The Future of Real Estate

Making Sense of Home Price Data

noreply@blogger.com (The Future of Real Estate) — Tue, 01 Nov 2011 16:13:00 +0000

October 31, 2011, WSJ
By ANNAMARIA ANDRIOTIS

How to decipher the three major home-price indices, and their often conflicting conclusions.

Are housing prices up, down, or flat? It all depends on who you ask.

The S&P/Case Shiller Home Price Indices reported last week that for the three months ending in August, home prices increased by 0.2% compared to July. Meanwhile, the Federal Housing Finance Agency, a government housing regulator, announced that home prices dropped 0.1% in August. And data from the National Association of Realtors on August sales now shows that the median sales price of existing homes was about flat in August compared to July. Yes, the differences are small, and it's been the case for years that each group's data differs even within the same metro area. But experts say that with the housing market facing the possibility of a double dip, sellers and buyers are more baffled than ever by these discrepancies. "For the average buyer, it's absolutely confusing," says Leonard Baron, principal at LPB Services, a real estate consulting firm in San Diego, Calif.

In addition, for many buyers and sellers, it's hard to know how much these figures matter at all. Because real estate is so local and home prices can change every few miles, homeowners and potential buyers should focus on trends in their specific neighborhoods, says Baron. That means consulting a realtor who can pull up prices of similar homes that sold over the past few months.

That's not to say these indices aren't helpful. They can provide useful benchmarks, but it's important to understand how the figures are calculated, experts say, as each index measures home prices in a different way. The National Association of Realtors tracks existing homes that sell each month, while the FHFA and the S&P/Case-Shiller look at repeat sales, meaning the price a home just sold for compared to what that same home fetched the last time it sold. Separately, the scope of homes in these studies varies significantly. The NAR and S&P claim to look at nearly all types of sales, including foreclosures and regular sales as well as homes purchased with a mortgage or with all cash. Meanwhile, the FHFA strictly focuses on homes that are purchased by buyers using a mortgage that's backed by Fannie Mae or Freddie Mac. Anything else is excluded.

How useful each index is largely depends on which housing market is being measured.

Affordable markets: For homeowners in relatively healthy and affordable markets, the FHFA index could be the way to go, says Stuart Gabriel, director of the Ziman Center for Real Estate at UCLA. Since it excludes jumbo mortgages home loans for expensive markets and cash buyers, who tend to purchase foreclosures, the FHFA's home price data provides clarity about how home prices are trending in "normal" markets. In addition, the FHFA data now carries more weight than it once did, since Fannie Mae and Freddie Mac mortgages account for roughly two thirds of the total market, up from just 27% in 2006, according to Inside Mortgage Finance, a trade publication.

Expensive markets: In high-priced markets in large cities, the S&P Case-Shiller is a helpful starting point, experts say. It includes homes purchased with jumbo mortgages, which is why its price data can be different from the FHFA. In addition, the S&P index offers buyers and sellers data on how higher-priced homes are performing compared to the other price points in the same city. For instance, for the past year ending August, Miami home prices have dropped 14% in the city's lower-priced market (homes priced at under $143,061) while the more expensive homes (priced above $253,909) fell just 2%, according to S&P.

For the most local detail: If the objective is to price a home in a very specific location, Gabriel recommends the National Association of Realtors, which breaks data down by locality. While the S&P-Case Shiller tracks 20 cities, the NAR tracks up to 156. Beyond that, its associations in larger states, including California, New York and Illinois, dig even deeper, providing data (on their web site) on even more cities and towns. It should be noted that NAR data may be skewed since it represents an industry that promotes higher prices.

The Incredible Shrinking Condo Project

noreply@blogger.com (The Future of Real Estate) — Mon, 19 Sep 2011 19:04:00 +0000

September 19, 2011, WSJ
By LAURA KUSISTO

In March 2006, Ron Moelis cut the ribbon on Northside Piers, one of Brooklyn's largest-ever condominium projects, with a planned 1,000 units. It will be a long time before he has that experience again, he says.

"You're going to be very, very hard pressed to build a condo in this city for a number of years that has more than 100 units," Mr. Moelis, the chairman and CEO of L+M Development Partners, said in an interview Friday.

Manhattan condo projects are shrinking dramatically in size, as banks' remain reluctant to finance huge buildings and developers have trouble finding suitable sites for large-scale construction.

Some developers say the situation could drive them out of Manhattan to New Jersey, Long Island City and parts of Brooklyn. Others say they plan to juggle more Manhattan projects that are smaller.

"When you do three or four of these jobs, as opposed to one or two big ones, I think in a lot of ways they're easier to build. They're doable," said Mr. Moelis.

According to data compiled by StreetEasy.com, new condo projects hitting the market in 2005 and 2006 had on average 83 units per building. That number has plummeted to 34 units this year.

In both 2005 and 2006, 10 condo projects with more than 100 units in Manhattan came online. This year, there has been one, according to StreetEasy.

Meanwhile, the boom in small condo projects has picked up. Mr. Moelis said he is now focusing on smaller, more innovative projects, such as PS 90, a 75-unit mixed-income condo project, and Columbia Hicks, a 42-unit condo and 94-unit rental project on the Brooklyn Waterfront.

At least a dozen boutique projects in Manhattan and Brooklyn are now under construction or set to break ground in the coming months. At least six more are launching sales—from the Story House, an eight-unit condo in the Flatiron District, to 174 Jackson in Williamsburg, Brooklyn.

"I don't think you're going to see 500-unit condominium developments," said Steve Kliegerman, president of Halstead Property Development Marketing. "But we're seeing lots of small projects…coming back to market and selling very well right now."

The trend toward small projects is driven by financing, say developers. In recent months, cautious banks have started to give out small $25 million to $75 million loans. But few have been able to get the kind of $500 million-plus loans needed to move forward with megaprojects.

For condo buyers that means a very different product. The brand-new 40th-floor bachelor pad with sweeping views of Central Park could become rare, as developers increasingly sell the pleasures of a project's intimacy or exclusivity.

"Buyers recognize the scarcity value of these projects," said Joe McMillan, chief executive of DDG Partners, which received a $26 million construction loan for a brand-new roughly 40-unit condo building at 345 W. 14th St. near the Meatpacking District.

It gained notoriety as a failed hotel project by rapper Jay-Z and hotelier Andre Balazs. Now it will be a condo project with imported Kolumba brick and a three-story bronze cornice.

Smaller projects also lack amenities such as golf simulators and movie theaters that became common during the boom. But brokers say smaller projects pop up in neighborhoods such as SoHo or the West Village, which provide plenty of their own entertainment and services.

"At this location, in the heart of the West Village, you couldn't build a big new development. This kind of real estate fits in with the fabric of the neighborhood," said Margaret Streicker Porres, of Newcastle Realty Services LLC, who's marketing a nine-unit renovation of historic 84 Bedford St. in the West Village, where units are priced from about $500,000 to $2 million.

To be sure, a few mega projects are beginning to move forward. The Rudin family recently obtained a $525 million loan for a condo on the St. Vincent's Hospital site in Greenwich Village. Extell Development Co. expects to close on a $700 million construction loan this month. The loans were hard to get even with prime locations and good credit. "It's extremely difficult to finance large condos. Rentals you can get done, you can get small projects done," said Extell president Gary Barnett.

Developers said they don't expect banks to ease lending for big condo project any time soon.

In the meantime, rentals—a definite second choice during the last real-estate boom—could be the winners. At the Frank Gehry-designed 8 Spruce St., for example, Forest City Ratner Cos. made the building's units all rentals, abandoning plans for condos on the top floor when the economy took a dip.

The trend toward boutique condos is also driven by the lack of large areas for big developments. Toll Brothers Inc. is now working on several smaller projects in the city for that reason, said David Von Spreckelsen, a senior vice president at the company. "There are fewer and fewer sites and it's harder to put together an assemblage, and you have to pay a lot of money," he said.

Housing Inventory Hits 2011 Low

noreply@blogger.com (The Future of Real Estate) — Mon, 19 Sep 2011 18:59:00 +0000

September 14, 2011, WSJ
By Nick Timiraos

Housing inventory dropped for the fourth straight month, falling in August to the lowest level of the year.

The number of homes listed for sale in August fell by 1.9% from July. Overall, the number of homes listed was down 19% from one year ago, according to data from Realtor.com.

The 2.27 million homes listed for sale was the lowest of the year. Inventories tend to increase by around 2% in August over the past 28 years, according to Zelman & Associates, a research firm, as sellers make one last push before the beginning of the school year.

The Realtor.com figures include sale listings from more than 900 multiple-listing services across the country.

The data show that the summer selling season drew to an early close, as consumer confidence sustained multiple shocks from the debt-ceiling drama, the eurozone crisis and the stock market volatility.

Normally, a decline in inventory would be a positive sign, but in the current market, that isn’t necessarily the case. Instead, low sales volumes and declining inventory suggests that there aren’t many opportunities for “price discovery.” The upshot is that buyers and sellers, uncertain about whether they’re overpaying for a home or under-pricing the one they’re selling, are further frozen on the sidelines.

Moreover, there’s still millions of properties in some stage of foreclosure or where borrowers have missed three or more straight mortgage payments. This “shadow inventory,” plus sellers that are waiting on the sidelines until demand picks up, will loom over housing markets for years.

Housing inventory was up in just 15 of 146 markets for the month, and only three metro areas—Denver; Hartford, Conn.; and El Paso, Texas—posted year-over-year increases in August. The biggest declines came in Miami (down by 48% from one year ago), Orlando (-46%), and Phoenix (-45%).

Realtor.com found that for-sale listings fell in every Florida multiple-listing service. The declines could be a sign of improvement, but they may also be skewed for foreclosure-processing difficulties that have forced banks to sharply slow down foreclosure re-sales.

Median prices were unchanged from July nationally, and were up by 0.5% from one year ago.

For the past year, median listing prices are also up most sharply in four Florida markets, led by Fort Myers and Cape Coral, where asking prices jumped by 33%. Other gains included Miami (25%), Naples (20%) and Punta Gorda (13.3%).

In Crowded Downtowns, Parking Costs a Premium

noreply@blogger.com (The Future of Real Estate) — Thu, 01 Sep 2011 20:20:00 +0000

August 31, 2011, WSJ
By ROBBIE WHELAN

Helen and Bob Alkon paid $1.3 million for their condominium in downtown Boston two years ago. And while some apartments in the building have slipped in value since then, one of the Alkons' investments has paid off: The parking spot they purchased for $100,000 today sells for $125,000.

"I'm glad I bought when I did," says Ms. Alkon, a retired office manager.

In some downtowns across the country, a scarcity of parking has driven demand into the stratosphere—even in places where home prices are declining. In some buildings, parking costs are nearly on par, on a per-square-foot basis, with the apartments themselves.

Parking comes at a premium in places where crowded conditions and urban revitalization efforts have fueled demand. Residential buildings typically allocate one or fewer parking spots per unit. While these are sold only to residents, some parking spaces on lower floors are leased to non-residents as well.

Building more parking garages isn't necessarily an option. In Manhattan's business core, for example, constructing a public garage requires a special permit that is expensive and time-consuming to obtain. Separately, city planning officials may lower minimum parking requirements at residential buildings that have good access to mass transit, exacerbating the squeeze.

"It's kind of just a wasted requirement to have them put parking in," because residents are much more likely to take a subway or a bus, says Hope Cohen, associate director of the New York-based nonprofit Regional Plan Association.

As prices rise, some luxury-condo owners have purchased parking spots as investments. Diane Sarkisian, a real-estate agent and concert pianist, bought a condo in Symphony House, a high-end building in Center City Philadelphia, for $1.05 million, or about $783 per square foot, in 2007. She also bought two parking spots, at $50,000 apiece—or about $278 per square foot—to house her Mercedes S550 and her daughter's Volvo S40. While the value of her apartment hasn't appreciated, the going rate for parking spots in the building has risen to $75,000, about $416 per square foot. It offers a good return to owners when developers allow them to sublet their spaces.

"My apartment is probably not quite worth what it was," Ms. Sarkisian says. "I think it's going to retain its value pretty well, but not as well as my parking spot. I'm a parking profiteer."

In cities like Philadelphia, parking prices are also influenced by the availability of parking at surrounding offices, schools, shops and restaurants.

"The beauty of it is, as [apartment] prices came down, parking went up," says Jon Gollinger, a condo broker and real-estate consultant with Accelerated Marketing Partners in Boston. He adds that in every city he works in, he is noticing parking rates rising for buildings with desirable locations.

"You're dealing with the elite," he says. "Someone who has money and is willing to spend a million, million and a half on a unit, you're not going to park your car in a building that's half a block away. That's just not going to happen."

Toronto's exclusive Four Seasons residence building recently set a local record by selling a suite in a 55-story tower for $28 million. Prices for parking spaces also broke a record, coming in at $100,000.

"The city has been on a very healthy run in the last decade, and people have really taken a shine to living in condos." says Mimi Ng, a spokeswoman for Menkes Developments Ltd., the project's developer. "If you're spending $4 million for a suite here, $100,000 isn't out of line for parking."

In other cities, local policy makers say costly parking spots encourage the use of public transit, which in turn reduces downtown traffic.

San Francisco, for example, in 2006 required that developers unbundle parking-spot prices from the prices of condos. Now, the two properties have to be purchased separately, so buyers are more likely to take public transit to work.

A more recent ordinance limits the number of parking spaces in certain high-density parts of the city, to 0.5 parking space for each condo unit.

As a result, in-building parking prices over the past year have climbed above $100,000 for the first time, says Alan Mark, a real-estate consultant in San Francisco.

In some extreme cases, out-of-the ordinary parking features have actually driven up prices on condos. A building in Manhattan's Chelsea neighborhood designed by star architect Annabelle Selldorf that opened this year and has sold units to celebrities like actress Nicole Kidman and fashion designer Domenico Dolce, features an "En Suite Sky Garage"—an elevator that brings your car right to your apartment. Units in the building have sold for as much as $6 million apiece. Residents drive their cars into an elevator inside the building, which delivers both car and driver to a spot adjacent to their condo unit.

"It's something I've seen in New York and Washington and Miami: That the upper tier is just doing better because it's not hampered by financing," says Jonathan Miller, a real-estate appraiser and consultant in New York. "That's where you'll see this propensity for luxury stuff, and parking is one of those key things."

Pleasure Boats Offer Shelter in Rough Times

noreply@blogger.com (The Future of Real Estate) — Thu, 01 Sep 2011 19:57:00 +0000

Weak Economy, Housing Costs Steer Shift to Living Onboard Full Time

By JIM CARLTON And CHRIS KIEVMAN
September 1, 2011, WSJ

Some Bay Area residents, buffeted by the weak economy and high housing costs, are deciding to live full time on boats they purchased for pleasure in better times.

Duncan Hincks, 58 years old, said he moved to the Bay Area in 2008 after his general-contracting work dried up in Lake Tahoe and he lost his house there to foreclosure. But he was unable to find steady employment as the economy here began tanking, too. With few resources, Mr. Hincks resorted to his only living option: moving aboard his 53-foot power boat at Loch Lomond Marina in San Rafael.

"Living on a boat isn't my first choice, but with the economy this is just a very viable alternative," said Mr. Hincks, who works as a handyman and shares the boat with his fiancée, Tatanya McClurg, 40, and their infant daughter. He pays $800 a month in marina fees, compared with $4,000 a month for his old house.

People like Mr. Hincks are known in the maritime world as live-aboards, and the Bay Area is becoming home to more of them. No one has precise figures, but harbormasters at some of the dozens of marinas in the region report a surge in the number of people living on their boats legally or doing so illegally until they are caught.

The Loch Lomond Marina, for instance, has a yearlong waiting list for the 52 berths designated as live-aboard slips in the 520-slip marina, said harbormaster Pat Lopez. While there has long been high demand to live on boats in Marin County, Mr. Lopez said he has seen an increase in inquiries lately from boaters seeking a live-aboard slot, which he thinks attests to the poor economy.

"It used to be people wanting the romance or passion of a sailor to live that quality of life, but due to the economy folks have learned it is very affordable," Mr. Lopez said.

At Berkeley Marina, 100 people are living on their boats versus about 80 two years ago, while the waiting list to do so has grown to 25 to 35, from 15 to 20, over the same time, said Ann Hardinger, harbormaster of the 1,000-slip marina. She added that the mix of live-aboards has shifted toward people who do so because they have to, rather than for the lifestyle.

Under the rules of the San Francisco Bay Conservation and Development Commission, a maximum of 10% of slips in a local marina can be designated for live-aboards. But increasingly some boaters are illegally living on boats, often anchoring in waters near a marina, said Will Travis, executive director of the state agency. Mr. Travis said that practice can foul the waters when boaters do things such as empty out their sewage, but that his agency doesn't try to crack down too hard on them.

"We don't want to force them off their boats, because they will end up on the street," Mr. Travis said. "It's a delicate balance of allowing people to use the bay but not letting them hurt the bay."

Even marinas that don't allow live-aboards report a related phenomenon: sneak-boards. At South Beach Harbor in San Francisco, up to five of the 700 boat slips have been occupied over the past two years by people who sneak onto their boats to sleep at night even though the marina doesn't allow living full time, said harbormaster James Walter. Since state law allows boaters to spend up to three nights at a time sleeping aboard their vessels, Mr. Walter said he and his staff usually tell them to find other places to spend the other nights of the week.

"When they are approached, they usually admit it," Mr. Walter said. "We try to work with them."

Living on the water isn't for everyone. "I do get seasick," admitted Mr. Hincks. Then there is the issue of cramped quarters.

David Michael Rhoads moved aboard his 39-foot yacht in Contra Costa County's Discovery Bay in June 2010 after being forced to sell his three-bedroom home as a result of a divorce. Mr. Rhoads acquired the yacht in 2003, financing the $140,000 purchase partly with a home-equity loan on his house when home values were soaring. The yacht has two bedrooms and two bathrooms, though the living space is far smaller than what he had in the house that he sold at a loss earlier this year.

"The refrigerator is half the size of a normal home and the stove is, too, plus there is no dishwasher," said the 45-year-old vice president of a paper-shredding firm.

But like many live-aboards, Mr. Rhoads doesn't miss the expense of a mortgage payment and property taxes. While he was paying $4,000 a month for his house, he now pays $1,500 to live on his boat, which includes $400 for a berth fee at the Discovery Bay Yacht Club plus a loan on his boat.

