Foreclosed Homes in U.S. Sell at 27% Discount as Distressed Supply Grows‏

Bloomberg

 

Homes in the foreclosure process sold at an average 27 percent discount in the first quarter as almost a third of all U.S. transactions involved properties in some stage of mortgage distress, according to RealtyTrac Inc.

A total of 232,959 homes sold in the period had received a default or auction notice or were seized by banks, RealtyTrac said in a report today. That’s down 14 percent from the fourth quarter and 33 percent from the peak a year earlier, the company said. The average price of a distressed property was $171,971, according to the Irvine, California-based data seller.

“The discount will probably stay between 25 percent and 30 percent as lenders carefully manage the number of new foreclosure actions in order to avoid flooding the market,” Rick Sharga, RealtyTrac’s senior vice president for marketing, said in an interview.

“We’re clearly creating more properties that will be sold at distressed prices than the market is absorbing,” Sharga said. There were more than 250,000 new bank seizures in the first quarter.

The discount reflects the average sales price of homes in the foreclosure process compared with the average sales price of properties not in distress. About 31 percent of all U.S. sales in the quarter were of homes in some stage of foreclosure, RealtyTrac said.

Rising Seizures

Home foreclosures set a record for the second straight month in May, with increases in every state, as lenders stepped up property seizures, RealtyTrac said earlier this month. Bank repossessions climbed 44 percent from a year earlier and will probably set a record in the second quarter, the company said.

Distressed sales totaled more than 1.2 million last year, a 25 percent increase from 2008 and a more than four-fold rise from 2007, according to RealtyTrac.

Such transactions accounted for 29 percent of all sales last year, up from 23 percent in 2008 and 6 percent in 2007. The average foreclosure discount was 25 percent in 2009, 22 percent in 2008 and 26 percent in 2007.

A “normal” market would show foreclosures accounting for less than 2 percent of sales, Sharga said.

Bank-owned properties sold for an average 34 percent discount in the first quarter, up from 32 percent both in the previous quarter and a year earlier. Such properties accounted for 19 percent of all U.S. home sales, up from almost 16 percent in the fourth quarter and down from 21 percent in the first quarter of 2009, RealtyTrac data show.

Short Sales

Properties in default or scheduled for auction sold for an average discount of almost 15 percent, up from almost 14 percent in the previous quarter and down from 16 percent a year earlier. These homes are often sold in short sales, where lenders accept less than the outstanding loan amount for the property, RealtyTrac said. Sales of properties either in default or headed for auction accounted for 12 percent of all sales.

The average price was $154,740 for bank-owned properties and $199,950 for homes in default or scheduled for auction, RealtyTrac said.

“The competing forces will be bank-owned properties and short sales,” Sharga said. “The more short sales, the lower the average discount is likely to be.”

Nevada had the highest proportion of distressed sales of any U.S. state, with 64 percent of all transactions involving properties in mortgage distress.

California ranked second, with such sales accounting for 51 percent of all sales and Arizona was third at 50 percent.

Discounts on distressed homes were highest in Ohio, Kentucky and Illinois, where they sold for an average of at least 39 percent less than non-foreclosures.

RealtyTrac sells default data from more than 2,200 counties representing 90 percent of the U.S. population.

What Should Home Seller Expect to Pay at Closing?

The Wall Street Journal

 

Don't hire any real estate agent that doesn't give you a clear idea of what you should expect to pay at closing, and what you should net from the sale.

Since these costs vary depending on both the location and what other sellers are offering to buyers in your neighborhood, I can't tell you exactly what that number will be. But here's a general rundown on costs:

As a seller, you're responsible for paying certain set costs, such as a grantor's tax (which in Virginia is $1 for every $1,000 of fair market value, based on the higher of assessed or sales value). You will also have to pay any homeowners' association fees and real estate taxes due, prorated to the closing date, as well as any outstanding utility, water and sewer bills.

You'll also have costs that can be negotiated, at least somewhat. These include settlement company charges, any fees your lender may charge for paying off the loan, and of course, the broker's commission.

