reuters)

“The subprime problem, by and large, has been dealt with,” said John Courson, chief executive of the Mortgage Bankers Association. “It’s a different kind of borrower now that we are trying to assist. And a lot of programs we have won’t work now. You can’t modify someone’s mortgage to 31% of income if they have no income.”

A good portion of the MBA’s annual convention held here this week was devoted to loan-modification issues. And with good reason.

As of Aug. 31, there were 3.3 million homeowners 60 days or more late on mortgage payments, said Faith Schwartz, who runs the Hope Now Alliance, a mortgage-industry trade group working on foreclosure prevention. A hotline for troubled homeowners run by the alliance fields 5,000 calls a day, she said, although that is only half of the number being handled earlier this year.

“There’s a lot more competition out there,” Schwartz said. “Fannie Mae and Freddie Mac have their own hotlines, and government and nonprofits. There is a lot hitting borrowers right now.”

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Foreclosures: ‘Worst three months of all time’

Oct 16, 2009 | No Comments | Sean Mills

Despite signs of broader economic recovery, number of foreclosure filings hit a record high in the third quarter – a sign the plague is still spreading.
NEW pharmacies online YORK (CNNMoney.com) — Despite concerted government-led and lender-supported efforts to prevent foreclosures, the number of filings hit a record high in the third quarter, according to [...]

Despite signs of broader economic recovery, number of foreclosure filings hit a record high in the third quarter – a sign the plague is still spreading.

NEW pharmacies online YORK (CNNMoney.com) — Despite concerted government-led and lender-supported efforts to prevent foreclosures, the number of filings hit a record high in the third quarter, according to a report issued Thursday.

“They were the worst three months of all time,” said Rick Sharga, spokesman for RealtyTrac, an online marketer of foreclosed homes.

During that time, 937,840 homes received a foreclosure letter — whether a default notice, auction notice or bank repossession, the RealtyTrac report said. That means one in every 136 U.S. homes were in foreclosure, which is a 5% increase from the second quarter and a 23% jump over the third quarter of 2008.

Nevada continued to be the worst-hit state with one filing for every 23 households. But even tranquil Vermont, where the foreclosure crisis has barely brushed the housing market, saw foreclosure filings jump nearly 170% compared with the third quarter of 2008. Still, that resulted in just one filing for every 5,023 households in the state — the best record in the country.

The RealtyTrac report also unveiled the results for September, and it found that there was slight relief from foreclosure filings. Last month, notices totaled 343,638, down 4% compared with August. Unfortunately, that total accounts for 87,821 homes that were repossessed by lenders.

That deluge contributed significantly to the quarter’s record 237,052 repossessions, a 21% jump from the previous three months. So far this year lenders have taken back 623,852 homes.

“REO activity increased from the previous quarter in all but two states and the District of Columbia, indicating that lenders may be starting to work through some of the pent-up foreclosure inventory caused by legislative delays, loan-modification efforts and high volumes of distressed properties,” James Saccacio, RealtyTrac’s CEO, said in a statement.

Most disturbing is that all foreclosures — not just repossessions — are rampant despite efforts to corral them. Not only has the Obama administration’s Making Home Affordable foreclosure prevention program taken a bite out of REOs but lenders themselves have scaled back repossessions over the past few months to give the program time to work.

And in some low-price markets, lenders simply aren’t following through on foreclosures, according to Jim Rokakis, treasurer for Cuyahoga County, Ohio, which includes Cleveland.

“They’ll even set the date for the sheriff’s sale, but they don’t file the final papers,” he said. “They hold it in abeyance and let the residents stay in the house.”

In ever more frequent cases, delinquent borrowers want out of the mortgage worse than the lenders. There are no firm statistics for it, but many industry watchers claim the percentage of REOs caused by borrowers voluntarily walking away from their homes is skyrocketing.

A study of the trend by the Chicago Booth School of Business and the Kellogg School of Management determined that when home price declines drop home values 10% below the mortgage balances, people start to give up their homes. When “negative equity” approaches 50%, 17% of households default, even when they can still afford their mortgage payments.

No end in sight

The foreclosure crisis may not diminish anytime soon. “The fastest growing area is in the 180 days late-plus category, the most seriously delinquent borrowers,” Sharga said. “It’s going to be a lingering problem.”

Plus, the RealtyTrac statistics may understate the depth of the foreclosure mess because lender and government actions have delayed many filings. As a result, some delinquencies have not been counted on the foreclosure tallies. That means the crisis may not end quickly.

And because there are so many delinquent borrowers, Sharga predicts the banks will be slow to take back their properties and put the repossessed homes back on the market.

“It’s hard to envision [the banks] putting millions on properties up for sale and cratering prices,” he said. “Recovery will be slow and gradual. I don’t see home prices getting much better until 2013.” 

Suburban Foreclosure Wave Threatens Economic Recovery

Oct 15, 2009 | No Comments | Sean Mills

To tell you the truth all is pretty quiet on the CRE end of real estate with a wait and see attitude of everyone holding their breath.  The squeaky wheel is residential right now and for at least a while.-Sean
SUDBURY, Mass. — Jon Davis handles 10 percent of the state’s foreclosure auctions. The Marshfield lawyer [...]

To tell you the truth all is pretty quiet on the CRE end of real estate with a wait and see attitude of everyone holding their breath.  The squeaky wheel is residential right now and for at least a while.-Sean

SUDBURY, Mass. — Jon Davis handles 10 percent of the state’s foreclosure auctions. The Marshfield lawyer has been watching these auctions migrate from places such as Dorchester and Lowell.

Now you’ll see them in the Sudburys, the Hinghams and the Westons,” Davis said, “where you wouldn’t have in the past expected to see foreclosures.”

The reason for these auctions is not the crazy interest-rate mortgages. It’s the recession. Nowadays, people are losing their homes the way they used to before the sub-prime crisis.

“Historically, Buy Xenical people lost their home when they lost their job, they lost their health or they lost their spouse,” said Nick Retsinas, a housing market economist at Harvard University.

Unemployment is to blame again today. The number of foreclosure proceedings in Massachusetts has jumped an alarming 150 percent.

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Shiller: This Is No Housing Boom

Oct 15, 2009 | No Comments | Sean Mills

Our Southern California market is on a standstill in most things as they relate to real on line pharmacy estate.  The upper end is feeling the pinch as they are get foreclosed on at an alarmingly high rate, er I should say the process is starting to gain steam as the “postponed” at the [...]

Our Southern California market is on a standstill in most things as they relate to real on line pharmacy estate.  The upper end is feeling the pinch as they are get foreclosed on at an alarmingly high rate, er I should say the process is starting to gain steam as the “postponed” at the auctions are daily in the 90% plus rate.-Sean

Yale professor Robert Shiller says the recent upturn in housing prices doesn’t signal that everything is now hunky dory for the home market.

In fact, it’s just typical price volatility in an uncertain market, says the guru who called the massive housing crash years early.

“The sudden rise in home prices suggests that the psychology of the market has shifted substantially,” Shiller wrote in The New York Times.

“But what should we expect in the months ahead? Not necessarily that we’re entering a new housing boom.”

The good news is that the S&P/Case-Shiller home price index for 10 major cities rose 3.6 percent between April and July.

“While that is not a whopping increase, it followed a decline of 4.8 percent in the previous period, between January and April,” Shiller writes.

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