"I would like to buy another home, but I'm waiting for my credit to get established as a single person and for the housing market to stabilize," Mr. Rhoads said. "For now, this is comfortable. For some people, living on a boat is a dream life."

Where the Action Is

noreply@blogger.com (The Future of Real Estate) — Tue, 23 Aug 2011 15:04:00 +0000

Across the country, new industry hubs are drawing entrepreneurs and investors—and offering start-ups support and safety in a turbulent economy

August 22, 2011, WSJ
By EMILY MALTBY

It's a lesson that's all too easy to forget in a world driven by mobile devices, cloud computing and home offices. There are big benefits to setting up shop in the right spot—especially among lots of peers in the same field.

Just ask sports-gear makers in Ogden, Utah. Or health-care companies in Nashville. Or nanotechnology researchers in Albany, N.Y.

These cities, and others like them across the country, have become hubs for specific industries. Entrepreneurs are moving there and flourishing in the teeth of a bleak economy. The cities, in turn, are nurturing the entrepreneurs by giving them access to funding, mentors and facilities.

All in all, these clusters can be ideal spots for an entrepreneur in the field. Being there means getting access to a much wider range of suppliers, customers, employees and industry experts. What's more, industry peers are often willing to support each other as they get off the ground, sharing recommendations about staffers, potential sales leads and attractive office space, or giving each other guidance and insight about the industry.

Jeffrey Logsdon can attest to that. Five years ago, he moved his cybersecurity firm from Phoenix to San Antonio—a city that's seeing a surge in business for companies in the field. Company revenue doubled within three years of the move.

"I'd attribute a lot of our success to the location," he says. "I think the availability of cybersecurity talent and the low cost of doing business here has helped us. And because there are so many different cybersecurity companies, we have improved each other's business through partnerships."

As a hub grows, it brings other benefits to small firms. For one thing, even as businesses cooperate, they challenge each other to innovate—to come up with new ideas that make them stand out from the crowd. "Specialization in a region increases patents, business formation and higher wages," says Rich Bryden, director of information products at Harvard Business School, who's working with a team mapping industry hubs in the U.S.

When businesses come together, they also catch the eye of big players with deep pockets—especially beneficial when the economy is weak and financing is limited.

"It's easier to be on the radar for investors when you're part of a critical mass," says John Fernandez, assistant secretary of commerce for economic development at the U.S. Economic Development Administration.

Hubs also catch the eye of government, says Dan Carol, senior fellow at the New Policy Institute think tank in Washington, D.C. A concentration of small firms in the same field is more likely to be recognized on the municipal level, where funding programs and policies can be created to stimulate their growth.

Here's a look at seven up-and-coming innovative centers. All have solid partnerships between the public and private sectors, a growing work force to fuel the industry and long-term strategies for development. And entrepreneurs say being there is vital to their success.

INDIANAPOLIS
LIFE SCIENCES

Indianapolis used to be the quintessential Rust Belt city. Now it's at the center of a statewide boom in the life-sciences business.

The state has added 8,800 jobs in the life sciences in recent years, and today some 825 medical-device companies, drug manufacturers and research labs call Indiana home.

Indianapolis, which is home to big names in the field such as Eli Lilly & Co. and health insurer WellPoint Inc., is leading the transformation. Corporations like these have added the lion's share of the state's new life-sciences jobs. Now they're helping smaller companies get off the ground, too—by spinning off new businesses as well as by backing independent start-ups. Eli Lilly, for instance, has contributed roughly $60 million to seed and venture funds that are supporting entrepreneurs.

That isn't the only way big companies are easing the way for small ones. With new firms arriving to supply the large drug makers, start-ups are getting access to a range of services at competitive prices.

"We have access to companies in Indiana where we can outsource functions like toxicology, analytics and clinical supply," says Ron Ellis, president and CEO of Endocyte Inc., a 65-employee firm that's testing a cancer treatment.

Many small firms, meanwhile, are helping others get off to a good start. David Broecker, president and chief executive of BioCritica Inc., an Eli Lilly spinoff, says his peers have referred employees, suggested work space and given information on tax and financial incentives.

It's just the environment he hoped for when he left the East Coast to build a company. He considered other spots but settled on Indianapolis because "it's all new and exciting here for these folks, so there is a hunger for doing this type of thing."

SAN ANTONIO
CYBERSECURITY

Washington, D.C., has usually taken the lead in creating Internet-defense systems. But the Alamo City is poised to give the Beltway a run for its money. There are more than 80 information-technology and cyber-related businesses in San Antonio, and that figure is increasing rapidly, according to the city's Chamber of Commerce.

Many entrepreneurs are anticipating a flood of government contracts from the new Air Force Cyber Command headquarters in town. The military chose San Antonio in part because the armed forces have always had a strong presence there—and many of the city's workers have security clearances from the Defense Department and the National Security Agency. Another big plus: a stream of skilled graduates from the Institute for Cyber Security at the University of Texas at San Antonio.

But not all the firms in town are counting on government contracts. The city has a growing group of businesses that cater primarily to the private sector, like MainNerve Inc., the company Mr. Logsdon moved to San Antonio. The firm helps health-care companies secure digital records and servers. "The quantity of people here allowed us to show more discernment in our hiring," says Mr. Logsdon. "It was the best place for us to find qualified and certified cybersecurity professionals—and it doesn't hurt that they have military experience."

ALBANY, N.Y.
NANOTECHNOLOGY

The capital of New York state is becoming a big player in a field that deals with small things—nanotechnology. The city now boasts more than 4,000 people in the industry, centered on the College of Nanoscale Science and Engineering at the University at Albany.

The school has doubled in size during the recession to its current 800,000-square-foot complex. Dozens of nanotechnology companies have established a presence there to take advantage of research facilities and business incubators; since 2008, nearly 50 new start-ups have launched within its walls.

The build-out was part of a state plan, formulated years earlier, to revive the economy in upstate New York. Financing came partly from the state and partly from corporations like International Business Machines Corp., which now have offices there alongside entrepreneurs. That means companies can share the cost of equipment and labor—and start-ups get to associate themselves with big names.

"The prestige of being here and the credibility is amazing, which helps when you are talking with VCs and investors and large companies," says Primal Fernando, CEO and chief technology officer of Resource Management Technology Systems Inc., which moved to Albany from La Junta, Colo., last year. "And the equipment available here is not available elsewhere."

Many companies are launching off-campus, as well, in laboratories that are opening in once-vacant buildings. And financiers and other vital players have been moving in to be a part of the action.

"Venture capital has been growing to feed the innovation," says Alain Kaloyeros, a physics professor and senior vice president of the college. "Suppliers and law firms are moving to the region to support this ecosystem, so it will be quite an exciting venture to watch."

KANSAS CITY
INFORMATION TECHNOLOGY

Welcome to "Silicon Prairie."

Kansas City, straddling the Kansas and Missouri state line, is home to tech giants like Sprint Nextel Corp. and Cerner Corp., but its industry ranks have been swelling with smaller firms. In 2009, the number of tech companies rose by 5% to 2,900, trumping the growth rates of well-known hubs like Silicon Valley, Boston and Austin, Texas, according to a 2010 study published by the TechAmerica Foundation.

Part of the lure for entrepreneurs: a high-speed fiber network from Google Inc., which chose Kansas City over 1,100 other cities to set up the service. Expected to roll out next year, the network will run 100 times faster than current broadband, which will likely bolster cloud-based technologies and pave the way for high-definition streaming services that will be hard to find elsewhere.

The Google initiative will be "an excellent platform for innovation," says Bryan Richard, founder of iCode Inc., a Web start-up that posts profiles of software developers. "Everyone in the technology business is talking about it here in town, and everyone wants to do something with it and maximize it."

Entrepreneurs who have relocated from the coasts also tout the friendly business environment. It's far less expensive to build a firm and develop technology, they say, and there are fewer state and city regulations to worry about. And, as in other hubs, many entrepreneurs are helping each other. "Numerous times people have asked me for things I have expertise in and there are times where I call competitors…for specific problems," says Donald Rossberg, president of Dataworks Inc., a technology-support and consulting start-up. "In the end, we all benefit."

ASHEVILLE, N.C.
BEER BREWING

Craft beer is a small industry, but it has a devoted customer base. One Southern town is going after those fans with vigor.

Asheville, a Blue Ridge Mountain town of 75,000, has 10 breweries, with two on the way. That can't compare with the 40 in Portland, Ore., but it stacks up to other beer havens like Milwaukee and Boulder, Colo., which both have fewer than a dozen. "Asheville is definitely on the map and well recognized in the craft-brewing industry," says Paul Gatza, director of the Brewers Association in Boulder.

Entrepreneurs new to the area seek mentoring from the established brewmasters and the Asheville Brewers Alliance, formed to exchange ideas and promote the industry. They also tap Blue Ridge Food Ventures, an incubator for developing and commercializing products.

Competition among the breweries is a key driver of growth. "Every time a new brewery opens, it has to create its own creative edge, and then the other breweries have to be creative to become relevant again," explains Bill Drew, owner and brewmaster at Craggie Brewing Co. "So it's good when the new guys come in; it keeps the old guys on their toes."

In fact, the beer culture has permeated the town, with a host of businesses cooking up beer-flavored edibles and artists making tap handles and bottle labels. The environment gives brewers a place to source ingredients and fuel creativity. "By local companies teaming together, it's pretty much a win-win," Mr. Drew says.

NASHVILLE, TENN.
HEALTH CARE

Early last year, the federal government passed legislation calling for a host of health-care reforms. And Nashville is poised to benefit from the overhaul.

There are more than 250 health-care companies in the city, and their numbers are rising. Employment in nursing, hospital and ambulatory services jumped 16% between 2004 and 2008, for instance. That, in turn, provides fertile ground for companies that create medical devices and patient-care systems.

The entrepreneurial spirit "is infectious," says Leon Dowling, founder and chief executive of IMI Health Inc., which collects and organizes health records to give insight into the best patient-care practices. "Within 10 miles of my office, I can have more potential clients than any other city in America."

Last August, the city launched an entrepreneur center to spur innovation; two-thirds of the firms that have sought mentoring and financing are related to health care. State programs have also helped propel the industry. Recently, some $180 million in public funds has been made available to burgeoning firms.

It's an attractive spot for entrepreneurs like Stephen Hau, president and chief executive of Shareable Ink Corp. The company, whose digital pen records doctors' notes and transfers them to an electronic format, launched nearly three years ago in Boston and established a presence in Nashville last year. Today, 60% of the company is in Nashville.

"The community here is so well versed in health care that it keeps us plugged in to the key issues and how to resolve them," says Mr. Hau. "And in terms of the investment community today, people are careful about where they place their bets. Being here, [investors] see we are aligned with thought leaders."

OGDEN, UTAH
OUTDOOR SPORTS

Ogden, a small city some 40 miles north of the capital, packs a concentrated punch in the outdoor and recreation industry.

Ogden made headlines in 2002, when it hosted events for the Salt Lake City Olympic Games. Those Olympic facilities, along with acres of pristine mountains, canyons and rivers, are the main reason outdoor-apparel and equipment companies have been moving to town: The site offers a perfect spot for testing new products, and it's easily accessible from a nearby airport that supports direct flights to Europe. What's more, business owners say, the growing base of competing companies in the area push each other to design the best equipment.

Utah has a relatively modest share of the industry; the state estimates it's home to about 5% of the outdoor-products firms in the U.S. Still, companies that expanded in or relocated to Utah have created at least 2,550 jobs in the past six years, according to the Economic Development Corporation of Utah.

Industry goliaths get partial credit for the surge in Ogden. Amer Sports Corp., the company behind Wilson, Atomic and other brands, consolidated its U.S. operations in 2007 and moved them to the town. Quality Bicycle Products Inc., a distributor based in Bloomington, Minn., set up its second location in Ogden in 2010.

Quality's founder, Steve Flagg, liked the growing retailer base, easy access to the West Coast and strong labor pool. But, he says, "the game changer was the transformation that the city was going through," as other companies moved in, and the local government actively recruited more.

Local leaders are also helping start-ups like Kahuna Creations Inc., a longboard, surfboard and landpaddle company, launch and grow. Kahuna founder Steve McBride says the mayor's office helped him land funding and find a low-rent facility in 2008. The company has grown 30% to 50% annually.

"You get a network of people who really want to help," Mr. McBride says. "We've been flourishing here."

Housing Pain Persists, but Less Pervasive

noreply@blogger.com (The Future of Real Estate) — Tue, 09 Aug 2011 20:26:00 +0000

August 9, 2011, WSJ

By Nick Timiraos

The pace of home-value declines eased during the spring, but worries over the economy and high levels of foreclosures mean that the housing bottom is as elusive as ever.

U.S. home values fell by 0.4% in the second quarter from the previous quarter, the smallest quarterly decline in more than four years, according to a report to be released Tuesday by real-estate firm Zillow Inc.

The report is the latest to highlight how home-price declines moderated during the spring, after a sharper-than-expected downturn during the winter. Home values fell by 3% in the first quarter. Zillow’s index shows that home prices have fallen for 60 consecutive months.

The biggest declines were reported in markets that have a big overhang of foreclosed properties and homeowners who are underwater: Sacramento, Calif., which fell by 2.7%, and Phoenix, which was down by 2.4%.

While it’s encouraging that more metro areas are reporting gains, “we have to remember this is coming on the heels of one of the worst quarters since the housing recession began,” said Stan Humphries, Zillow’s chief economist. “We’re not out of the woods yet.”

Mr. Humphries says he doesn’t expect to see a “true bottom” in home values until next year at the earliest. Home values in many markets continue to fluctuate as the volume of foreclosed properties listed for sale by banks rises and falls. Housing demand relies heavily on employment and consumer confidence, which remains shaky.

Prices declined sharply earlier this year and then stabilized in large part because of the share of foreclosed homes that were sold. Foreclosed properties tend to sell at greater discounts and can sometimes force other sellers to lower their prices. When the share of these “distressed” sales rises, home-price indexes tend to report bigger declines. As the share of distressed sales falls and as sales activity picks up, prices generally fare better. (Zillow doesn’t include foreclosed-property sales in its index.)

Nationally, home prices were down by 6.2% from one year ago at the end of June, which is an improvement from the 8.2% year-over-year decline reported at the end of March.

My Own Private Island

noreply@blogger.com (The Future of Real Estate) — Fri, 29 Jul 2011 15:01:00 +0000

Wealthy buyers are flocking to a little-known archipelago in the Bahamas, fueling an island building boom. Privacy comes at a price: Owning a personal island means importing everything from water to electricity.

By Candace Jackson
July 29, 2011, WSJ

Roughly 300 miles off the coast of South Florida is a string of mostly uninhabited small islands amid clear blue water and coral reefs on a limestone plateau. There's virtually no nightlife, no major airports, no celebrity chef restaurants. There are also no neighbors. That remoteness is attracting a rarefied group of wealthy entertainers and name-brand CEOs. In the world of high-end real estate, privacy is an increasingly prized amenity.

Islands in Exuma Cays, a 365-island archipelago in the Bahamas, have recently sold to producer/director Tyler Perry, spiritual leader Aga Khan and country singers Tim McGraw and Faith Hill, joining earlier arrivals Johnny Depp, David Copperfield and LVMH Chairman and Chief Executive Bernard Arnault. Ms. Hill and Mr. McGraw are in the final stages of construction on a roughly 15,000-square-foot, four-bedroom home on their 17-acre island, Goat Cay, which they purchased a few years ago, according to people familiar with the project. Mr. Perry bought a 25-acre island called White Bay Cay as well as a nearby seven-acre island in 2009, and is currently building a tropical/Balinese-style home with several guest bungalows.

Despite the weak economy, the number of millionaires in the U.S. and their combined net worth hit record highs in 2010, with investible assets up more than 8.4% from 2009, according to the World Wealth Report by Merrill Lynch and Capgemini. Several record-breaking real-estate sales this year have buoyed optimism in the ultra-high end of the market, including the $85 million sale of a Los Angeles estate owned by Candy Spelling earlier this month. In March, a Russian buyer paid $100 million for a home in Silicon Valley, the highest price ever paid for a single-family home.

Island development projects can take years—at least one under way now involves 150 workers. Locals say one of the biggest private resort projects under construction in the Exumas is a compound whose principal investors are the co-founders of California-based retailer Fry's Electronics, brothers John, Randy and David Fry and Kathy Kolder. On a group of eight islands known as Bock Cay, the project calls for a staff village with about 35 homes for employees, a main clubhouse and six guest estates built in various styles, including an Italian villa. Fifteen hundred palm trees have been imported. One unusual private-island feature in the works: an 18-hole Nick Faldo-designed golf course with at least one drive that goes over the ocean to reach a hole on a nearby island that's also part of the property.

A spokesman for Fry's says an opening date hasn't yet been set, and that the island will likely be available as a very high-end rental in the model of Sir Richard Branson's Necker Island in the British Virgin Islands. (Weekly rates at Mr. Branson's island start at $54,500 per night for up to 28 guests.)

The Exuma Cays (pronounced "Keys" by most locals and regulars) have many of the ingredients for a destination for the extremely wealthy: sandy beaches, turquoise water and limited development possibilities—90% of the islands are either uninhabitable or protected as part of a 176-square-mile marine park. The growing ease of staying connected with cable and the Internet, as well as improved desalination and diesel-generator technology, have also made the islands more attractive, says Tom Lawson, a resident who has developed, owned or managed several private-island properties there.

The relatively large number of islands makes the Exumas generally more affordable than other exclusive destinations like the Seychelles, says Farhad Vladi, the Germany-based founder of Vladi Private Islands, a private-island real-estate company. Although prices for islands in the Exumas have doubled in the last decade, the Seychelles cost even more because of their scarcity and extreme privacy, with most basic islands selling for around $30 million.

And the Exumas' relative lack of tourist infrastructure has kept them somewhat under the radar—people often arrive by yacht, sea plane or helicopter—although they are relatively close to the U.S. "I can be there for three or four days and you really don't see anybody," says Eddie Irvine, a former Formula One racecar driver from Northern Ireland who purchased an undeveloped island in the area about a year ago.

Steve and Patrick Harrington, former investment banker brothers originally from Chicago, have purchased islands in the Exumas for investment and development purposes. One they've recently put on the market for $22 million has a 4,000-square-foot house, two miles of coastline and 145 acres of land purchased in 2006. Steve Harrington says he's drawn to the English-speaking, stable Bahamian government and the pristine "Corona commercial look."