For all of the above, as a rule of thumb, you can expect closing costs will be about 1.5% of the purchase price, and broker fees to run between 3% (if you use a flat-fee broker) and 6% (if you use a full-service broker). All of these costs are spelled out in the HUD-1 form

But since it's still a buyer's market, it's not unusual for purchasers to ask for help with their own closing costs, or to buy down the interest rate on their loans (their lender must approve this). If the buyers are unhappy with some aspect of the house, such as stained carpeting or old appliances, they may also ask for a decorator's allowance. For this reason, I don't think it's shocking to be asked for $7,500 in concessions.

The buyers' requests will be spelled out in the offer, and you don't have to accept them. However, if other buyers are doing so, you should consider doing it too. Your agent can find out the dollar amount of seller concessions for recently sold homes comparable to yours.

Regardless of what sort of deal you and the buyer work out when you accept their offer, you should also put a few thousand dollars aside for problems that may be revealed after the buyer has the home inspected—even if you have had your own home inspection done before you put your home on the market. You don't want your sale scuttled because of some loose flashing or a sagging porch. It's also wise to offer a one-year home warranty, which costs around $300. That way, the buyer will be calling the warranty company, and not you, should the washer break a month after closing.

And remember that many concessions may be worth making if the buyer offers you a good enough price. It's the bottom line that counts.

Gulf Property Sales Sliding on Oil Fears

Associated Press

Beachfront condo values had already dropped before BP's Deepwater Horizon oil spill. Now the market is at a standstill. A condo at this Holiday Isle building was selling for $107,000 on June 10, 2010 in Destin, Fla. The water is clear and the sand is still white along much of the Florida Panhandle. But agent Alicia Hollis says her company hasn't had a sale since the disaster started.(AP Photo/Brendan Farrington)
 

 

This was the year, Alicia Hollis and her fellow real estate agents thought. After a nasty batch of hurricanes and the bursting of the housing bubble, this was the year that condo sales along the Florida Panhandle's brilliant white beaches were going to rebound.

Then came the oil - or more accurately, the mere threat of oil.

Though most of the Gulf Coast remains free of tar balls, sheen and sludge from the spill in the Gulf of Mexico, owners and agents say the disaster has still stained a showcase piece of the real estate market.

It's the third sucker punch in six years for property owners, many of whom were depending on rental units to fund their retirement. State lawmakers are looking to let homeowners off the hook on some of their taxes, hoping to pass the cost along to BP.

But things won't get better as long as images of oiled sand keep buyers away.

"We can sell places in town - people need a place to live - but the beach: look how empty it is," said Hollis, who's been selling homes in the Panhandle since 1973. "It's so heartbreaking."

Hollis' agency based on Okaloosa Island, where rows of condos line the beach, typically sells six or seven units a month. It hasn't sold a single beachfront property since the Deepwater Horizon rig exploded off the Louisiana coast April 20. No one is even looking, she said.

"It's scaring people off," said Dale Peterson, who owns a real estate agency in Destin. "It's a wait and see. It's the not knowing that's the hardest part for us."

The halt in sales comes on top of a downturn in the market. In the Fort Walton Beach area, including Destin, the median sales price for condominiums was $471,500 in 2005. Last year, that figure dropped to $254,700. Single-family home prices also dropped, but not as dramatically, from a median sales price of $244,500 in 2005 to $192,100 last year.

"We were on our way, too," Peterson said. "Finally on our way up."

Officials in the region want a special legislative session to allow owners to pay taxes on the current property value rather than what they were worth before the spill.

"The market value on Jan. 1 is a lot different than the market value now," said state Rep. Dave Murzin, R-Pensacola. "The potential buyers, just like vacationers, aren't coming down here because they think the oil is soaked on the beaches."

The state would seek compensation from BP PLC for the lost tax revenue caused by lower values. It's hard to tell exactly how far values have dropped right now, but Murzin said it could mean millions of dollars in lost taxes for each county along the Gulf.

"We think we see this train coming down that tunnel and if there is any way we can make it less disastrous, that is what we are trying to do," said Pete Smith, property appraiser for Okaloosa County.

The problem stretches all along the Gulf Coast, where the oil is and where it isn't.

Mike Boudreaux, president of a Biloxi, Miss., real estate and development company, said beach house sales have stalled even though "if you walk up and down the beaches, there's not one bit of oil here yet."

Property owners are worried the problem will linger even longer than damage from a hurricane.

Gloria McCullar, 59, of Tuscaloosa, Ala., owns two Fort Walton Beach condos that she rents. Her retirement plan is to move into one and sell the other.

"My biggest fear is that when I'm ready to sell one, I can't because of the oil," said McCullar, a single mother who earns $32,000 a year as a secretary. "I'm just not sure what the future holds. I don't think I can give them away at this point."

At the Jetty East condominiums on Holiday Isle in Destin, there are 16 units on the market ranging in price from $137,500 to $497,200 and no one is asking about them, said Jerry Stalnaker, who manages the property and sells condos.

"There's another 15 or 20 or 30 (owners) that would sell," said Stalnaker. "They've been beat down and beat down. They're sick and tired of it."

In 2005, Stalnaker said people were buying units sight unseen. Condos wouldn't stay on the market for longer than a week or two. But then sales slowed because of beach erosion caused by storms, and now several owners are upside down on their mortgages after buying at the market peak.

The oil spill has just made things worse.

"We're down at the bottom, bottom, bottom now and people who do make an offer make it for dirt cheap," Stalnaker said. "It makes it almost unsellable right now because of the oil problem."

Agents are trying to remind people that the sand is still white and the water is still clear. Peterson's website has live cameras and links showing the beaches.

"We're going every day and taking pictures of the beach and people playing in the water," Peterson said. "We're trying to combat it by showing it's not what you see in Louisiana."

He and others, such as Miami mortgage fraud lawyer Ramon de la Cabada, are finding the perceptions are hard to fight. Hollis let out an exasperated groan when a headline "Heavier oil from Gulf spill washes up in Florida" popped up on her computer.

Most people reading the headline will picture the entire coast, she said, even though the problem was in Perdido Bay on the Alabama line some 45 miles to the west.

Still, she remained optimistic that the market will eventually recover.

"We'll survive this just like we've survived everything else. Just now it's a little harder. Until they cap it, we're in trouble," she said. "I'm going to hate it if this doesn't stop pretty soon."

CA, FL, Other States get more Housing Aid

Associated Press

The Obama administration has approved five state-designed plans to help homeowners as part of a $1.5 billion effort to assist areas slammed by the housing bust.

Treasury Department officials, who spoke on condition of anonymity because the decisions had not yet been made public, said plans for Arizona, California, Florida, Michigan and Nevada had received approval.

The state plans are projected to help at least 93,000 homeowners. That's a small part of the administration's main existing $75 billion mortgage assistance program, which is widely viewed as a disappointment.

President Barack Obama unveiled the state assistance effort in February. Since then, state agencies have designed their own approaches, largely focused on borrowers who owe more on their properties than their homes are worth or those who have lost their jobs.

Officials say the state efforts could be used to make changes to the administration's broader mortgage assistance plan. The state agencies are planning to work with local housing groups to put the plans in place.

The largest recipient of the funding is California, which will get nearly $700 million to assist about 38,000 borrowers for California health insurance quotes. Florida is getting the second-largest pot of money, $418 million. That will help about 30,000 borrowers.

Michigan will receive about $155 million to assist 16,000 borrowers, while Arizona will receive $125 million for 4,000 borrowers. Nevada will receive $103 million for about 5,000 homeowners.

Besides these states, the Obama administration is providing an additional $600 million in financial support to help homeowners in states with high rates of unemployment.

Those states - Ohio, North Carolina, South Carolina, Oregon and Rhode Island - have submitted plans to the Treasury Department. They are being reviewed now, with approvals expected in August.

The Obama administration has rolled out numerous attempts to tackle the foreclosure crisis, which have met with limited success.

More than a third of the 1.2 million borrowers who have enrolled in the Obama administration's main mortgage modification program have dropped out, officials said this week. About 340,000 homeowners, or 27 percent of those who started the program, have received permanent loan modifications and are making payments on time and even some home improvements with marble countertops in middleton MD.