Building a luxury home on a remote island means importing everything from electricity to cellphone towers to water purifiers. Eduardo Martinez, a Miami-based architect who has designed homes and interiors for several island owners in the Exuma Cays, says that the first step is dredging a marina, then building temporary houses and dining facilities for staff, the majority of whom legally have to be local Bahamians. A typical project takes at least 2½ years. "The closest lumber yard is in Fort Lauderdale," says Mr. Martinez. "You can't run to the corner and get nails and concrete."

Building materials must be imported on large barges, which take about two days to make the trip from Florida, weather permitting. For islands without an existing power source, electricity comes from diesel generators, which also must be imported. According to Ed Bosarge, the principal beneficiary of the trust that owns a land-lease and building rights to Yonder Cay, just south of Mr. Depp's island, commonly used diesel generators can generate a power bill as high as $1 million a year.

The real-estate bust did affect these shores, with islands sitting longer and often selling for lower prices. An unnamed, 681-acre island with an airstrip, a seven-bedroom, six-bathroom timber-frame main house, a gym and staff buildings has been on the market for $55 million for 2½ years. Earlier this month, it was offered in a sealed-bid auction. The listing broker, George Damianos, says two reasonable offers have been received, but a sale hasn't been finalized.

One of the least expensive on the market now is Nicolas Cage's former island, Leaf Cay, which remains completely undeveloped and is available for $8.5 million. At the top end of the market is Cave Cay, a 250-acre island priced at $110 million that has its own harbor and runway. Listing broker John Christie, of H.G. Christie, says there are several buildings on the property, some of which are not yet completed. He says it has been on the market for about a year and the sellers are open to offers for less than the listing price.

"It's definitely a buyer's market right now," says Kevin Cross, a Nassau-based real-estate broker. But he and others say buyers are emerging. "We're getting real buyers looking in the $30 million to $50 million price range," says Mr. Christie.

Movie stars, royalty and old-money families have yachted around the Exumas and vacationed on the main island, Great Exuma, since at least the 1950s. On the market right now is Children's Bay Cay, the $37.5 million former vacation playground of Jessica Tandy and Hume Cronyn, who vacationed on the island in their movie-making heydays in the 1950s and '60s. It's been owned by heirs to the Johnson & Johnson family fortune. They couldn't be reached for comment.

During the 1970s and 1980s, however, the area's reputation was marred when drug smugglers used the islands as a key trafficking point to smuggle cocaine to the U.S. from South America. Norman's Cay was once the headquarters for Medellin cartel leader Carlos Lehder, before he was arrested in 1987. The Bahamian government eventually stabilized, and tourism in the country began to thrive in the late 1990s with the construction of massive resorts on Nassau and Paradise Island. (Another massive resort, Baha Mar, a $3.4 billion hotel and casino, is currently under construction in Nassau.)

Perhaps the best-known private-island compound is magician David Copperfield's 700-acre resort Musha Cay, which is spread across 11 islands. He purchased several of the islands a little over five years ago for more than $50 million and spent almost another $30 million gut-renovating and expanding his ultra-high-end resort there. There are five guest houses with private beaches, an outdoor movie theater and an on-site staff of 30 that includes a masseuse and sommelier. Visitors can rent the entire property, which has 40 private beaches and sleeps up to 24, for rates starting at $37,500 a night, including meals and beverages. (Penélope Cruz was married there, as was Google co-founder Sergey Brin.)

Mr. Copperfield describes it as a place where he can "create magic in three dimensions" and where a stay can include an optional, interactive treasure hunt where he says guests are immersed in a "living movie." (Dozens of actors and illusionists are imported to play pirates.) Recent additions to the resort include trained macaws that pick up Musha Cay's refuse and a "secret village," opening soon, where visitors can interact with tame monkeys.

The Exumas' newest neighbors could be moving in soon. Ms. Hill and Mr. McGraw's home on Goat Cay, a previously undeveloped island, is nearly completed and includes a single-story tropical-plantation-style main house with a lookout tower, and three smaller homes for a manager and staff, according to people familiar with the project. A representative for the couple declined to comment.

Tyler Perry's island retreat, White Bay Cay, was also previously undeveloped and consists of a 25-acre island and a seven-acre island relatively close by; both are near Mr. Depp's island. (The 25-acre island was listed at one point for $7 million.) The spread, which is still being completed, includes a 14,000-square-foot main house and five to six smaller guest bungalows. There's also a spa, a tennis court and a marina. Mr. Perry's representative said he had no comment.

The Aga Khan, the Muslim spiritual leader and philanthropist, purchased 349-acre Bell Island in 2009 for $100 million, according to public records. Gail Lockhart Charles, the Bahamas-based representative for the Aga Khan, said that the existing homes on the island—flat, concrete structures built to maximize water views and minimize potential hurricane damage—are being renovated to create a "private family retreat." Also in the works is a native-plant nursery and landscaping with indigenous plants and flowers. Ms. Lockhart says the project is scheduled to be finished in about six months.

In recent years, owners have been toning down the glitzy look. The latest trend is to build slightly less opulent homes that use solar power and are self-sustainable, Mr. Martinez says, though that can add to the overall cost. (Johnny Depp's island, Little Hall's Pond Cay, has at least some solar power. A representative for Mr. Depp said he had no comment.)

Former race-car driver Mr. Irvine says on his island, electricity will be provided by solar panels and solar-powered batteries; transportation will be by kayak or bicycle. Mr. Irvine says he's working on a water-making facility and plans to try to source most of what he eats while there from the island itself. "If you want to be living the Palm Beach lifestyle, live in Palm Beach," he says.

Mr. Bosarge of Yonder Cay claims the island will be the first of its size in the Caribbean to be entirely powered by renewable energy. The 70-acre island now has 10 wind-turbine generators, solar power with backup batteries and a reverse-osmosis water-purification system that will make 21,000 gallons of water a day.

To complete Yonder Cay by its November deadline, the project's Houston-based chief operating officer, David Houston, says there's currently staff of 150 on the island, 110 of whom are living there in temporary housing. The rest are ferried back and forth to a populated island, with existing housing, in the morning and evening.

Vacation Homes: Why It May Be Time to Buy

noreply@blogger.com (The Future of Real Estate) — Thu, 28 Jul 2011 18:34:00 +0000

By JESSICA SILVER-GREENBERG
July 23, 2011, WSJ

The clouds hanging over upscale vacation-home markets are starting to lift. While prices are still falling in most regions, the luxury segment is picking up, and brokers are reporting more inquiries than they have had in years.

The upshot: If you have the money and plan on staying put for the long term, now may be a good time to buy.

Five years after housing's peak, markets that once were out of sight even for well-heeled buyers are now in range. On Hilton Head Island, S.C., a three-bedroom home nestled between the Atlantic Ocean and Calibogue Sound changed hands in April for $750,000, after having sold for $1.2 million in June 2006. In Vail, Colo., a three-bedroom home that fetched $3.3 million in 2008 sold in February for $2.5 million.

Overall, the median second-home price was $150,000 in 2010, down 11% from 2009 and roughly 25% from 2006, according to the National Association of Realtors. That isn't pretty, but it is only slightly worse than the 22% drop for the overall housing market. The higher end of the market—homes in the $5 million-plus range—has held up better, says Douglas Duncan, chief economist at Fannie Mae. "At the top of the market, particularly luxury homes, prices have proven very elastic, and have sprung upward quickly," he says.

Buyers are taking heed. On Palm Beach Island, Fla., sales were up 50% in the year ending June 30. Transactions in the Hamptons, on New York's Long Island, jumped 59% in the second quarter from a year earlier. In Aspen, Colo., sales for the year ending May 31 were up 10%.

The number of people looking at properties is up as well: In Vail, Hilton Head and Palm Beach, foot traffic has jumped by at least 30% this year, according to local real-estate agents. "People have frugality fatigue," says John Burns, president of John Burns Real Estate Consulting Inc. in Irvine, Calif.

This isn't to suggest the boom is back. In general, properties situated in prime locations—on the water or near a ski slope—are selling well, but homes in less desirable spots are languishing on the market. Banks are increasingly wary of making second-home mortgages, particularly "jumbo" loans above federally guaranteed limits; 10% of banks raised their standards on such loans last year, according to the Federal Reserve. And the tax deduction for mortgage interest on second homes is at risk of being cut back.

Geography is the best guide to today's vacation markets: In some places prices are holding up, while in others they are still tanking.

The blue-chip market consists of a handful of spots where prices have stabilized and could soon rebound as sales pick up. Some, such as Hilton Head, have benefitted from tough restrictions on building, which kept inventories manageable during the bust. Prices there have risen by 4% during the past year.

The other market is still very much in crash mode. In places like Miami, Fla. and even Martha's Vineyard, Mass., prices have continued to drop as foreclosed properties flood the market. But bargains abound as sellers cut their asking prices or accept less to unload properties. In March, for example, a three-bedroom home on Palm Beach Island, Fla., listed for $4.6 million sold for just $2.5 million.

With the broader housing market still so sick, it might seem the height of folly to jump into such unpredictable investments now. Even in blue-chip markets there isn't a guarantee of price appreciation anytime soon. Indeed, over time vacation-home markets don't do noticeably better than primary-home markets. Homes on Martha's Vineyard appreciated by 40.9% over the past 10 years, edging out Boston's 40.5%. But Hilton Head's 15% gain was trounced by nearby Charleston, S.C.'s 25.4% rise.

Then again, most vacation-home buyers aren't looking to make big investment profits. More than 80% of second-home buyers surveyed by the National Association of Realtors in May reported that they bought for consumption reasons—to live in the house and enjoy it.

And many second-home buyers are wealthy enough to pay in cash, sidestepping the restrictive and time-consuming mortgage process. Last year, 36% of vacation-home transactions were all-cash deals, up from 29% in 2009, according to the National Association of Realtors. "If you have cash right now, you are in unique position," says Paul Dales, senior U.S economist with research firm Capital Economics.

If you are thinking of taking the plunge, here is a look at some prominent markets across the country.

Blue Chips

These markets are stabilizing and, in some, prices already have started to rise.

Santa Barbara, Calif.

Median home price: $695,000
Median home price five years ago: $1,000,000

Market Snapshot: Situated roughly halfway between San Francisco and Los Angeles, Santa Barbara is starting to reel in wealthier buyers again, says Ken Switzer, a real-estate agent with Prudential California Realty. While prices have plunged since the peak, they have steadied out over the past two years, and sales are starting to jump, according to Paul Suding, president of Santa Barbara's Association of Realtors. Strict zoning and scarce available land helped protect Santa Barbara from the overbuilding that swept much of California, he says.

Aspen, Colo.

Median home price: $781,000
Median home price five years ago: $802,000

Market Snapshot: Housing economists look to Aspen as a luxury-market bellwether. Dotted with upscale boutiques and four-star restaurants, the ski town is welcoming buyers with ample cash on hand, says Steven Shane of SDS Real Estate, a local real-estate broker. Sales of $1 million-and-above are on the rise—especially on the higher end. So far this year, 18 properties priced at $5 million or above have sold, up from 14 in the same period last year.

The Hamptons, N.Y.

Median home price: $680,000
Median home price five years ago: $1,100,000

Market Snapshot: Prices have fallen 42% since their peak, but sales are picking up, say real-estate agents. That's thanks, in part, to the return of Wall Street bonuses, says David Adamo, chief executive of Luxury Mortgage Corp. in Stamford, Conn. Despite booming sales, prices have fallen in the past year, creating opportunities for buyers, according to Clear Capital, a Truckee, Calif.-based research firm. The best deals, of course, can be found away from the water, where inventories are high and properties are sitting for longer.

Hilton Head, S.C.

Median home price: $307,000
Median home price five years ago: $574,000

Market Snapshot: Sales are up 17% for the year ending June 30, according to Jim Keilor, a real-estate agent with Hilton Head-based Alliance Group, while prices are ticking up. The vacation spot, famous for its golfing and lush beaches, didn't see the overbuilding found in places like Phoenix and Las Vegas. "We were insulated from much of the pain elsewhere because we are an island," Mr. Keilor says. Interest from buyers is back to 2006 levels, says Randy Smith, a real-estate agent on the island.

Depressed Markets

These areas are still suffering—but bargains abound.

Martha's Vineyard, Mass.

Median home price: $403,000
Median home price five years ago: $638,000

Market Snapshot: Even though this exclusive northeastern island sidestepped overbuilding during the boom, buyers still seem reluctant, says Sean Federowicz of Coldwell Banker Landmarks, a broker on the island. The problem: Martha's Vineyard is made up of six different communities, some of which have had waves of foreclosures, says Carol Shore, a real-estate agent on the island. "Even though the $22 million waterfront properties are selling, the lower-end properties are dragging down much of the rest of the market," she says.

Vail, Colo.

Median home price: $385,000
Median home price five years ago: $562,000

Market Snapshot: Unlike its nearby resort cousin, Aspen, Vail experienced a wave of development just as the market crashed, says Josh Lautenberg, owner of Sonnenalp Real Estate in Vail. Since the peak, available inventory has shot up by 40%, he says. Although sales started picking up in 2010, there has been another dip in activity while people "wait to see if the other shoe is going to drop."

Miami, Fla.

Median home price: $130,000
Median home price five years ago: $302,000

Market Snapshot: Miami was among the biggest casualties of the housing crash, in part because a wave of speculative building swept through the market. Prices have fallen 57% percent since 2006, reports Clear Capital, and 10% from last year. But bargains are beginning to attract more foreigners—particularly wealthy Venezuelans looking for a safe haven from President Hugo Chavez, says Michael Internosia, vice president of sales for Pordis Residential, a Miami based real-estate firm, who notes that such buyers made up 35% of his sales so far this year.

Palm Beach, Fla.

Median home price: $254,000
Median home price five years ago: $758,000

Market Snapshot: A condo binge during the boom has led to a glut—and shoppers are swarming on low-priced units, says Alex Villacorta, director of research and analytics for Clear Capital. That is presenting bargains at the higher end, says David Fite, owner of real-estate agency Fite Shavell & Associates. Sales are on the rise: there were 29 transactions in the first quarter, typically the busiest selling season, up from 6 in 2009 and 26 last year, says Christine Franks, president of real-estate broker Wilshire International Realty.

Mortgage Rates Are Great, If You Qualify

noreply@blogger.com (The Future of Real Estate) — Wed, 13 Jul 2011 15:11:00 +0000

July 10, 2011, WSJ
By TOM LAURICELLA

With interest rates near rock bottom and home prices down, this ought to be a great time to buy a home. But for most people, it's a lousy time to get a mortgage.

Years after the collapse of the real-estate market and resulting financial crisis, it takes nearly pristine credit scores and hefty down payments to get the best rates.

"Since 2009, credit has become a lot tighter," says Greg Reiter, who follows mortgage-backed bonds at RBS Global Banking & Markets.

For borrowers, this highlights the need to pay close attention to credit scores. New rules unveiled last week should make it easier for consumers to see how their credit scores affect the interest rates they pay. These rules, the result of last year's Dodd-Frank financial-services legislation, require banks and other lenders to disclose to consumers the scores used to determine interest rates charged borrowers, or to deny credit.

The new reality for borrowers can be seen in the FICO credit scores on the loans that banks are giving out and that are backed by government agencies Fannie Mae and Freddie Mac. These days the two agencies essentially finance 75% of all mortgages by purchasing the loans from the banks. In the process, they shape how much it costs to borrow.

FICO scores range from 300 to 850. Pre-crisis, a score of 700 to 725 was deemed solid and a borrower could expect to get a "conventional" mortgage at the lowest rates.

From 2003 through 2006, 82% of Fannie Mae mortgages were for borrowers with a score between 700 and 750, according to data compiled by RBS.

But so far in 2011, only 13% of Fannie Mae mortgages carry that score, and just 1.7% have a score of 700 to 725, according to RBS. This year, 75% of Fannie Mae mortgages are for FICO scores of 750 to 775, up from less than 5% before 2005.

Meanwhile, the median score is 711, according to FICO.

"Half the population is locked out" from the best mortgages, says Mr. Reiter.

The upshot is that borrowing costs more even with a 730 score and a 20% down payment, says Norman Calvo, president of Universal Mortgage in Brooklyn, N.Y.

"Three years ago, if you had 730 it was excellent," Mr. Calvo says. Today, he says, it could cost an extra 0.125 percentage point per year on a mortgage, "just because you have one little nick on your credit report."

For more typical scores, the premiums are even bigger. At 700 to 725, it's usually an extra quarter percentage point, and at 630 -- if a borrower can find a loan -- the additional cost is 1.5 percentage points, Mr. Calvo says. "If you have a credit score of less than 680, you've got to be worried about approvability."

The news is also grim for those looking to refinance. Based on the level of interest rates, RBS estimates 60% of agency-backed mortgages should be eligible to refinance. But once home values and credit scores are factored in, just 12% are eligible.

These trends show the importance of understanding credit scores. Mr. Calvo says borrowers sometimes unintentionally make matters worse. For example, closing an unused credit card can actually lower a score in the short term, he says.

Check your credit scores at AnnualCreditReport.com. And to learn more about scores, visit the education section of myFICO.com.

Luxury home sales rebound, but at bargain prices

noreply@blogger.com (The Future of Real Estate) — Wed, 13 Jul 2011 15:05:00 +0000

July 13, 2011
Louis Aguilar/ The Detroit News

Sales of $1 million-plus homes in Metro Detroit are brisk again after two years of stagnation, according to industry analyses and local real estate agents.

But it's a painful recovery: Prices have been slashed. Sales have not returned to levels seen before the housing crash and economic recession. And most luxury houses have been on the market sometimes for several years.

Examples of the discounts buyers have gotten or could receive on high-end homes in the past six months include:

A Bloomfield Hills home originally listed at $7.9 million sold for $1.7 million in January — a nearly 80 percent markdown. It was on the market for 31/2 years.

A Bloomfield Township house stayed on the market for 41/2 years before being sold in February at a 70 percent discount of $1.87 million.

In Grosse Ile, an estate formerly owned by the late auto aftermarket magnate Heinz Prechter was listed at $11.2 million in 2004. The current asking price is $5.2 million.

"People have succumbed," said Marie Sexton, a West Bloomfield Realtor for Re/Max Property Source. She has sold three $1 million-plus homes so far this year. It is common for sellers to cut half a million dollars off their original asking price, Sexton said.

"(Sellers) have admitted this is where prices are going to stay for a while — no more holding on for a price that you could have gotten a few years ago. It's time to finally sell. But also buy at an incredible bargain, too," she said.

In 2008, sales of million-dollar houses in Macomb, Oakland and Wayne counties plunged to 54 and 2009 wasn't much better with a total of 65 sales, according to statistics from Realcomp II Ltd., a Farmington Hills real estate information company.

Last year, sales improved 42 percent when 92 properties were bought. This was a marked contrast with overall home sales in Metro Detroit, which fell 8.6 percent in 2010 compared with the prior year, according to Realcomp.

Agents optimistic for 2011

So far through June of this year, 45 houses have been sold for $1 million or more in the three-county region, according to Realcomp. That's about the same as the 44 high-end homes sold during the same six-month period last year.

Several real estate agents said they hope more than 100 high-end properties can be sold in Metro Detroit this year, a number not hit since 2006.

"This year, we've got many more clients finally out looking again at properties, even compared with last year," said Ronni Keating, a Realtor with SKBK/Sotheby's International Realty in Birmingham.

"It's confidence in the economy, interest rates are at an all-time low, (and) prices are never going to be better."

The lion's share of sales activity of $1 million-plus homes is in Oakland County, where 83 high-end properties were purchased in 2010 compared with seven luxury homes in Wayne County and two in Macomb County, according to Realcomp.

"It's the same story. The auto industry has stabilized, and that means everything else is stabilizing," said Realtor Nanci Rands.

She and Meredith Rands Colburn, both associate brokers at Birmingham's Hall & Hunter Realtors, are "very, very busy this year," Rands said.

Many sellers have had their properties on the market for months.

For homes that sold for $1.5 million this year in Oakland County, the properties sat on the market for an average of 254 days, according to data provided by Sexton.

Amenities can drive sales

The average selling price of the Oakland houses was $1.8 million. The average listing price was $2.2 million.

This was a decline from 2010, when the average selling price was $2.3 million and the average listing price was $2.8 million, Sexton said. Average days on the market: 300 or nearly two months shy of a year.

In comparison, the median price of a home in Metro Detroit was $65,000 in June, the latest monthly data available, down 13 percent from a year ago, according to Realcomp.

When prices are competitive, what sells a luxury home are its amenities, Rands said.

"This is for people who enjoy a lifestyle that they can share with others," said Rands as she recently showed off a $4.2 million English Tudor home in Franklin Village. The amenities include a two-story library, multiple fireplaces, a wine cellar, swirling staircases, a pond with a fountain and a gym.

"Many of our clients have made the choice that they want to stay in the area," Rands said. "They can live comfortably."

The Fall of the House of Kluge Leads to the Rise of the Yard of Trump

noreply@blogger.com (The Future of Real Estate) — Thu, 07 Jul 2011 18:04:00 +0000

July 1, 2011, WSJ
By Robert Frank

Donald Snaps Up Lawn, Driveway of Foreclosed Manse; Bank Is Not Amused

In the history of rapid wealth loss, Patricia Kluge stands apart. Once married to one of America's richest men, she won a divorce settlement in 1990 worth more than $100 million and proceeded to spend it on her lifestyle and business ventures. She was forced to sell off her Cartier diamonds, Givenchy gowns and silk drapes before declaring personal bankruptcy in June.

Ms. Kluge, shown last year at the estate, plowed much of her fortune into her dream of making wine in Virginia after her divorce.

Yet the Fall of the House of Kluge has been a windfall for one man: Donald Trump.

As Ms. Kluge's empire collapsed, Mr. Trump bought. Over the past six months, he swooped in and picked up many of the pieces of her palatial Virginia estate and winery. He bought the 1,000-acre vineyard and winery for a fraction of their original value. He bought 200 acres nearby for less than $500,000, with help from Ms. Kluge and her son.

Now, the pompadoured billionaire and reality-TV star may have outplayed a much bigger rival in a bid for Ms. Kluge's crown jewel: her mansion. Bank of America owns the house after foreclosing and is trying to sell it for $16 million. The 24,000-square-foot neo-Georgian palace has 45 rooms, a spa, home theater, 3,500-bottle wine cellar and 2,000-square-foot sitting room.

One thing the house doesn't have, however, is a front yard. Mr. Trump owns that, having purchased it with his 200 acres. He also owns most of the driveway and the backyard, making a sale to any other buyer difficult. Mr. Trump said he would buy it from Bank of America for $3.6 million.

To make his point, he has erected signs on the front lawn of the mansion that read, "No Trespassing. This Land is Owned by Trump Virginia Acquisitions LLC," aimed at warding off possible buyers. He has also let the lawn go to seed.

"Maybe someone is stupid enough to buy the house," Mr. Trump said. "I wish them luck."

The broker for the house, Joseph Marchetti III, responded: "We believe the house is a salable asset as it is."

The mansion spat is just the latest drama to emerge from the outsize life of Patricia Kluge. Ms. Kluge, who was born in Baghdad and once posed nude for a London magazine, married John Kluge in 1981. Mr. Kluge, 34 years her senior, was named the second-richest man in America in 1986 by Forbes magazine after making billions from his Metromedia broadcasting empire. Ms. Kluge became a prominent socialite in New York, Palm Beach and Virginia.

In 1990, the Kluges divorced. Media reported that Ms. Kluge received $1 billion, but the settlement—which included an income stream and property—was actually worth between $100 million and $200 million, according to people familiar with her finances. Mr. Kluge died last September at the age of 95.

After the divorce, Ms. Kluge plowed much of her fortune into her grand dream: making wine in Virginia. As part of the divorce, she kept the Virginia estate—a scenic tract of rolling hills and lakes nestled below the Blue Ridge Mountains and just down the road from Monticello, the Thomas Jefferson estate. She turned it into the Kluge Estate Winery and Vineyard. She poured more than $100 million into the property and business, say people familiar with her finances. Yet she sold only about a third of her more than 30,000 bottles a year. In 2009, she put the house up for sale—first for $100 million, then $48 million and finally $24 million.

Bank of America, which had a mortgage of $22.8 million on the mansion, foreclosed in February. Mr. Trump bid $3.6 million for the house at the foreclosure auction. Yet Bank of America bought the home back for $15.3 million. (It isn't uncommon for banks to buy back their foreclosed properties at auction). The bank said its bid was in line with the appraisal for the house.

Mr. Trump, however, had quietly cut a side deal that would frustrate the bank's plans. He and the Kluges had been friends for more than 30 years. When Ms. Kluge ran out of money, she came to Mr. Trump's office asking for a rescue.

Mr. Trump saw the potential for a kind of Virginia Mar-a-Lago, with a golf club and guest rooms, built around a vineyard instead of Palm Beach. Ms. Kluge's interest was in keeping the house, land and vineyard together and staying involved in the winery.

Before the February foreclosure, Mr. Trump paid $500,000 for about 200 acres around the house. The property included most of the front yard, most of the driveway and a large chunk of the back yard. The deal also included a right of first refusal on the mansion, meaning that Mr. Trump had the right to match the offer of any other would-be buyer.

The seller of the 200 acres was a Kluge-family trust created for John Kluge II, John's son. People familiar with the trust say John Sr. split off the front yard, driveway and right of first refusal from the house to benefit his son and to prevent his ex-wife from selling the house without permission from his son's trust.

Meanwhile, Mr. Trump began scooping up the other pieces of the estate. The vineyard had been taken over by Farm Credit of the Virginias ACA, which had a $34.8 million lien on the business.

Mr. Trump says he offered the bank $21 million in cash, but the bank declined. An attorney for Farm Credit says Mr. Trump refused to put the offer in writing.

In May, the vineyard went on the auction block and Mr. Trump won the bidding for most of the vineyard for $6.2 million—far less than the $60 million that banks and lenders had once valued the business and property. He paid an additional $1.7 million for equipment and inventory.

Mr. Trump's son Eric is now running the vineyard with assistance from Ms. Kluge. In a statement, Ms. Kluge said she is "thrilled at having a second chance to fulfill my dream."

Meanwhile, Mr. Marchetti says he has had expressions of strong interest in the house from prospective buyers. Even after Mr. Trump's purchase, the house has 95 acres, as well as access rights to the driveway. Mr. Trump's front yard has a conservation easement, meaning he can't easily build in front of the mansion.

As for the Trump signs, Mr. Marchetti says buyers hardly notice.

Rents Rise, Vacancies Go Down

noreply@blogger.com (The Future of Real Estate) — Thu, 07 Jul 2011 17:51:00 +0000

July 7, 2011, WSJ
By WESLEY LOWERY

Apartment landlords are enjoying rising rents and falling vacancies.

The average effective rent, the amount paid after discounting, was $997 in the second quarter of the year, up from $974 a year earlier, according to a report scheduled for release Thursday by Reis Inc., which tracks leasing data for 82 markets. Second-quarter rents rose in all but two markets.

Rent levels rose fastest in San Jose, Calif., to $1,501 in the second quarter. The average effective rent in San Francisco was $1,806; Wichita, Kan., $495, and New York, $2,826.

Vacancies, meanwhile, fell in 72 of the 82 markets during the second-quarter vacancy rate to 6%, the lowest since 2008 and compared with 7.8% a year earlier, according to Reis. Vacancies declined fastest in Charleston, W.Va., Greensboro/Winston-Salem, N.C., and Richmond, Va.

"Rising rents and falling vacancies are the perfect situation for landlords," said Rich Anderson, an analyst for BMO Capital Markets. "It's like drinking without the hangover."

But there were some cautious signs in the data. Landlords filled a net 33,000 units in the second quarter, a slowdown from the 45,000 units they filled in the first quarter. That was somewhat surprising because typically, the net "absorption" rate falls faster during the summer as college graduates leave campus and descend on cities in search of jobs. Some analysts said the slower absorption rate could be linked to slower job growth, although it is too soon to know for sure. The peak apartment renting season runs from May to September.

"When you're going from big numbers and getting gradually smaller it's tough to determine if things are in fact cooling," says Haendel St. Juste, an analyst at Keefe, Bruyette & Woods.

Meanwhile, supply remains constrained. Roughly 8,700 new apartment units opened during the second quarter, the second-lowest quarterly tally for new completions since Reis began collecting data in 1999.

But there is new construction in the pipeline. The CoStar Group, a Washington, D.C.-based real-estate research firm, expects about 22,500 units to be added this year, followed by 94,600 in 2012 and more than 109,000 in 2013.

But as long as employers keep adding jobs to the economy, analysts say, they expect vacancy rates to keep falling and rents to keep rising. "Barring some unexpected shock from the global economy, we expect the recovery to continue through 2011," Reis wrote in the report. "Vacancies should continue to decline while rents rise at an even faster pace than we observed in the first half of the year."

Why It's Time To Buy

noreply@blogger.com (The Future of Real Estate) — Tue, 07 Jun 2011 20:07:00 +0000

The Clouds Haven't Quite Parted, But the Long-Term Case for Home Ownership Is Looking Stronger

June 4, 2011 WSJ

By RUTH SIMON and JESSICA SILVER-GREENBERG

Back in June 2006, when the housing market peaked, the prospect of a five-year national housing bust seemed unimaginable to most people. And yet here we are, with the latest Standard & Poor's Case-Shiller index showing that prices hit new bear-market lows, falling back to 2002 levels nationally and to 1990s levels in some battered regions.

Despite all the gloom, however, there are growing indications that it is a good time to buy. Mortgage rates, which fell to 4.55% for the week ending June 2, according to Freddie Mac, are near 50-year lows. Homes have become more affordable than they have been in years: According to Moody's Analytics, the ratio of home prices to income is now 20.9% lower than the 15-year average through 2010, and 12.5% lower than the 1989-2004 average. A historic glut of homes, meanwhile, has created a buyer's market: There were about 15 million vacant homes in the U.S. last year, according to John Burns Real Estate ConsultingInc.—some 3.1 million more than normal.

Such conditions might not last long. Moody's Analytics predicts that the number of distressed sales will begin to fall in 2013, and that prices will begin to edge upward then. Home building is at a virtual standstill, so the supply overhang isn't likely to get much worse. Meanwhile, demographic indicators such as "household formation"—the number of new households each year—are on the rise, and promise to take a bite out of the glut in coming years.

The upshot: "While we might not see rapid growth in the next couple of years, there are a tremendous number of positive signs that could lead to a rebound," says Anthony Sanders, a real-estate finance professor at George Mason University.

The short-term outlook isn't encouraging. Job growth remains weak, foreclosure sales are making up more of the market, and economists are predicting that home prices will fall more in the coming months.

But the long-term benefits of homeownership remain very much intact. For now, at least, you can deduct the mortgage interest on your taxes—a big perk for people in higher tax brackets. You get to paint your walls any color you wish, without having to clear it with a landlord. And assuming you can buy a home for about the same price as you can rent one, buying will give you the ability one day to live rent-free. Come retirement time, a paid-off mortgage means your monthly expenses are significantly reduced, and you have a chunk of equity to play with.

So what might the next five years look like? Once the foreclosure mess begins to clear up, say housing economists, the traditional drivers of the housing market—demographics, affordability, loan availability, employment and psychology—should take over.

Here is a glimmer of what the future may hold: While overall home prices fell by 7.5% in April over the same period a year earlier, according to CoreLogic, a Santa Ana, Calif., provider of real-estate data and analytics, if you exclude distressed sales, prices were off just 0.5%. So if you are in a market that isn't battered by foreclosures, you may be close to a bottom already.

"The regular marketplace is hanging tough," says CoreLogic chief economist Mark Fleming.

Here is a look at five key factors that will govern local markets over the next several years:

Demographics

Household formation fell during the economic downturn as a weak economy led some people to stay in school, double up with roommates or move in with family members. According to Moody's Analytics, the number of new households renting or owning a home dropped to 578,000 in 2008 from nearly 2 million in 2005, just before the peak of the housing boom.

But household formation increased to nearly 950,000 last year, says Moody's, and should average 1.2 million over the next decade.

That, combined with increased obsolescence and higher demand for second homes, should begin sopping up excess inventory in much of the country over the next two years, Moody's says.

"Whatever the excess supply of housing is, it is shrinking pretty fast," says Thomas Lawler, an independent housing economist.

Some of the uptick in household formation is likely to come from the leading edge of the echo baby boomers, who have been waiting for the economy to recover before striking out on their own, says William Frey, a demographer with the Brookings Institution. That is likely to fuel an increase in demand for both rental apartments and starter homes.

The portion of people moving across the country has fallen to the lowest level since World War II, he adds. That is a sign that many people have put their lives on hold because of the weak economy.

"When things do pick up, there will be this pent-up demand for everything involved with starting a household," Mr. Frey says.

Of course, when prices in healthier regions begin to rise, many would-be sellers who have sat on the sidelines could begin putting homes on the market, muting the price gains at first, says Susan Wachter, a professor of real estate and finance at the University of Pennsylvania's Wharton School. Even so, she expects home prices to stabilize and begin to strengthen over the next two or three years.

There also are some powerful demographic cross-currents worth considering. The first baby boomers turned 65 in January, an age when demand for new homes falls and many begin to think about downsizing. "The baby-boom generation pushed prices up as they got older," says Dowell Myers, a professor of urban planning and demography at the University of Southern California. But in the coming years, "boomers will start flooding the market on the supply side" with larger homes, while fueling new demand for smaller properties with more services and amenities.

Affordability

Rising home prices made renting cheaper than buying in many parts of the country. But that dynamic has begun to change: Housing affordability, as measured by the ratio of median home prices to median household incomes, has fallen below pre-housing bubble levels in just over two-thirds of the country, according to an analysis of more than 380 metro areas by Moody's Analytics.

Renting is still cheaper than buying in most markets, but rising rents and falling house prices mean that, in some areas, this won't be the case for long. Buying a home is already cheaper than renting in Chicago, Cleveland, Detroit and Orlando, Fla., according to Moody's Analytics. In other markets, including Dallas, Las Vegas and Sacramento, Cailf., the equation is likely to soon turn in favor of homeownership if current trends persist, the firm says.

In Ann Arbor, Mich., where home prices fell 11.2% between 2007 and 2010, according to Fiserv Case-Shiller, housing affordability has risen well above historical levels, according to Moody's Analytics.

That is good news for home buyers such as Steven Upton, a 42-year-old photographer, who in June will close on four-bedroom brick house on 10 acres in an upscale community in Ann Arbor. Mr. Upton paid $400,000 for the home, which previously listed for $600,000. "It's a tremendous deal," he says.

Before buying a house, it is wise to compare rental prices for similar properties. To be ultraconservative, wait until the monthly outlays, including taxes and insurance, are equal. You also could factor in the tax savings of owning, which would make buying more attractive even if the gross monthly outlay is slightly higher.

Employment

The strength of the housing market depends largely on the economy. Rising incomes and increased employment tend to give more would-be buyers confidence and buying power. For now, job growth remains sluggish: On Friday the Labor Department reported that just 54,000 jobs were created in May, far below expectations.

But signs of how a stronger job market could fuel housing demand are evident in the Dallas metro area, which added 83,100 new jobs in the 12 months ending in April—the largest gain in the nation, according to the Bureau of Labor Statistics. Dallas never had a big housing boom or bust and has benefited from trade with Mexico, a strong telecommunications sector and a central location.

The opportunities for a job with more responsibility drew Duane and Linda Elmer to Dallas from Des Moines, Iowa, where Mr. Elmer was a banker for nine years. The couple has agreed to pay $415,000 for a four-bedroom, four-bath house with a Jacuzzi and pool. Their Des Moines home, purchased nine years ago for $410,000, is on the market for $390,000. "We are willing to take the loss for the opportunity to live in a more diverse community and to take a job with greater breadth of responsibilities," Mr. Elmer says.

Borrowers like the Elmers who are relocating for job opportunities are a big driver of home sales in nearby Plano, Texas, says Harry Ridge, a real-estate agent. He says such sales accounted for 20% of his business last year.

A similar influx of job seekers is fueling housing demand in the Washington area, where 25,700 new jobs were added in the 12 months since April 2010. Washington was the only one of the 20 cities tracked by Standard & Poor's and Case-Shiller that saw home prices rise both on a month-to-month and year-over-year basis.