Raising the Dead in San Francisco

The Wall Street Journal

 

A venture of Prudential Financial Inc. and Barker Pacific Group Inc. hopes a cash infusion of about $20 million is enough to bring a zombie office building in San Francisco back to life.

Zombie buildings, which have been mushrooming throughout the commercial real-estate landscape, are those that are worth less than their mortgages and are deteriorating in value because neither the owner nor lender is willing to infuse new capital to retain existing tenants or attract new ones.

The 43-story office building at One Sansome St. was suffering these types of problems until recently. It was appraised at $333 million in 2007, when it was acquired by Broadway Partners. But since then, it steadily declined in value while its occupancy rate decreased to 75% from about 87% in 2007. Last year, Lehman Brothers Holdings Inc., which financed the Broadway Partners purchase, took a controlling ownership stake in the building as part of a debt restructuring.

This spring, a unit of Prudential Financial took control after foreclosing on a defaulted $107.6 million mezzanine loan tied to the building. Prudential also brought in Barker Pacific, a privately held real-estate investment firm, as a partner.

Broadway Partners and Lehman declined to comment. Michael Barker, managing director of Barker Pacific, said the building's new owners assumed a current $139 million first mortgage on the tower and wrote down the mezzanine loan by about 50% in a deal that valued the property at about $190 million.

"Foreclosure is never the outcome we want, but in this case we decided to take ownership instead of restructuring the loan," a Prudential spokeswoman said.

Mr. Barker said the new venture will invest about $20 million to upgrade the building, which is named Citigroup Center after the bank that built it in 1983 to house some of its West Coast operations. The to-do list includes renovating the lobby, and addressing such issues as peeling paint and lackluster lobby art. Just as important, the venture is offering aggressive rental packages to prospective tenants that are competitive with the rest of the market. Mr. Barker said the venture is offering about $60 a square foot to fund prospective tenants' buildout of upper-floor space.

"With new equity in the project, it will be in a position to compete," said Mr. Barker, whose firm put in $2.5 million for a minority stake in the property.

The capital infusion has made the property more attractive to tenants and, just as important, their brokers, who stopped steering business to the property because the former ownership was unable to make competitive deals.

"At some point, after you've tried a few times, you stop bringing your clients to the building," said Steve Barker, an executive vice president in San Francisco with Studley, a real-estate-services firm, and no relation to Michael Barker. "Broadway couldn't do anything with it because their basis was too high."

The building's new owners have put it back in the running to keep at least one tenant. The law firm of Knobbe Martens Olson & Bear LLP has a lease on the 35th floor that was set to expire in September. The firm began to consider moving out after it got no answer on its request for a new lease from the landlord, according to Adeel Akhtar, a managing partner in the firm's San Francisco office. That changed when Prudential and Barker took over, he said. Knobbe obtained an extension and is considering staying put, Mr. Akhtar said.

One Sansome St. sits atop a base that includes portions of a historic building that once housed the Anglo & London Paris National Bank. Broadway Partners had planned to increase revenue by signing on new tenants at higher rents, according to Trepp, a New York real-estate-research firm.

Instead, rents and vacancies in the San Francisco market and nationwide weakened. About 65,000 square feet of upper-floor space that had been occupied by Bear Stearns Cos. was left vacant in 2009, more than a year after J.P. Morgan Chase & Co. acquired Bear Stearns.

Mr. Barker of Barker Pacific said demand for upper-floor space with views of the Golden Gate Bridge is rising. "As we have recapitalized it, it's going to be anything but [a zombie building]," he said. "It needs attention, that's all."

U.S. Homebuyers still in the Driver's Seat

CNBC

 

Prices were cut on nearly one quarter of U.S. homes on the market in May, the same as April, with a growing supply of unsold homes keeping buyers in the driver's seat, real estate web site Trulia.com said Wednesday.

Sellers lowered asking prices at least once on 22 percent of homes listed as of June 1, unchanged in the month and up from 20 percent two months ago, San Francisco-based Trulia said in a report provided to Reuters before official release.