Credit

Mortgage financing remains plentiful for borrowers with good credit scores and solid employment histories. But for borrowers who don't fit traditional lending standards, getting a loan can still be nearly impossible. In the first quarter, about 10% of banks tightened standards for nontraditional loans, according to the Federal Reserve. Meanwhile, higher down-payment standards are locking some would-be buyers out of the market. Just 35% of renters have the minimum 3.5% down payment needed for an FHA loan on the median-priced home in their market, according to a recent survey by Zelman Associates.

Credit is likely to remain tight for at least the next six months, says Clifford Rossi, a former Citigroup Inc. consumer-lending executive who teaches at the University of Maryland.

But conditions should improve over time, he says: "There's no question that it will gradually get easier."

That will be welcome news to borrowers like Greg Silver. The 50-year-old real-estate developer would like to buy a second home, but hasn't been able to secure a jumbo mortgage because his income consists of capital gains from sales of the properties he develops. Mr. Silver closed three sales in the past 12 months, netting him a total of more than $25 million, but didn't record any capital gains in 2008 and 2009. Sure, he could use some of that cash to buy a home outright, but he would prefer to mortgage it, get the tax deduction and keep his cash free for business purposes.

"It's a little devastating," says Mr. Silver, who is living in Greenwich, Conn.

Psychology

The long-term case for buying over renting remains in force. Yet nowadays, "People are simply scared," says Aaron Galvin, chief executive of Luxury Living Chicago, which finds rental apartments for wealthy clients.

Mr. Galvin says he has seen a 30% increase in business in the last year, driven by would-be home buyers who can afford to purchase a property but are choosing not to do so.

The portion of Americans who believe homeownership is a safe investment dropped to 66% in the first quarter from 83% in 2006, according to Fannie Mae, the government-controlled mortgage company.

But it isn't clear whether the fear will result in a prolonged change in attitudes, as during the Great Depression, or have little long-term impact, as was the case for the housing bust that shook California and the Northeast in the late 1980s and early 1990s. Eighty-seven percent of people surveyed by Fannie Mae said they preferred owning to renting, though access to schools, control over one's environment and other quality-of-life issues now are seen as the key benefits of homeownership, with building wealth and other financial factors viewed as less important. In addition, 67% of renters surveyed by Zelman Associates said they planned to buy a home in the next five years.

Jeffrey Connor may be a bellwether for the future of the housing market. The 40-year-old finance director at a corporate law firm says he thought briefly about buying a house when he moved to Chicago from Washington in October. But he opted instead to rent a luxury two-story apartment in downtown Chicago for $3,559 a month. Mr. Connor says it will take substantial job growth and a sharp drop in foreclosures to convince him to buy.

"The market is clearly soft," he says, "especially when we consider it good news that the unemployment rate is hovering around 9% instead of 10%." Mr. Connor says he isn't worried about missing out on today's low interest rates and will consider buying once unemployment falls to 6%.

Other buyers are showing less willingness to wait for the absolute perfect time to buy. Doug Yearly, chief executive of luxury builder Toll Brothers Inc., told investors in May that "some of our clients, after waiting so long, are starting to move off the fence and into the market, motivated by attractive pricing, low interest rates and, most important, the desire to take the next step in their lives. The family with elementary-school kids and a puppy when the housing debacle began five years ago now has middle-school kids and the dog weighs 80 pounds."

The New Global City

noreply@blogger.com (The Future of Real Estate) — Fri, 13 May 2011 16:42:00 +0000

Russians in London, Brazilians in Miami—and Chinese almost everywhere. The biggest players in the residential-real-estate scene today often come from halfway around the world.

By Candace Jeackson

WSJ May 13, 2011

This spring, Russian billionaire Yuri Milner paid $100 million for a French chateau-style mansion in Silicon Valley, setting a record for the highest price ever paid for a single-family home in the U.S. In January, Ukraine's Rinat Akhmetov closed on two of London's most expensive apartments ever for a combined $222.5 million. In Paris, a Gulf princess spent $96.9 million last year for a mansion with an inner courtyard, garden and private chapel on the Left Bank.

Some of the biggest residential real-estate buyers in many cities are emerging from halfway around the globe. In London, one report finds that 65% of buyers in the luxury market hail from abroad. According to the Miami Association of Realtors, nearly 60% of all sales last year throughout the city were to buyers from foreign countries. About half of the buyers in one new luxury condominium on Manhattan's Fifth Avenue are from overseas.

While foreign purchasers make up about 7% of the U.S. residential real-estate market, their numbers have swelled: According to the National Association of Realtors, 18% of Realtors in the U.S. market reported selling a home to at least one international buyer in 2010, up from 12% in 2009.

The makeup of these buyers is changing, reflecting changes in the global economic scene. Buyers from Russia have returned, and the numbers are growing from Brazil, where the economy grew 7.5% last year. Australians are buying ski homes in Aspen. In Tampa, Fla., Venezuelan buyers are buying heavily discounted beach condos.

One of the biggest factors in many areas is the emergence of the Chinese. As housing costs on China's mainland skyrocket—raising concerns of a property bubble there—monied buyers are heading abroad, moving into markets that look, in comparison, like a bargain.

In Orange County, Calif., broker Steve High says Chinese buyers now account for more than half of his showings in tony Newport Coast, up from a very small handful two or three years ago. He says many Chinese buyers seek brand-new homes with more than 10,000 square feet to use either for vacations or as a place for their children to live when they attend college. "We have great big houses here, and they're sitting vacant," he says, "Or we have an 18-year-old kid living in the house by himself."

Amy Williamson, the vice president of sales for Prodigy Network, which markets condo buildings like Trump Soho Hotel Condominium in New York, visited Shanghai last month, meeting with local brokers and potential buyers there. Beverly Hills-based broker Joyce Rey traveled to Beijing in October, arranging a reception at an art gallery where photographs of homes priced between $10 million and $125 million were displayed around the room like artwork. Tim Swannie, the Valbonne, France, director of Home Hunts, says one of his agents is working with two Chinese clients who are looking for vineyards in the $5 million-to-$10 million range in the Bordeaux region.

In the U.S., many foreign buyers are taking advantage of the relatively weak dollar. In March, Pascale Saliou, a 44-year-old from Brittany, France, paid about $600,000 for studio in a building with a contemporary art-filled lobby in Manhattan's Chelsea neighborhood. Ms. Saliou has been visiting the city regularly for more than 20 years and finally decided to buy a New York apartment because of the exchange rate. "We never imagined we could one day do this," she says.

Not all foreign purchasers are shelling out millions (in the U.S., the median price paid for a home by an overseas buyer was just under $220,000, according to the National Association of Realtors). And not all are traveling thousands of miles. Canadians are the largest group of foreign buyers in the U.S. today, representing about 23% of foreign buyers, up from about 17.6% in 2009, according to the National Association of Realtors.

Global property buyers gravitate to a handful of highly specific locales: In London, Russians and people from the Middle East flock to central Knightsbridge, where blocks of sleek condos offer top-of-the-line amenities. In New York, newer condos packed with contemporary design attract foreign buyers. Here's a look at some of the top global real-estate markets for foreign buyers.

NEW YORK

Last month, Russian composer Igor Krutoy—who has recorded more than 100 songs in Russia and collaborated with many of the country's music stars—made headlines when he and his wife, Olga, purchased a 6,000-square-foot 12th floor condo at the Plaza for $48 million. It was one of the highest prices ever paid for a condo in New York.

According to Jonathan Miller, CEO of appraisal and consulting firm Miller Samuel, foreign buyers make up 15% to 20% of all home sales in Manhattan. They're particularly strong buyers of thoroughly renovated or newly built condos priced at several million dollars or more. Pamela Liebman, president and CEO of New York-based brokerage Corcoran Group, says that in the first quarter of this year, nearly 20% of new condo sales at Corcoran went to foreign buyers. One deal under way includes a group of Asian investors who are buying 13 apartments in a building, each priced between $1.5 million and $2.5 million.

Manhattan has long been one of the most popular markets in the world for international buyers. But the makeup of international buyers has shifted. Gone are the investors from Ireland who were snapping up condos amid the economic boom in their homeland, says Mr. Miller. Today, it's buyers from China and Brazil. In the past 18 months, brokers say Russians—known during the boom years for making large real-estate purchases in opulent trophy buildings—have returned after sitting on the sidelines during the recession.

International buyers tend to gravitate to certain buildings. Luigi Rosabianca, a real-estate lawyer who works with international buyers, says the André Balasz-designed William Beaver House in the Financial District is popular with his Latin American clients. "Certain people are attracted to certain energy and aesthetics," he says. At the Sheffield, a 582-unit condo building at Columbus Circle where 28% of sold units have gone to overseas buyers, sales staff now print marketing materials in Mandarin, French, Spanish and Italian.

At midtown's Setai Fifth Avenue Residences, where apartments are priced from $1.2 million to $15 million, about half of the buyers have been from overseas. Giuseppe Rossi, the executive vice president of Bizzi & Partners Development, who is originally from Italy, notes that many Italians have purchased apartments there. "We're Italian developers so there's a certain appeal to Italian products and the way we built," he says. Brazilian buyers have also made several purchases there, including Brazilian soccer star Kaka, who recently bought three apartments in the building which he plans to combine, says Mr. Rossi. (Kaka didn't respond to requests for comment.)

Giorgio Castro, a 62-year-old Rome-based entrepreneur, says he dreamed of owning a place in Manhattan for decades. Last year, with the euro-dollar exchange rate giving him more than a 40% discount, he finally snagged a $1.3 million one-bedroom condo in a Wall Street building designed by David Rockwell.

"It was a good opportunity to buy something I longed for," says Mr. Castro. "With the money I spent, I could not have bought something equivalent in Rome."

PARIS

The Paris real-estate market is booming, driven in part by the high prices foreigners are willing to pay. In the "Golden Triangle"—the tony area near the Champs-Élysées—apartment prices rose 38% in the last year, according to the Paris Notary Chamber. For Paris apartments costing over $2.8 million (€2 million), three foreigners buy into the market for every one foreign seller, says Charles-Marie Jottras, president of the Daniel Féau network of real-estate agencies.

Mr. Jottras just closed his first deal with a mainland Chinese buyer, an apartment on the luxurious Avenue George V for $14.2 million (€10 million). The six-bedroom apartment, down the street from the Chinese embassy, features a 2,150-square-foot living room. A new influx of Chinese buyers is also looking at the 16th arrondissement near the Trocadéro Place, where stately buildings appeal to foreign buyers. The Brazilian presence is also growing; Jean-Philippe Roux, manager of luxury real-estate agency John Taylor's new Paris office, says he has nine Brazilians interested in the seventh and eighth arrondissements.

France's neighbors Italy and Britain account for about a third of the international market. These buyers often seek apartments on the Left Bank, in the Saint-Germain neighborhood, as well as in the more bohemian Marais area because of the central location for train stations.

Russian and Middle Eastern buyers tend to concentrate in the "Golden Triangle," where there are the most luxurious hotels and boutiques. A 1960s-era building at 12-18 Avenue Montaigne, near the Louis Vuitton and Chanel stores, is a big draw, as is the recently renovated building at number 51-53 on the opposite side of the street.

There are only a handful of mansions in Paris. Mr. Jottras's record sale happened last year and was for the Hôtel de Bourbon-Condé, a mansion with an inner courtyard, garden and private chapel, in the seventh arrondissement on the Left Bank. For $96.9 million (€68 million), a Gulf princess had a new home.

HONG KONG

China's housing boom spilled over to Hong Kong, where property prices have surpassed previous historic highs and are now some of the highest in the world. According to property agency Savills, Hong Kong's homes are 52% more expensive than London's—and 111% more than New York's.

In April 2011, a 5,636-square-foot condo at 39 Conduit Rd. in the Mid-Levels district sold for $46.4 million (HK$361 million). Local newspaper Ming Pao reported that it was bought by Shi Yuzhu, the Shanghai-based founder of online gaming company Giant Interactive. Forbes magazine reported his net worth at $1.6 billion.

Meanwhile, a house on 11 Headland Rd. in Hong Kong's Repulse Bay neighborhood recently sold for $84.9 million (HK$660 million). Newspaper Ming Pao reported the buyer as Gao Yanming, chairman of Hebei-based shipping company Hosco Group. Henderson Land, the developer, confirmed the transaction but declined to comment as to the identity of the purchaser.

Mainland Chinese buyers are more concentrated in the new luxury sector of condos priced over $1.5 million (HK$12 million), like the Cullinan in West Kowloon. In this sector, they represented 28.8% of the deals during the last half of 2010. In the ultra-expensive range—$25.7 million (HK$200 million) and above—Joseph Tsang, managing director at Jones Lang Lasalle in Hong Kong, estimates that almost all the transactions involve buyers from China.

Mr. Tsang says Chinese buyers look for luxury finishes, ornate decorations and grand hotel-style lobbies. "They're into glamour and bling," he says. "In order to attract the Chinese buyer [from the mainland], you need to put out the most expensive stuff on display."

In the past, the pricey homes along the southern coast of Hong Kong island were popular among well-heeled expatriate bankers from the U.K., Australia and the U.S. But the influx of Chinese buyers and the resulting spike in prices has even forced some members of this wealthy class out of their traditional stomping grounds.

The city's largest brokers routinely organize bus tours for interested buyers from mainland China to visit new development sites.

Local brokerage firm Midland Realty recently organized three tours during the May 1 weekend, a public holiday. By the end of the weekend, the agency had 10 deals signed, starting at $643,000 (HK$5 million) for new condos. During a tour earlier this year, the agency says some buyers purchased units for $1.3 million (HK$10 million) on their first visit to Hong Kong.

"If you look at the new apartments [in West Kowloon], over 60% are mainland Chinese buyers, but if you count the lights at night, you won't see many. It's sold out, but it's pitch dark," Mr. Tsang says.

LONDON

According to Liam Bailey, head of residential research at real-estate agent Knight Frank, London's ratio of international to domestic buyers for prime real estate is the highest of any major city in the world. According to his report last month, 64% of buyers of central London homes priced over $8.1 million (£5 million) are foreign—"the highest of any major city, without a doubt"—and probably the highest it's ever been, Mr. Bailey says.

The number of nationalities represented has also swelled; 61 nationalities purchased homes in London last year, up from 46 in 2009, with Russian, Chinese, Indian and Middle Eastern buyers seeing the biggest growth, according to Knight Frank.

For many, the U.K.'s steady political environment and stable economy make London a safe haven for wealth. Sterling's decline against the dollar—around 20% since 2008—makes property even more enticing. But currency arbitrage and safe-haven status aside, different nationalities are drawn by different aspects.

For U.S. buyers, it's London's leafy Hampstead Village, according to Marcus Oliver, associate director at real-estate agent Chesterton Humbert's Hampstead office. He said 80% of foreign buyers in Hampstead over the past three months have been from the U.S. "Americans are attracted to the quintessentially 'London village' feel of Hampstead, with its quaint Victorian houses and the rolling Heath. It matches up with the clichéd impression of London."

Meanwhile, the status and bright lights of a pad in central Knightsbridge are luring the newly monied Eastern Europeans and Middle Eastern buyers, says Roarie Scarisbrick of HSBC-owned buying agent Property Vision. "Knightsbridge property is the ultimate status symbol for the new settlers of Eastern Europe with their newly amassed fortunes." Properties like the Knightsbridge, One Hyde Park and the Lancasters, where residents enjoy 24-hour security and amenities ranging from golf simulators to private movie theaters, are attracting some of the world's wealthiest oligarchs and sheiks.

One such buyer is Ukranian billionaire Rinat Akhmetov, who in January closed on two apartments in the Candy Brothers' new One Hyde Park development in Knightsbridge for a reported $222.5 million (£136.6 million) to combine into a triplex penthouse. Mr. Akhmatov's press secretary Olena Dovzhenko confirmed the property was purchased as investment through the oligarch's company, SCM Capital Management.

In neighboring Kensington, with its proximity to museums and coffee shops, the typical buyer is French, Swiss or Italian, says independent search agent Charles McDowell. He recently found a home for 38-year-old Parisian Michelle Dellion, in South Kensington. The five-bedroom townhouse on Mulberry Walk cost $16.3 million (£10 million) and has 5,000 square feet of living space. "We had to be in London for my husband's job. Kensington is near the Lycée [Français Charles de Gaulle] and the park—with our three children it was the best area for us," said Ms. Dellion, a stay-at-home mom whose husband works in finance.

Mindful of this tendency to flock together, developers have launched targeted marketing drives. Within the last six months, luxury London developments The Heron, Bramah Chelsea, Wellington House and Neo Bankside have held marketing exhibitions in Singapore and Hong Kong. Last September, Bramah hosted a successful exhibition at the Mandarin Oriental hotel in Hong Kong. "We sold 50 apartments off plan over two weekends," says sales executive Matt Shenton.

MIAMI

In the Greater Miami area, nearly 60% of all sales last year were to buyers from overseas, according to the Miami Association of Realtors. For sales of newly built condos downtown, that figure jumps to 90%, says the group.

Many of the buyers are from Brazil, which experienced an economic growth rate of 7.5% last year. Brazil's currency, the real, has risen about 40% against the U.S. dollar in the last two years.

Property developer and marketer Fortune International focused heavily on Brazil to sell Jade Ocean, a 50-story building the company is marketing with infinity pools, a private movie theater and a children's playroom decorated with Philippe Starck furniture. Its two-story penthouse loft apartments sold for between $3.5 million and $10 million. Nearly 85% of Jade Ocean's sales have gone to overseas buyers.

Fortune's principal developer Edgardo Defortuna says that last fall, he worked with American Airlines to invite a group of potential buyers and American Airlines contacts to a dinner party at a restaurant in Brasilia. "The Black Eyed Peas were having dinner in the next room," he says. His company is also encouraging the airline to add new flights from different cities in Brazil to Miami, which American Airlines says is in the works. In an e-mail, an American Airlines spokeswoman said, "it makes business sense to promote Miami not only as a place to visit but a place to live."

Russian buyers tend to cluster in northern, beachfront areas. Mr. Defortuna says he's planning a trip to Moscow and St. Petersburg to pitch several of his Miami-area buildings. There, he hopes to throw a dinner party with Donald Trump Jr., an executive vice president with the Trump Organization.