A year ago, prices had been cut on 23.6 percent of listed properties. Sellers may face a setback after a brief spring sales spree driven by a rush for federal tax credits of up to $8,000.

To qualify, borrowers who may have purchased in the summer and fall raced to meet the April 30 deadline to sign contracts.

Spring sales could be "providing sellers with a false state of optimism," said Trulia Chief Executive Pete Flint.

"For the unforeseen future, buyers will continue to have the negotiating power and I expect we will see sellers get aggressive via price cuts throughout the summer," he said in a statement.

In the weeks since the tax incentive expired, applications to buy homes toppled to a 13-year low and home builder sentiment worsened.

Inventory levels are growing as sellers gain comfort that the spring season will pave the way for healthier summer sales, Trulia said.

Banks coping with record numbers of repossessed properties will add to the supply as they place the homes on the market, though most economists expect that pace will be measured.

Sellers slashed a total of $26.7 billion in May from asking prices, more than the $25 billion in April and $22.8 billion in March, according to Trulia.

The average discount on the reduced homes held at 10 percent from the original listing. More than a year of tax incentives put the U.S. housing market on a more solid footing.

However, a significant recovery is unattainable without a meaningful improvement in employment, economists agree.

Government data earlier this month showed private-sector hiring rose by 41,000 in May, far overshadowed by the 411,000 temporary census jobs.

Price cutting over the past year was the greatest in cities based in the Midwest and South.

Kansas City, Missouri led by list, with 31 percent of homes for sale cutting prices at least once, up from 20 percent a year earlier.

Other cities with the largest increase in share of homes that lowered prices were Arlington, Texas; Cleveland, Ohio; Louisville, Kentucky, Houston, Texas and Minneapolis, Minnesota.

Western cities had the most improvement in the share of sellers slicing prices over the year.

These were among the cities that had gained the most during the housing boom and have already suffered the most in the crash.

Sellers dropped prices on just 10 percent of properties listed in Las Vegas in May, for example, compared with 30 percent a year earlier.

Six California cities were among the 10 cities showing the most improvement.

Price-cutting on luxury homes listed at $2 million or more was unchanged in May, with an average discount of 14 percent, Trulia said.

Homes in this category account for less than 2 percent of total inventory, but almost one-quarter of total dollars slashed from all homes for sale.

Mortgage Rates Drop

Market Watch

15-year fixed-rate mortgage sets record low for fourth week in a row



Bond yields fell and mortgage rates followed after a relatively weak employment report, allowing the 30-year fixed-rate mortgage to hover near its record low set late last year, Freddie Mac's chief economist said on Thursday.

The 30-year fixed-rate mortgage averaged 4.72% for the week ending June 10, down from 4.79% last week and 5.59% a year ago, according to Freddie Mac's weekly survey of conforming mortgage rates.

The 15-year fixed-rate mortgage set a record low for the fourth week in a row, averaging 4.17% this week, down from 4.20% last week and 5.06% a year ago. Freddie Mac started tracking the mortgage in August 1991.

Five-year Treasury-indexed hybrid adjustable-rate mortgages averaged 3.92%, down from 3.94% last week and 5.17% a year ago. And 1-year Treasury-indexed ARMs averaged 3.91%, down from 3.95% last week and 5.04% a year ago; the ARM hasn't been lower since the week ending May 27, 2004, when it averaged 3.87%.

To obtain the rates, the fixed-rate mortgages and the 5-year ARM required payment of an average 0.7 point, and the 1-year ARM required an average 0.6 point. A point is 1% of the mortgage amount, charged as prepaid interest.

"Following a relatively weak employment report, bond yields fell this week and mortgage rates followed," said Frank Nothaft, Freddie Mac vice president and chief economist, in a news release. "Private payrolls rose by 41,000 jobs in May, less than a quarter of the market forecast consensus of an 180,000 gain."

The economy is showing signs of improvement, Nothaft added.

"The Federal Reserve reported in its June 9 regional economic review that the economy strengthened in all 12 of its Districts over April and May. It also noted that loan quality was stable or improving in most Districts, but remained an issue for banks with large exposure to real estate," he said.