Unlike Americans, who tend to look for single-family homes, overseas buyers favor condos. Italians have been drawn to the Capri South Beach, a condo building with downtown views and its own marina, says broker Nelson Gonzalez. The Icon Brickell, a three-tower complex downtown, has a large number of British and Brazilian owners, says Oliver Ruiz, a managing broker with Fortune International Realty.

Venezuelans are also a growing presence, as are buyers from Italy, Spain and Switzerland. Phillip Yaffa, an owner of the Miami office of Engel & Völkers, says a waterfront home sold last week for $9.4 million to a Swiss buyer.

Henrik Wiingaard-Madsen, a shoe-manufacturing company owner from Denmark, says he got a 30% discount in July for two apartments in the Icon Brickell—$520,000 for a two-bedroom and $840,000 for a three-bedroom—plus a rebate. Icon "had so many units, they were kind of desperate at the time," he says. "The price was so low compared to the quality." Mr. Defortuna says his company took over marketing for the complex last June, and that the building "has filled in significantly since then." So far, about 80% of the units have been sold.

Got millions? Here are the most expensive metro Detroit homes

noreply@blogger.com (The Future of Real Estate) — Mon, 25 Apr 2011 15:54:00 +0000

Apr. 25, 2011

BY GRETA GUEST
DETROIT FREE PRESS BUSINESS WRITER

Buyers found million-dollar discounts last year in metro Detroit's high-end housing market, where the top 10 home sale prices ranged from $2.2 million to $4.8 million.

But those bargains aren't likely to be repeated this year: Sparse inventory can't satisfy growing demand for the best addresses, brought on by a resurgent auto industry, local real estate professionals say.

"These big deals that went down won't happen again," said John Kucish, a real estate agent with Re/Max Classic in Farmington Hills, who sold a sprawling seven-bedroom home in West Bloomfield last year for $2.6 million. "I won't be able to deliver a 16,000-square-foot house on Orchard Lake on two acres again for that price. No way."

The most expensive house sold in 2010 was a Birmingham colonial built for Carole Ilitch, daughter of Mike and Marian Ilitch, and her former husband, David Trepeck; they sold it in 2002. The six-bedroom home with 11,009 square feet and impressive gardens had a list price of $6.39 million and sold for $4.8 million in August.

Nine of the houses on the list, which was compiled by Southfield-based Real Estate One, were in Oakland County and one in Washtenaw County's Scio Township.

Most-expensive houses sold locally in 2010

Dana Lyon stood no chance against the English country home she saw in Birmingham last spring. The four-bedroom, 5,500-square-foot, 1926 home lured her with its charm, from the evergreen hedge that arches over the walkway to a heart-shaped doorbell.

"The minute we walked in the door, we knew this was the house," said Lyon, an interior architect who recently relocated from Chicago. "When I walked in, I loved the scale of the living room and dining room and how the light came through the rooms."

She paid $2.45 million for the home, which was last listed for $2.7 million. It features a sunken living room with a massive limestone fireplace and French doors leading out to a terrace, a gourmet kitchen, wine cellar, theater room, exercise room, elevator and a master suite with heated marble floors. It has four bathrooms and three half bathrooms and was completely renovated in 2005. The lower level has nearly 2,000 square feet.

The Top 10 metro Detroit sales prices in 2010 ranged from $2.2 million to $4.8 million, according to multiple listing service data compiled by Real Estate One in Southfield.

That compares to other distressed markets such as Las Vegas, where the highest 2010 home sales ranged from $3.1 million to $4.7 million, and Cleveland, with a range of $1.2 million to $2.7 million, according to Zillow.com data.

Amenities in this price range include a stately stone or brick exterior that contains at least 5,000 square feet, a wine cellar, theater room, bedroom suites and chef's kitchens. Many of the top houses sit on more than 2 acres, had a waterfront location and unique features such as an indoor basketball court.

Half of the metro Detroit buyers paid cash for their luxury digs and just one was a foreclosure. Nine of homes were in Oakland County, and one was in Washtenaw County's Scio Township.

The list excludes private sales, and some of those run higher than $4.8 million, including one just under $6 million in Oakland County, sold by Hall & Hunter Realtors in Birmingham, said J. Bradley Wolf, vice president and associate broker of the firm.

"We have seen some positive signs of stabilization in the past year in the luxury market. We are seeing higher demand and decreasing inventory," Wolf said.

Demand picking up

Agents who sell in the luxury market have been busier lately than they have been in years, said Cindy Kahn, a Realtor with SKBK Sotheby's in Birmingham. She said 2010 was her best year of eight in the business, with $20 million in sales. She knows of another agent in town who sold $40 million in residential real estate last year.

"The million-plus market is coming back, and that tells me that buyers have confidence," she said.

Lyon's Realtor, Sheila Levine, who is with Keller Williams Realty in Farmington Hills, said that inventories in the $1-million-and-above price range have fallen in the past year. That means fewer bargains as more sellers can afford to wait for the right buyer.

The inventory of houses on the market priced between $1 million to $1.999 million in Oakland County fell to 169 in the fourth quarter of 2010 from 229 in the fourth quarter of 2009, according to Real Estate One data.

"Obviously the pool of buyers at this price range is small. Sellers perhaps don't need to sell, so they are not so quick to lower the price," Levine said. "It's a whole different mind-set and lifestyle."

And as the housing market improves along with the renewed strength of the auto industry, big bargains on luxury homes may be harder to find.

Buyers coming with cash

Kimberly Nagy-Street, an agent with Max Broock Realtors in Birmingham, sold the second most-expensive house on the list, a $3.9 million three-story contemporary brick home. It sits on 2 acres on Upper Long Lake and was last listed for $4.9 million.

The house spans 15,865 square feet with a 4,000-square-foot lower level. It has six full bedroom suites with their own bathrooms, an indoor basketball court and a separate indoor pool building. The main home has a chef's kitchen, two fireplaces, an elevator and first-floor master suite.

The owners looked at a dozen other homes before settling on this one. The sale helped Nagy-Street achieve her best selling year yet, with $10 million in home sales.

"Last year, we saw the first signs that the upper end of the market was coming back and it hasn't stopped since," she said. "This past year, I've seen more cash buyers. They are looking at real estate as a solid investment. It's tangible."

Tom Zibkowski, a Realtor with Realty Executives Midwest in Shelby Township, said that while there are signs of recovery, the luxury market isn't quite there yet. And that means there are still deals to be had.

He sold a home in Oakland Township for $2.4 million last year that had been listed at $2.75 million. It has six bedrooms, seven full bathrooms and a half bathroom in 9,150 square feet, with an extra 2,850 square feet on the lower level. The gated estate on 12 acres has a nine-stall horse barn and indoor riding arena. The brick home is in Cape Cod style with an indoor lap pool, six fireplaces and a gourmet kitchen with a separate pizza oven.

"We have professional athletes, musicians, CEOs of large companies, and they are starting to move around a little bit," he said. "In the million-dollar range, you still may get something that is 30% to 60% off. As you go up in price, you won't get as much of a price break."

In 2009, two Grosse Pointe homes made it on the Top 10 home sales list. For 2010, former NBA player Chris Webber's home on Jefferson Avenue in Grosse Pointe came close -- it sold for $2.1 million though it was once listed at $3.5 million, said Mark Monaghan, broker/owner of Sine & Monaghan Realtors Real Living in Grosse Pointe Farms.

Like others who specialize in the luxury market, he said he thinks it has stabilized and huge price reductions won't happen as much this year because inventory levels in some areas and price ranges is too low.

"In Grosse Pointe Farms, for example, we have 10 buyers actively looking in the $5-million to $7-million range, but the inventory isn't there. Once something comes on the market, we will see multiple bid situations."

Detroit's story: decline or revival?

noreply@blogger.com (The Future of Real Estate) — Thu, 07 Apr 2011 14:24:00 +0000

As pundits try to explain Detroit's population loss, it's clear that no single answer exists for the decline

April 7, 2011 Detroit News
Daniel Howes

If there's a prize for writing a city's obituary 50 years too soon, the winner is Time Magazine. In October 1961, the early days of the Kennedy administration, the weekly described a city where "prosperity seemed to go on forever — but it didn't, and Detroit is now in trouble."

People were leaving, its population down 10.7 percent between 1950 and 10 years later. Auto jobs were disappearing, casualties of consolidation and competition. The new mayor, Jerome Cavanagh, inherited a city budget deficit that the Citizens Research Council of Michigan pegged at $15 million.

That was 50 years ago, and what's changed? Nothing and everything. Detroit's newest decennial population bleed to the suburbs and beyond is 237,500, or roughly 25 percent of the population. Its finances and tax base remain a mess, despite Herculean efforts by the administration of Mayor Dave Bing. And its automakers? Not what they used to be.

No wonder, then, that all this and more — collapsing public schools, a raw legacy of political scandal, a battered and rebuilt auto industry and, most recently, harrowing numbers from the U.S. Census — prompted headline writers at The Wall Street Journal to proclaim "A Requiem for Detroit." The dirgeful score has been more than a half century in the making.

Chrysler Corp. long ago bolted for Auburn Hills, changed hands three times and collapsed into bankruptcy. General Motors Corp. did, too, a pair of searing workouts that radically changed their footprints, their leadership cultures and the size of work forces that Detroit and its neighbors used to build whole communities.

The steady decline is bad enough. Worse is the accelerating speed of the unraveling, punctuated by the automotive reckonings of 2008 and '09 and now the stunning census numbers. In a simple spreadsheet, the feds supplied the grist for a series of urban obits that have been a long time coming and the media — at least those who even bothered to care — duly obliged.

The Wall Street Journal headlined its story "Detroit's population crashes," which is painful to read but true. The New York Times head, also true, said, "Detroit census confirms a desertion like no other" and began its report like this:

"Laying bare the country's most startling example of modern urban collapse …," census data offered "… dramatic testimony to the crumbling industrial base of the Midwest, black flight to the suburbs and the tenuous future of what was once a thriving metropolis."

This week, CNBC moved past the politics and got to the kind of dollars and cents issue that threatens the city's viability far more than political finger-pointing: "Can Detroit Afford its Debt?" asked the headline. "The startling collapse of Detroit's population raises doubts about whether the city can afford to shoulder its enormous debt load."

To which I have a two-word response: "Excellent point."

In a blog post for the Washington Examiner, Detroit native Michael Barone noted the "utter devastation" in his hometown and the fact that it has lost 61 percent of its population since 1950. Then he struck a chord familiar to conservatives happy to blame Detroit's implosion on everything from LBJ's Great Society to Detroit's entitlement culture, even if the plight goes deeper and wider than partisan politics:

"When people ask me why I moved from being a liberal to being a conservative, my single-word answer is Detroit," he wrote. "The liberal policies which I hoped would make Detroit something like heaven have made it instead something more like hell."

An incomplete picture

It's not that the accounts are wrong. They aren't. It's that they're often incomplete, oversimplified and laden with political caricature, the better to score partisan points, occupy some mythical moral high ground or both.

Detroit's decline has many parents. There is the decided leftward tilt of politics that favored labor and government bureaucracy over business; the slavish reliance on an arrogant auto industry whose allegiance was to itself, mostly; an educational culture that valued teachers, administrators and contractors more than students; racial tension, inflamed by the '67 riots, busing and crime that accelerated the exodus.

Conservatives cite unions and Democratic welfare-state policies; liberals blame business, white flight and trade deals. And that's before locals get into the act with Detroiters blaming the suburbs and Republicans and suburbanites blaming former Mayor Coleman Young and forced busing. If only it was all that simple.

"The first problem that I see is the continuum of another negative national story that comes out of Detroit," says Larry Alexander, president of the Detroit Metro Convention & Visitors Bureau. "Whether it's the political scandals, the demise of the auto industry, the corruption that took place in our convention center or the collapse of our school system … people say, 'My God, is Detroit going to survive?'"

The honest answer: Not sure. And, second, the continuing stream of semi-informed commentary on Detroit's man-made disaster(s) doesn't help sell the city to would-be investors, media types or average folks.

Oh, yes, something resembling a city called Detroit will emerge from the other side of these tempering fires, just like companies calling themselves GM and Chrysler emerged from federally induced bankruptcies. Like the automakers, the city likely will be smaller, leaner and more nimble because the alternative is a one-way street to the largest municipal collapse in the nation's history.

City's decline bottoming

In other words, the Perfect Storm that hit Detroit still rages, despite renewed energy downtown, demand for housing in Midtown and billions in investment by hospitals, high-tech firms and the hospitality industry. The population flight, recession-fueled foreclosure crisis, public schools in free-fall, declining tax revenue and a changing landscape among private sector employers cannot be neutralized by new investment in Midtown, the Detroit Medical Center, casinos, hotels and a $300 million rehab of Cobo Center.

They're necessary, but not yet sufficient to reverse a trend that has been gathering momentum since Harry Truman was president. Worse, those are the kind of on-the-ground changes that drive-by media types don't see from their offices in New York or Washington.

But the granular truth is that more in Detroit is changing today than remaining the same because it has to. A former mayor and former City Council president sit in prison, but the new mayor and a reconstituted council are both more realistic about Detroit's predicament than any time in years.

Michigan has a new governor, Rick Snyder, who professes a desire to help Detroit wherever possible. A revised emergency financial manager law gives appointees more power to force painful change on school systems and municipalities, up to and including voiding collective bargaining agreements.

Has the time for Detroit's requiem arrived?

"I don't think so," says Sheila Cockrel, a former City Council member who runs her own consulting firm and teaches at Wayne State University. "The window hasn't been shut, but it's closing rapidly. We're running out of time," for radical change. "It has to be done or we're going to be the first above-ground Pompeii."

Empty homes dot Oakland County's upscale suburbs

noreply@blogger.com (The Future of Real Estate) — Thu, 07 Apr 2011 14:22:00 +0000

April 7, 2011 Detroit News
Laura Berman

Numbers don't lie: They tell unpleasant stories, including new census numbers pinpointing high vacancy rates in some of Oakland County's most elite suburbs.

The half-secret behind many of the well-maintained facades and manicured lawns of some of the area's most lavish properties is that nobody's home.

Birmingham (9.4 percent) and Bloomfield Hills (10.2 percent) showed vacancy rates significantly higher than 10 years ago. Those rates are similar to Detroit's vacancy rate a decade ago.

Tiny Lake Angelus, with 132 households in north Oakland County, is historically a pocket of the county's wealth. Always private, the census takers also found that 13.2 percent of the residences were unoccupied. Vacancies in Farmington Hills were 6.8 percent, up from 3.3 percent in 2000.

"One of the striking things is that the foreclosure crisis has hit parts of Oakland County that we would have thought are untouchable," said Andy Meisner, Oakland County treasurer.

Vacancy is a distress signal and communities try to hide the red flags of emptiness. Owners — even banks — maintain the lawns and exteriors, and when they don't, neighbors call the city.

"Even our blight is better," quipped Annabel Cohen, a Bloomfield Township homeowner who hasn't noticed any deterioration.

Others aren't as chipper, saying that as the crisis goes on, homeowners are more likely to be as distressed as their unsold properties. "Someone who bought a house for $1.7 million, moved out, and knows the most they'll get is $700,000 doesn't see the necessity to spend more money keeping it up," said Mike Sher, an associate broker with Max Broock Real Estate in Bloomfield Hills.

"Homeowners are getting weary. They're fed up," said Sher, who specializes in distressed properties — short sales and foreclosures — which are now more than 50 percent of Oakland County home sales.

He described a current Bloomfield Hills sale: elderly couple moving into assisted living, vacant home with a $280,000 mortgage, and a rock bottom sale price of $135,000.

"They didn't think it would be right to walk away," Sher said.

Lower prices are driving other downturns: The circa 2005 craze of "staging" homes professionally has faded, as real estate agents and owners scrimp on costs.

In Birmingham, Robert Bruner has been city manager for seven weeks and said the city is pressed to maintain property right now.

"We have to be vigilant," he said, citing a need for more staff. "When times are tough, there's pressure to lower our standards, but I think that's the time when you maintain standards."

Weir-Manuel real estate agent Rebecca Meisner has clients who sold a $450,000 home in Bloomfield Township to buy a $70,000 house in Royal Oak.

"The city spent $153 last summer mowing the lawn when it was in foreclosure," said Meisner, who is unrelated to Oakland's treasurer.

Birmingham's population increased by 4.3 percent over the decade, as developers built condos and town houses. When the boom busted, vacancies almost doubled.

Real estate agents aren't necessarily surprised by the hard facts: They've become accustomed to short sales — when the seller owes more than the house is worth and the bank helps close the deal — and foreclosures since prices plummeted in 2007.

In the raw cold of early spring, no lawns earn bragging rights.

But if you want to stay ahead of economic forecasts, keep an eye on the spiffiness of landscaping and lawns.

"This is going to be an interesting spring," Sher said.

In metro Detroit, home prices lowest since '94; owners feel sting

noreply@blogger.com (The Future of Real Estate) — Wed, 30 Mar 2011 17:02:00 +0000

By Greta Guest
Detroit Free Press Business Writer
DFP, March 30, 2011

The last time home prices in metro Detroit were this low, it was the summer of 1994, and Wayne Fontes was the Detroit Lions coach.

Southeast Michigan is far from alone in having depressed home prices, but its descent has been more dramatic. Home prices in metro Detroit have dropped an average of 48% from their December 2005 peak. They're down 34% from 2000.

Those in the market to sell their homes know that all too well. Anand Gandhi, 36, a Ford engineer, said he realizes he will have to take a loss on his West Bloomfield home. He purchased the home in 2004 for $438,925 and listed it for $350,000. The 3,200-square-foot home boasts four bedrooms, three full baths and two half bathrooms and lots of extras, such as cherrywood kitchen cabinets.

He is hopeful for a quick sale as he has received four offers since listing it six weeks ago. He and his family want to move in with family nearby.

"We could rent it. We could wait this out a little if we thought the economy in Michigan would improve," he said. "I don't want to take an even more massive loss."

Home prices nationwide were down in January for the sixth consecutive month, according to the S&P/Case-Shiller Home Prices Indices released Tuesday.

Homeowners depressed, too

Metro Detroit home prices remain the most depressed in America, according to data released Tuesday.

And few know that better than Jeff Dixon, 33, who sells medical and laboratory supplies. Dixon bought his three-bedroom, two-bathroom home in Royal Oak at the peak of the market in 2005 for $210,000. He then relocated to Oregon for work a year later. It's been on the market on and off since 2007 and is now listed for $115,000.