Thor's Bid Gains for Midtown Site

The Wall Street Journal

 

Joseph Sitt's Thor Equities has the inside track to buy the Takashimaya building, a Fifth Avenue trophy property owned by the Japanese retailer, with a bid of more than $140 million, according to people familiar with the matter.

Thor, which owns stores, office buildings and other commercial real estate in New York and other cities, is close to edging out other bidders, including Vornado Realty Trust and SL Green Realty, these people said. The building, between 54th and 55th streets, has about 100,000 square feet of space and is being marketed by Jones Lang LaSalle.

The bids come as interest in Fifth Avenue retail is heating up even as questions about the health of New York's broader commercial market remain. In April, a partnership led by the Carlyle Group began leasing 666 Fifth Ave. and Japanese clothing retailer Uniqlo agreed to pay $300 million over 15 years, one of the most expensive leases ever in New York.

Mr. Sitt couldn't be reached for comment. A native of Brooklyn, he has been active in a wide range of retail businesses, including Ashley Stewart, the Children's Place and Kidspot. Thor has a commercial real estate portfolio totaling more than 12 million square feet and valued at more than $3 billion, according to the firm's Web site.

Mr. Sitt also is one of the largest private owners of Coney Island property and is working on plans to develop year-round retail and entertainment uses on it. Last year, he sold seven acres to the city which also is envisioning more development of the historic amusement district.

Lehman Brothers Sells Real Estate Funds Business to Ex-Managers

Bloomberg / Business Week

 

Lehman Brothers Holdings Inc., the investment bank liquidating in bankruptcy, sold the management contract for its real estate funds to the former executives who ran the business, Chief Executive Officer Bryan Marsal said.

The investors in the funds “chose overwhelmingly to support a bid led by former management,” Marsal said in an e- mail. “This is not surprising in that the fund managers have detailed knowledge of the portfolio and good historic performance.”

The sale involves three private funds, Lehman Brothers Real Estate Partners I, II and III, with combined capital commitments of about $5.6 billion. Brett Bossung and Mark Newman, who managed the funds before Lehman’s September 2008 bankruptcy, led the group of five former executives who bought the business.

Bossung and Newman will resume day-to-day fund management, while Mark Walsh, their former boss, will “focus on the growth of the business and asset management,” Kimberly Macleod, a Lehman spokeswoman in New York, wrote in an e-mail.

The ex-Lehman executives agreed in June 2009 to pay Lehman about $10 million for the rights to the unit’s management contract, a person familiar with the matter said at the time. Macleod declined to specify the price in the completed deal.

Bossung, Newman and Walsh declined to comment.

Lehman invested more than $1 billion out of $5.6 billion of equity in the three funds since 2000. Lehman represents 20 percent of total commitments across the three funds, said Macleod. The funds have held stakes in Tishman Hotel Co. of the U.S., 60 U.K. Intercontinental hotels and Singapore condominiums as well as in Indian and Swedish real estate companies.

Lehman, once the fourth-largest investment bank, filed the biggest bankruptcy in U.S. history in September 2008 as the global credit markets seized up and real estate values tumbled.

Slower Growth for Canada House Sales, Prices

Reuters

The Canadian Real Estate Association cut its 2010 forecast for resale house prices and sales on Wednesday, saying sales in British Columbia were not as strong as expected at the start of the year.

The industry group said it now expects the average price to climb 1.6 percent to C$325,400 ($309,905) nationally in 2010, a big drop from its previous forecast of a 5.4 percent gain.

Sales are seen rising 5.5 percent to 490,600 units in 2010. In February, CREA forecast sales of 527,300 units in 2010, up 13.3 percent from 2009.

The group said a decline in affordability in British Columbia hurt sales in the province during the first quarter, although sales in Ontario were much as expected. The two provinces hold some of the country's biggest and highest-priced markets.

"Lower expected activity in British Columbia accounts for more than half of the downward revision in national sales activity," the group said.

CREA said it now expects sales in British Columbia to fall 5.9 percent this year to 80,000 units from 85,028 in 2009, while prices in the Pacific Coast province are seen up 2.3 percent at C$476,400.