"We thought buying the house would be a good idea. It has turned out to be an absolute disaster of an idea," Dixon said Tuesday from his suburban Portland, Ore., home. "It's either laugh or swear."

The S&P/Case-Shiller Home Prices Indices through January were down 3.1% compared with January 2010 in the nation's 20 largest cities, marking the sixth consecutive month of price declines. In metro Detroit, the drop was more substantial -- an 8.1% decline in home prices in the past year through January as the market weans itself off homebuyer tax incentives that ended last year.

In metro Detroit, the decline is 34% from its 2000 level, while the other cities' home prices are less than 1% below their 2000 levels. Detroit was joined by Atlanta, Cleveland and Las Vegas as markets where home prices are now below their January 2000 levels.

While the local housing market has taken a hit, some areas fare better -- or worse -- than others.

When hearing that overall home prices in metro Detroit were down 34%, St. Clair Shores Broker Flo Abke of Realty Executives Select saw it as an upward sign.

"That's good. That's the better-case scenario because it is doing worse in other areas than that," she said. "In the older cities such as Eastpointe, Harper Woods and Roseville, they have lost more than that."

Weakened prices could stay awhile

Dixon owes $190,000 on the Royal Oak house he just relisted for the third time. The rental payments don't cover the mortgage, but he hasn't missed a payment yet. He doesn't want to go to closing with a big check, but it seems inevitable.

"It saddens me, and I think it is terrible for so many of us in this difficult spot because of the market," Dixon said.

David Blitzer, chairman of the index committee at Standard & Poor's, said the weakened state of home prices could last for some time.

"The housing market recession is not yet over, and none of the statistics are indicating any form of sustained recovery," said Blitzer, citing recent reports on housing starts and home sales.

As an example, Novi Realtor Mark Zawaideh of Keller Williams Realty highlighted on Tuesday a new listing on Facebook of a condo for more than 50% off.

The bank foreclosure with attributes such as three bedrooms, 2.5 baths, two-car attached garage, hardwood floors, vaulted ceilings, a master suite with walk-in closet and 1,926 square feet once sold for $268,000. Now, it's listed for $124,900.

"I wouldn't say it is typical. It is a great deal, and I'm sure it is going to sell real fast," Zawaideh said. "Foreclosures are far and few between compared to what they were in 2009. I think that was the perception for so long. The market has definitely bottomed out."

Because sales are down, there are often times when a property won't sell for what a buyer wants to pay because there are no comparable sales available, and that further depresses prices, he said. "Buyers are forced to step up and pay a price that the market can't bear."

Refinancing, jobs would be a start

Brian Seibert, president of Watson Financial Group in Waterford, said home prices won't rise until people who owe more on their mortgage than their home's market value are able to refinance. He also noted that more job creation would boost demand.

"Right now, we can't do anything to help people refinance because everyone is underwater," Seibert said. "We knew there was going to be a huge correction, but we didn't know it would be this deep. This is not just a Michigan problem."

The S&P/Case-Shiller composites of the top 10 and top 20 cities have posted monthly declines for the past six months. San Diego and Washington, D.C., are the only metro areas that have seen price appreciation in the past year.

A continuing supply of foreclosures, weak demand and an oversupply of homes for sale will likely mean another 5% drop in home prices before they start improving in the second half of the year, said Patrick Newport, U.S. economist with IHS Global Insight.

Metro Detroit had the second-largest drop in home prices in January behind Phoenix, where home prices fell by 9.1%.

A Requiem for Detroit

noreply@blogger.com (The Future of Real Estate) — Tue, 29 Mar 2011 15:39:00 +0000

A once-great American city today repels people of talent and ambition.

March 29, 2011, WSJ
By WILLIAM MCGURN

If only Detroit could point to some natural disaster for its misfortunes. Within hours of the earthquake that devastated northeastern Japan, for example, President Obama called the prime minister to offer "whatever assistance is needed." Likewise, when Hurricane Katrina swallowed up New Orleans, George W. Bush traveled to Jackson Square to promise that "this great city will rise again."

Alas for Detroit, there was no presidential statement of purpose, no outpouring of American sympathy, after the Census Bureau reported its own calamity: the shrinking of the city's population to just 713,777—a level not seen since around the time Henry Ford started cranking out the Model T. In Detroit, of course, we do not see lives being lost to an angry and capricious Earth. But the human wreckage is there all the same—the consequence of crime, strangled opportunity, and lives without hope.

Most Americans did not need to be told that Detroit is in a bad way, and has been for some time. Americans know all about white flight, greedy unions and arrogant auto executives. The recent census numbers, however, put an exclamation mark on a cold fact: A once-great American city today repels people of talent and ambition.

"Detroit is a classic example of how a culture that was legendary for enterprise and innovation was slowly eroded by toxic politicization from the 1960s on," says the Rev. Robert A. Sirico, president of the Michigan-based Acton Institute. "It's been class warfare on steroids, and the inevitable result is that so many Detroiters who had the means—black and white—have fled the city."

Another way of putting it is this: Unlike New Orleans and Japan, the ruin we see in Detroit is entirely man-made.

It wasn't always this way. For years, Detroit was a synonym for American energy and opportunity. Here Motown Records was born and General Motors became the first company to make a billion dollars in a single year. And here the auto industry that we now think of as geriatric drove the American economy, helped create the American Dream, and defined American culture to the world.

"Detroit was a mecca for automotive entrepreneurs back then, just as San Jose is for Internet innovators today," says Paul Ingrassia in "Crash Course: The American Automobile Industry's Road from Glory to Disaster." Mr. Ingrassia, a former reporter in this paper's Detroit bureau, was writing about the early part of the 20th century. But even years later, Americans spoke of the Big Three the way we today speak of Google.

What happened to this Detroit? In many ways the answer is liberal politics and expanding government. In the 1960s, for example, Detroit became one of Lyndon Johnson's "Model Cities." That meant it was on the receiving end of hundreds of millions of federal dollars to transform a nine-mile-square section of the city. It would be just the first of many government-funded redevelopment schemes that left behind one of the most blighted urban landscapes in the nation.

Notwithstanding its failures, government continued to grow while city services—e.g., police and fire protection—continued to decline. Whites moving to the suburbs took much of the tax base out of the city in the 1960s. The latest census numbers show that blacks are now following in the path of the whites before them. Apparently they don't like crime and the lack of decent schools for their kids either.

What's left is the city so embarrassingly exposed by the census figures, a place that people are fleeing as fast as they can. Think of all the dysfunctional measures you can: poverty rates, unemployment, crime, failing public schools, falling home values. Detroit has them all, and most of its indicators rank among the worst in the nation.

Mayor Dave Bing, God bless him, is trying to change this. He's a decent man with an almost inhuman task. So it was discouraging to see his reaction to the census. Because falling under 750,000 in population means Detroit will no longer qualify for certain federal and state aid, he has fallen back on the hack political response: Demand a recount.

Whether Detroit can come back isn't the question. Of course it can. But it will take far more than an edgy, "Made in Detroit" Eminem ad for Chrysler. The test will be a reverse of what we saw with this latest census report: That is to say, a Detroit that is welcoming new waves of immigrants and small business owners, selling homes to families who buy because they think the neighborhood has potential, not to mention persuading University of Michigan and Michigan State graduates now flocking to Chicago to build their futures in the Motor City instead.

What's happened to Detroit is sad. Sadder still is that though the human dimensions of this tragedy are as cruel as any earthquake, they elicit so few second thoughts.

Why 2011 May Be the End of the Housing Crash

noreply@blogger.com (The Future of Real Estate) — Mon, 28 Feb 2011 16:50:00 +0000

February 28, 2011 WSJ
By SIMON CONSTABLE

There might finally be some good news this year about the nation's dismal housing market. Or, at least, the bad news could stop.

Either way, it will be welcome relief for current homeowners as well as for potential real-estate investors. Reasons to be optimistic have been sadly lacking since the housing bubble burst in 2006.

For sure, last week we learned the widely watched S&P/Case-Shiller home-price index fell 1% in December, its fifth straight decline. The index tracks 20 major markets.

But that figure belies real reasons to be optimistic, according to some experts. If they are right, it might make sense to jump into real estate. The trick is avoiding getting burned again, and it doesn't necessarily mean owning a home.

First, let's recap the economic signs a bottom is close.

Houses Are a Good Deal

Housing is the most affordable it has been in decades, according to analysts at Moody's Analytics. They don't just look at house prices. They also look at incomes.

Nationally, the cost of a house is the equivalent of about 19 months of total pay for an average family, the lowest level in 35 years. Prices usually average close to two years' pay, although that varies nationally.

At the peak, midway through the last decade, a home in Los Angeles cost the equivalent of 4.5 years' pay. The average price has since fallen to just over two years' income now. That's well below its pre-bubble average of 2.6 years. This means average Los Angeles homes are cheaper in "real terms" than they were typically during the period 1989 through 2003.

The opposite is true around the Washington beltway, where it will take 26 months of pay to buy a home, versus the historical norm of 22 months.

In the end, it will be affordability that will drive people to buy homes.

"Pricing is down so much in some markets that when you analyze renting versus owning it makes much more sense to own," says Michael Larson, a real-estate analyst at Weiss Research in Jupiter, Fla.

It is definitely bullish. But what about timing?

"Housing prices will probably bottom in 2011," says Scott Simon, a managing director at money-management firm Pimco in Newport Beach, Calif. He foresaw the housing crash, helping his firm dodge losses that plagued Wall Street.

Mr. Simon says prices might dip another 5%. Still, in the scheme of things, that's small. Consider this: In some markets, home prices have fallen by half or more since 2006.

For instance, in once-hot Miami you can snap up an average house for under $166,000, according to recent data from the National Association of Realtors. That's down from $371,000 in 2006. Another 5% drop would take it to $158,000.

Investors Stepping Up

Here's another sign the market is nearing a bottom: Investors have started to buy up houses and condos, in some instances paying entirely in cash. That's a far cry from the heady bubble days when borrowed money seemed the key to riches. The bubble-era speculators who got burned tended to buy at the peak and borrowed heavily to do so. When the crash came, they quickly saw their wealth erased.

Take Miami again. Last year, more than half of all transactions were made entirely in cash, according to a recent report in The Wall Street Journal. That compares with 13% of deals in the last quarter of 2006, the height of the bubble. Similarly, in Phoenix 42% of sales in 2010 went to all-cash buyers, up threefold since 2008.

It's a sign that these investors are betting on a rebound. Investors buying at current prices are looking for deals, or so-called bottom fishing. They typically like to pay entirely in cash (or with a relatively small loan) to speed up transactions. That can be vital for an investor wishing to lock in a deal fast.

If this is a turn in the market, then it might make sense to go out and buy a home. But, warns Pimco's Mr. Simon, "buy in areas you really know."

Plan to Stay Put

Buy and hold. While the good news is that the worst of the housing crash might be over, the bad news is that the fast gains of the glory days of 2005 and 2006 won't be back any time soon. So to cover the costs of buying and selling, and what could be a prolonged recovery, plan to own for more than 10 years, explains Jack Ablin, chief investment officer at Chicago-based Harris Bank.

Also remember that borrowing money to buy a house can still be risky. If you pay for a $100,000 property with $20,000 cash and borrow the rest, a dip in the value of $20,000 would leave you with zero equity. On top of that, you'd have to pay to maintain and repair the property, something not necessary when renting.

Home Buying Without a House

There are other ways to benefit from a real-estate rebound than directly buying a house. Such investments include stocks, mutual funds or exchange-traded funds. Unlike homes, which typically cost tens of thousands of dollars, these financial investments can be made in smaller amounts and typically are easy to sell.

Weiss Research's Mr. Larson says although new homes are oversupplied, home builders might benefit from a rebound as the situation rights itself.

Rather than pick individual stocks, he says, it probably makes sense for small investors to pick broader investments that hold many different stocks. In particular, he points to the SPDR S&P Homebuilders ETF (XHB), which tracks a basket of home-builder stocks.

Mr. Larson also highlights specialized mutual funds such as the Fidelity Select Construction & Housing fund (FSHOX), which tracks home builders as well as home-improvement retailers like Home Depot and Lowes that would also likely benefit from a housing recovery.

What Does the 'Foreclosure Crisis' Mean for You?

noreply@blogger.com (The Future of Real Estate) — Sun, 24 Oct 2010 14:08:00 +0000

October 23, 2010, WSJ
By M.P. MCQUEEN, MARY PILON and JESSICA SILVER-GREENBERG

For the vast majority of homeowners, new questions about the state of foreclosures appear to be irrelevant. Few people seem to have been wrongly thrown out of their homes, and those who have been are generally months or years behind on their mortgage payments.

But the fallout from the crisis is beginning to be felt in real-estate markets across the country, particularly in places dominated by vacation homes and investment properties. Some of the worst-hit areas could be Western ski towns, because fall is the busiest time of the year for sales.

Real-estate salespeople in some of those places are worried. "September and October are usually the height of the selling-season for us," says Rich Armstrong, who owns the brokerage Rare Properties in Jackson Hole, Wyo. "Now we are seeing a number of what we call 'fence sitters,' people who would have leapt in even a month ago, but now are waiting on the sidelines."

The "foreclosure crisis" is a result of the frenzied real-estate boom and bust of the past decade. Banks made foolish loans, and borrowers signed up for them—only to default later, as the economy slumped. Banks rushed to reclaim properties, launching a record number of foreclosure proceedings.

In the past several weeks flaws have emerged in that complex process. Because of the high volume of foreclosures, the documentation supporting legal actions was prepared hastily, and some homes were seized improperly.

Yet the far bigger worry is what happens next. A frenzy of lawsuits and banks' examinations of their own practices could throw more of the millions of foreclosures of the past few years into legal jeopardy. Attorneys general in all 50 states are investigating, and plaintiffs' lawyers are working hard to perfect their legal strategies for suits on behalf of people who have been foreclosed on.

The suits might well fail. But just the threat that past foreclosure rulings might be overturned could result in collateral damage. In some places, banks are rushing foreclosed properties to market. In others, buyers are stepping back, refusing to buy foreclosed properties or "short sales"—homes sold by owners for less than the mortgage balance. In markets already beset with large inventories of foreclosed properties, the result could be a slower recovery.

Coastal markets and ski areas are feeling the most anxiety. Some already are littered with foreclosures—in part because they're dominated by second-home and investment properties. Those owners are more willing to walk away from a house that isn't their primary residence.

Foreclosure tracker RealtyTrac estimates that, nationwide, 30% to 35% of properties in foreclosure are owned by investors or were second homes. In Aspen, Colo., the figure is about 60%, says Kim McKinley, owner of McKinley Sales Real Estate in Basalt and Aspen, Colo. If foreclosure proceedings slow from here, inventory could jump, leading to price weakness later.

"We're concerned that the phantom inventory buildup will cause a more rapid and drastic drop in prices in Aspen, which is just getting started in terms of foreclosures coming to the market," says Ms. McKinley.

The timing of the foreclosure mess is especially inconvenient for ski towns, given the fall selling season.

Property owners are growing nervous. In Park City, Utah, lenders are quickly unloading foreclosed homes ahead of what could be a long, stalled foreclosure process, says Joe Trabaccone, a real-estate agent there.

On Oct. 11, for example, J.P. Morgan Chase put up for sale an 8,000-square-foot home adjacent to a private gated golf course. Mr. Trabaccone initially recommended the property be listed for $1.6 million, but Chase opted for $1.26 million. "They are offering these homes far too low just to hurry up and sell them," Mr. Trabaccone says.

Even so, it hasn't worked. A buyer made an offer and signed a contract, but then backed out.

In South Lake Tahoe, Calif., on Thursday, Freddie Mac, the big government-sponsored guarantor of mortgages, put a foreclosed home that had just been listed for sale on hold, freezing the property until paperwork could be straightened out. The foreclosure mess "seems to be filtering down and it could be an impact," says Doug Rosner, the broker who had listed the home. Three other properties in town were also frozen, another real-estate agent says.

The "sand states" of Arizona, California, Florida and Nevada are being hit as well. These areas, too, have a lot of vacation and investment properties—and a lot of foreclosures.

Robin Speronis, a real-estate broker in Cape Coral, Fla., says business had been picking up recently, with several inquiries a day—until the latest foreclosure scandal broke. Since then, she says, inquiries have shriveled to just one in the past week.

Susan Weeks, 55 years old, and her husband, Eddie, aren't optimistic. The couple had expected to retire and downsize when they bought a condo in Clermont, Fla., near Orlando, in 2007 for $192,000. Their plan was to sell their primary residence 10 minutes away and live in the condo. The trouble: They can't sell their first home.

The Weeks paid $269,000 for their three-bedroom home in 2004. The house next door, a bit larger, is listed at $185,000, Ms. Weeks says.

The couple has decided to move back to their primary home and take a renter for the condo. But while that brings in $850 a month, the Weeks take a $450-a-month hit on the condo —on top of the $2,400 a month they pay every month on their primary home.

"We're just going to wait it out," she says.

The possible foreclosure wars to come loom so largely over Florida markets that Ms. Speronis is urging condo sellers to consider any offer they get, even if it is far below asking price or what is owed on the mortgage.

Dianne Cloutier, a records supervisor in Chelmsford, Mass., had been looking for a retirement property in Cape Coral, but decided to wait because of the foreclosure mess. "It's left us on hold until we are sure the banks have legitimately foreclosed on people and that nobody can come back on us to get their property back," she says.

Foreclosures aren't the only problem. Short sales are getting more difficult to pull off, too.

In Bend, Ore., agents say buyers are avoiding short sales or even backing out of contracts because they don't want to deal with paperwork hassles or the chance of a court challenge later.

"I have some people saying 'I don't want to mess with bank-owned properties or short sales,'" says Dianne Willis, principal broker with RE/MAX Sunset Realty in Sunriver, Ore. "They're reluctant because it can be a frustrating process, especially for those who are looking to make a big move."

The short sales "can be very frustrating," adds Becky Ozrelic, of with Steve Scott Realtors in Bend. "You just have buyers waiting and waiting."

For sellers, lining up a short sale was tough even before the latest foreclosure crisis. Banks and mortgage "servicers," the outfits that process payments, already had been scrambling to handle surging workloads.

Mike and Kim Schwarz of San Jose, Calif., are coming up on the one-year mark on their short-sale saga.

The couple had acquired several investment properties over the past few years, including one in Thousand Oaks, Calif., for $751,000. After the tenants stopped paying rent, the Schwarzes couldn't cover the payments and decided to sell, Mr. Schwarz says.

They lined up a buyer in November 2009, and started working with their loan servicer on the short sale. For lenders, short sales are ugly because they guarantee a loss, but they often are preferable to a foreclosure, in which the lender is saddled with a tough-to-sell house.

The servicer, Residential Credit Solutions, took six months to process the paperwork, the Schwarzes say. Faxes and emails were sent, but nothing happened, Mr. Schwarz says.

"We typically don't hear from borrowers about long delays," says Dennis Stowe, president of Residential Credit.

The buyer walked away from the deal in June. The couple found another buyer in August, and resubmitted the short-sale paperwork. Mr. Schwarz says he has sent paperwork to Residential Credit four times since.

On Friday, Mr. Schwarz says, Residential called to tell him the short-sale paperwork looked good and the sale should close in mid-November.

Says Mr. Schwarz: "They didn't make it easy."

Other Ways the 'Foreclosure Crisis' Could Sting Homeowners

The foreclosure mess could hurt homeowners in another way: The costs of buying a home and paying off the mortgage are likely to go up, say housing experts.

The rising costs will come both during the closing and throughout the life of the loan.

At the closing, the cost of title insurance, which protects a property buyer from claims of ownership made by other people, is likely to rise, industry officials say. Title insurance is one of those annoying costs that can sneak up on a buyer during a close; premiums average around $2,000 across states, says Tim Dwyer, CEO of insurer Entitle Direct Group.

The foreclosure mess has sent insurers scrambling. One of the largest, Old Republic Title Insurance, told its agents on Oct. 1 not to issue policies on homes that have been foreclosed by GMAC Mortgage or J.P. Morgan Chase. And on Wednesday, the nation's largest title insurer, Fidelity National Financial, said lenders must vouch for the accuracy of their paperwork before it will insure properties.

Just like homeowners-insurance rates rise after a hurricane, the rates for title insurance are expected to rise, to compensate for the added risk.

The turmoil will likely lead to pricey premiums for new homeowners, says McLean, Va.-based housing economist Tom Lawler. Adds Cameron Finlay, chief economist at mortgage lender Lending-Tree.com: "Any time there is uncertainty in the market or risk implied, it follows that costs go up."

Other costs could be felt during the life of the loan. Until the current mess, servicing loans was a low-margin, high-volume business. Servicers collect mortgage payments from borrowers and send them off to mortgage holders, and if the loan gets into trouble, they manage the foreclosure. Few doubt this process will get costlier now that it is under scrutiny from regulators and the courts. That higher cost likely will show up in higher interest rates for borrowers.

Both of these higher costs also would hit homeowners who refinance their loans.

How much the costs of buying a home will rise is unknown. Mortgage industry officials say it is too soon to tell. And no one believes the costs will significantly change the price of a home. But with the housing market still weak, the uncertainty is making the prospect of buying—or selling—a home that much dicier.

—Jessica Silver-Greenberg

Hard times force home builders to think small

noreply@blogger.com (The Future of Real Estate) — Mon, 18 Oct 2010 14:09:00 +0000

Luxury houses don’t sell for enough to cover their construction costs

Detroit News, October 18, 2010
Louis Aguilar / The Detroit News

Michigan builders are constructing smaller, less expensive new homes because they can't sell higher-end houses for enough money to cover construction costs.

The two-year trend is hitting all houses, but it's especially hard at the once-lucrative $200,000-plus market, said Robert Filka, CEO of the Michigan Association of Home Builders, a trade group in Lansing.

As a result, builders are often unloading houses at a loss to clear inventory while bolstering their renovation business, in part to offset lower profits on new builds.

That means bargains for home buyers, but only if they can sell their existing home without taking a bath financially and secure financing for a new one.

Neither is guaranteed, however, because home buyers face the same problem that's squeezing homebuilders: Home appraisal values are dropping along with housing starts and sales prices.

A variety of factors are blamed for the crunch, from the swings in home appraisal values to the lending freeze to rising foreclosure rates. But the impact is clear.

"It's slowing the recovery of new construction," Filka said. "It's sapping confidence."

David Gerish, owner of Gerish Cos. in Plymouth, recently showed off a home in Brownstown Township that would have cost close to $250,000 before the market crashed. Gerish recently sold it at a loss for about $175,000, but declined to say how much he lost on the sale.

"You sell it because the last thing a builder wants is another empty house to compete with," Gerish said. "And you still have other expenses you have to pay for now. I know this is not a business model anyone can follow for very long."

The average new home in Michigan listed for about $300,000 before the national housing market began falling off in late 2007, Filka said.

While current state figures are not available, 55 percent of new homes in the nine-county southeastern Michigan region listed for less than $200,000 through July, the most recent statistics available, according to Housing Consultants Inc., a Clarkston firm that tracks new building permits.

"We know from history that if you include the whole state, that percentage would increase," said Byrne Benson, Housing Consultants president.

Builders are on pace to construct about 9,000 single-family homes in Michigan this year, the homebuilders association said. That's a projected 44 percent improvement from last year's 6,236 single-family residences — the lowest figure in 30 years. But it is a far cry from the 26,000 to 46,000 new homes that were built annually for much of the past two decades.

While housing starts in the nine-county region rose 92.4 percent through September, to 2,288 permits, according to Housing Consultants, that is still well below what had been traditional building rates.

And making money remains difficult.

"What we hear more and more is builders say they would take a loss on new builds," Filka said.

In August, Richard Kligman, a third-generation homebuilder, sat in a 3,600-square-foot home in Northville that boasted 10-foot ceilings and other upgrades and was listed at $699,000. If it sells at that price, Kligman will still take a loss on the property, which was priced at $875,000 after he built it in 2008.

The home sits in a subdivision where three houses sold for $2 million each in the past decade, Kligman said.

"The feeling among the homebuilders who are still around is to move inventory," said Kligman, president of Superb Homes Inc. in Plymouth.

Builders say they now hope for a 5 percent to 10 percent profit on a new home built in any price range. In better times, the target was 25 percent.

Appraisals are a problem

What's complicating home construction is the appraisal process, some builders said. A real estate appraisal, performed by an independent third party, helps to establish a property's market value and likely sales price. Lenders require an appraisal before approving loans.

Foreclosures and short sales are helping to push down the appraised value of a new home.

Kligman listed a home for $525,000 in the past year, which still meant he was going to take a $270,000 loss. "Then the appraisals came in at $50,000" lower. The buyer scrambled and found another lender and appraiser, who supported the $525,000 price.

"That's how unpredictable appraisals can be," Kligman said.

Don MacLeish of MacLeish Building Inc. in Troy said the final appraisal came in $80,000 lower than the original $330,000 price on one of his new homes.

"On top of that, the buyer was asked to come up with a much higher down payment" of about 25 percent, said MacLeish, a third-generation home builder. The sale fell through.

Appraisers describe the situation as a Catch-22 because fewer new homes means there are fewer houses on which to base appraisals.

"This is very common in a soft market that the cost of materials are worth more than the potential market value," said Martin Wagar of Wagar Associates in Kalamazoo, who has long served as a board member for real estate appraiser associations.

"It happened in the '80s when interest rates were 14 percent, 15 percent, and nobody was building."

When homebuilding slows to a trickle, Wagar said, appraisers must depend on recent sales in the area, which can include foreclosures and short sales.

Appraisers say they have to justify their figures to lenders, who often base their decisions on a computerized evaluation system for consumer lending.

"A lot of the builders want to blame appraisers, but the truth is we have to defend our numbers to the underwriters," said Howard Babcock, an appraiser and owner of Howard A. Babcock & Associates in Bloomfield Hills.

To survive, some builders are switching to remodeling homes.

"I'm doing 95 percent remodeling now and 5 percent new building," said James Compo, co-owner of James. D. Compo Inc. in Bloomfield Hills, in business for 50 years. "That's a complete reversal of my business model."

Remodeling is how most builders are surviving, says Filka of the state builders group.

"A lot more homeowners are staying put — either because they can't sell their current home, or they just are waiting to see if prices stabilize," he said.

Filka said many homebuilders, even with the challenges they still face, feel the worst of Michigan's housing crisis has passed.

A full rebound can't come soon enough.

"Hopefully," Kligman said, "we will look back at this time and view it as a strange, dysfunctional period."

Finance rules make condo sales difficult

noreply@blogger.com (The Future of Real Estate) — Mon, 11 Oct 2010 14:47:00 +0000

October 11, 2010, Detroit News
Brian J. O'Connor / Detroit News Finance Editor

If you’re looking to buy or — more importantly — sell a condominium, new rules from the FHA as well as the quasi-governmental firms that guarantee mortgages may make financing the sale nearly impossible.

Starting at the end of 2009, the Federal Housing Authority put new rules in place designed to protect taxpayers from bearing the brunt of bad condo loans. Some of the rules are less strict than old ones, but others are tough enough that many of the 5,535 condos for sale in Southeast Michigan won’t qualify for an FHA-insured loan.

Without that backing, buyers have to come up with 20 percent or more for a down payment — a tough move in today’s deflated economy, especially when FHA loans normally require as little as 3.5 percent down. Meanwhile, sellers who may already be taking a loss on a condo are pushed to lower the price even more to attract the few buyers who can afford to bypass FHA rules.

The result, say real estate experts, is that condo sales are taking longer, getting more expensive or falling through altogether.

“If a buyer wants to buy one of these condos, putting roadblocks up makes their ability to buy impossible,” says Bob Taylor, president of the Michigan Association of Realtors and an agent in the Birmingham office of Coldwell Banker Weir Manuel. “Many complexes have an inability to sell anything because you can’t get anybody to fund the loans.”

Since the real estate crash and the resulting credit crunch, the FHA — along with Fannie Mae and Freddie Mac, the quasi-governmental firms that buy and resell mortgages — are financing more than 90 percent of the country’s home loans.

The lion’s share are being guaranteed by the FHA, which backed $375.79 billion in mortgages last year, according to Inside FHA Lending. That’s a 48 percent jump from 2008.

It means mortgage lenders — and most buyers who want a loan — need to play by the FHA’s rules, and those rules are a lot tougher than they used to be.

Pre-approval now reality

The FHA insures home loans made by private lenders. If a borrower defaults on an FHA-approved loan, the agency covers the lender’s loss. Without that guarantee, lenders require bigger down payments and limit loans to the most credit-worthy buyers, which constitute a dwindling pool of condo customers in this economy.

The FHA’s primary role is to encourage family home ownership. Condos present a problem, because some units are purchased as investments or turned into rentals, and the FHA’s role doesn’t include backing purchases in developments where many units are investments instead of homesteads.

That’s why the new rules focus on the number of rentals and investor-owned units in a condo development. The FHA guidelines also limit the number of other FHA-approved loans in a single complex and require that most condo owners be current on their maintenance and fees and that the condo association makes minimum additions to reserve funds.

Most importantly, the guidelines also require a condo to be pre-approved by the FHA for a loan to be considered, a process that can take several weeks or longer. According to the FHA website, 808 condo projects have approved status in Michigan.

“It can be a challenge if the building is not FHA-approved,” says Austin Black II, a broker and president of City Living Detroit real estate brokers. “I work with a lot of condo buyers and sellers, and the FHA rules are a big thing.”

Before last December, buyers could be “spot-approved,” which involved filling out a checklist that was sent to the lender. “Now the entire project has to be FHA-approved and the process is a lot more complicated,” Black said. “I’ve seen deals fall apart because the buyers thought the condo already had been approved.”

Black says he’s helped condo developers work up a checklist and step-by-step instructions to apply to the FHA, but the process takes at least six weeks. While that was going on for the Centurion Place condos on Ferry Street in Detroit, developer Joel Lerman waited to begin selling.

“We just put up a sign with ‘FHA Approved’ in big letters,” Lerman said after getting the FHA’s OK. “We held back on marketing until we knew it got approved.”

Paperwork and red tape

Nick Wuest, president of Bankers Home Loan, the in-house lender for Coldwell Banker Weir Manuel, says many condo associations likely qualify, but don’t know how to navigate the process.

“A lot of associations that could’ve gotten FHA approval just didn’t know how to weed through the new system,” he says.

Potential condo buyers need to weigh just how much of a hurry they’re in when looking at properties — and not fall in love with a unit that might not pass muster with the FHA.

“The first thing we do is find out if a condo is FHA-approved before we even quote an interest rate,” Wuest says. “They can still get it but in normal cases they’d have to put 20 percent down before I could touch it, which puts a lot of buyers out of the market.”

Condo associations and developments that are in compliance just have to plow through the paperwork, which can take several months if anything is missing or incomplete. But there’s less that can be done for developments that simply won’t qualify because too many desperate owners are renting units out to make their payments or too many owners have defaulted on maintenance fees and assessments. In other cases, banks and lenders who have foreclosed on units may not be paying dues or the payments may be tangled in red tape.

“We’re Michigan,” Wuest says. “If owners aren’t paying the association dues on time, how is the association to fix that? It’s forcing a lot of the associations to look at fixing their situation, but it’s kind of a Catch-22.”

Even in the case of condos that do get FHA approval — which is good for two years — lenders still will check on each loan to make sure the development has remained within the limits. Many lenders are charging fees of as much as $250 for such reviews.

“When someone goes to buy a condo, it’s more expensive all the way around,” Wuest says.

But if the FHA limits are causing problems for buyers, is the approval requirement also making trouble for sellers?

“It sure is, oh boy,” sighs Gerry Miller of Real Estate One in Clinton Township. If a condo isn’t approved, “It forces a cash sale,” Miller says. “When you limit the sale to cash buyers you eliminate a very large percentage of buyers, and that drives the prices down.”

BofA Halts Foreclosures

noreply@blogger.com (The Future of Real Estate) — Mon, 11 Oct 2010 14:39:00 +0000

Bank Expands Freeze After Pressure From Government-Run Mortgage Firm

October 9, 2010, WSJ
By DAN FITZPATRICK, DAMIAN PALETTA And ROBIN SIDEL

Bank of America Corp. imposed a nationwide moratorium on foreclosures and the sale of foreclosed homes after it came under intense pressure from a government-run housing-finance giant worried about documentation problems, people familiar with the situation said.

The bank called the halt as concern mounted from legislators and state prosecutors about procedures used by lenders to foreclose on homes. Many banks use so-called robo signers, employees who sign hundreds of documents a day, without carefully reviewing their contents, when foreclosing on homes. Critics say that could result in improper foreclosures.

Freddie Mac, the government-run mortgage-finance company that along with Fannie Mae owns many of the mortgages serviced by banks, pressed Bank of America to expand its search for problems with the foreclosure documentation process, said the people familiar with the situation.

On a call Thursday with several banks that included Bank of America, a Freddie official said the mortgage company wanted the institutions to look at foreclosure documentation across all 50 states, and asked them to consider putting a stop to the entire foreclosure process, say people familiar with the call.

Many in the banking industry fear that the widening paperwork problem could cause further delay on foreclosures and threaten an already weak housing market, which in turn is stalling the broader U.S. economic recovery. On the other hand, it could provide a brief financial respite to people who have defaulted on their mortgages and are still occupying their homes.

As of August, there were more than 4.4 million home loans that were either in the foreclosure process or 90 days past due, according to mortgage research firm LPS Analytics. Since 2006, about 6.4 million homes have been lost through the foreclosure process.

Edward DeMarco, who heads the Federal Housing Finance Agency, which regulates Fannie Mae and Freddie Mac, said in an interview that officials were working to find a "tailored" response to the foreclosure problem that won't cause broader problems for the fragile housing market. "We are trying to be quick but measured in the approach and the response taken," he said. "We're concerned about the whole housing market, and we're concerned about what this means for taxpayers and other market participants."

Last week Bank of America, J.P. Morgan Chase & Co. and Ally Financial Inc. agreed to more closely examine documents used in 23 states where a court's approval is required to foreclose on a home. J.P. Morgan said its review suspended nearly 56,000 foreclosures.

In conversations with Bank of America, Freddie said financial penalties or litigation could result if the bank did not take additional steps, said a person familiar with the conversations. Bank of America told Freddie that an audit of procedures in the 23 states uncovered no errors, this person said.

But Freddie said the work didn't go far enough and asked for a review in all 50 states, as well a stop to any foreclosure sales, said people familiar with the situation. Freddie Mac declined to comment.

Bank of America Chief Executive Brian Moynihan said Friday that the bank hasn't found problems in its foreclosure process, but opted to temporarily halt all foreclosures to "clear the air." He said the bank wants to "go back and check our work one more time."

Its decision is expected to stop "a couple of thousand" foreclosure sales scheduled for the next week, according to one person familiar with the matter said. The bank declined to specify how many homes it has in the foreclosure pipeline.

So far, Bank of America is the only lender to expand its foreclosure freeze, but others may be forced to begin or broaden a review, banking executives say. Wells Fargo & Co., one of the nation's largest mortgage lenders, says it hasn't stopped foreclosing on any properties.

At this point, J.P. Morgan isn't expanding its foreclosure moratorium, but is widening its document review beyond the 23 states where it has frozen foreclosures, according to a person close to the bank.

Bank of America services 14 million mortgages, or one out of every five in the U.S., and its loan-servicing portfolio exceeds $2.1 trillion in size. Of its mortgages, 10 million came from its 2008 acquisition of troubled California lender Countrywide Financial Corp. More than 80% of its delinquent loans were acquired through Countrywide.

A push over the last week from politicians and law-enforcement officials troubled by reports of foreclosure problems only intensified the pressure on Bank of America, which has been working to improve its relations in Washington. It concluded that reviews in just 23 states wouldn't cut it with elected officials in the other states, a person close to the bank said.

"In this intense political season we are in, it didn't play well to say do it in some states but not your state," this person said.

Senate Majority Leader Harry Reid (D., Nev.), whose state has been hit hard by foreclosures, and House Oversight and Government Reform Committee Chairman Edolphus Towns (D., N.Y.), both said Friday they welcomed Bank of America's move and called on other banks to follow.

Cassandra Toroian, chief investment officer at Bell Rock Capital LLC, a money-management firm, says the additional reviews are unlikely to significantly impact the outcome for homeowners who are facing foreclosure. "It's just delaying the inevitable," she says.