It expects Ontario sales to rise 10 percent to 215,400 units, a record but a smaller gain than previous thought. Prices in the province are expected to increase 3.9 percent to C$330,900.

The association had expected to see stronger sales in the first half of the year ahead of the introduction of new mortgage rules, rising interest rates and new sales tax regimes in Ontario and British Columbia.

Month-to-month home resales have been cooling from the beginning of the year, while listings have also been rising, quieting a feisty debate last year that a bubble was forming in the housing sector.

The real estate association repeated on Wednesday that it did not see a U.S.-style housing price correction, mostly because of solid mortgage market trends.

"A downward trend in national sales activity combined with an increase in listings will result in a more balanced market," said Gregory Klump, CREA's chief economist.

Canada's housing market has been a leading supporter in the country's recovery, spurred by record low interest rates.

The Bank of Canada raised interest rates for the first time in three years this week, bringing its benchmark overnight rate up a quarter-point to 0.5 percent. Commercial banks responded with a similar increase to the prime rate.

The central bank has said that housing and consumer spending led growth in the first quarter, but it expected household spending would "decelerate to a pace more consistent with income growth."

For 2011, CREA said it forecasts an 8.5 percent slide in sales to 448,700 units, with every province except Newfoundland and Labrador to post declines from this year. An earlier forecast pegged the slide at 7.1 percent.

The average national price is seen slipping 2.2 percent to C$318,300, compared with an earlier view of a 1.5 percent decline.

CREA's report is broadly in line with recent views from other bank economists, who say a home ownership costs are rising and affordability is eroding, while house prices are due to retreat in the coming year or two.

Commercial Deals Abound, but Loans are Scarce

The Wall Street Journal

 

Real-estate prices are enticingly low in many areas of the country, prompting business owners to pursue sweet deals on storefronts, manufacturing facilities and other commercial properties. But because banks remain wary of commercial real-estate loans, landing financing to make such a purchase can be time consuming and tedious.

Compared to peak prices in October 2007, commercial property values are down 42%, according to Moody's Investors Service Inc. Price index reports compiled by Moody's and Real Capital Analytics Inc. show that as of March 2010, the cost of industrial and office space fell 32% in the last two years. Retail space also plummeted 28%.

"There is excess space, which opens an opportunity for small firms," says Bill Dunkelberg, chief economist at National Federation of Independent Business, a Washington advocacy group. "You won't see prices like these for a long time."

Some owners are heeding the call. Randy Scheidt, who heads the legislative subcommittee of the National Association of Realtor's commercial division, says that he is noticing business owners "feeling more comfortable with the future" and weighing whether "such an acquisition would be fiscally prudent."

But the tight credit environment is making it difficult for entrepreneurs to secure those loans. "What is so different today versus 2006 is the underwriting scrutiny," says Mr. Scheidt. "It's not unusual for [the loan process] to take an additional 30 to 60 days."

Eliot Boyle, owner of U.S. Metals LLC in Denver, decided last year to move his sheet-metal roofing and siding business to a new facility. Lease rates in the area were steady, but commercial spaces for sale on the market were falling. "We thought this was a good time to take advantage of how well we were doing and how poorly the real-estate environment was doing," he says.

After preparing his business plan, he visited five banks and was turned down by four. The remaining lender, Bank of the West, which had previously worked with Mr. Boyle, issued him a Small Business Administration loan to buy a $680,000 building. The price for the space —a 50%-larger facility—had dropped 40%.

The process took longer than anticipated and closed one day before the scheduled move. The delays, says Mr. Boyle, stemmed from the bank's requirement of additional environmental reports and other due diligence.

"All those appraisals showed that…if the bank needs to move fast and has to liquidate the building quickly, it can do that," says Mr. Boyle.

"The approval timelines are really not that different than they were in the past," says Jim Cole, spokesperson for the San Francisco-based Bank of the West. "Appraisals take the same amount of time and, as always, environmental reports can take longer than expected."

Many banks taking extra precaution before issuing commercial mortgages are reeling from those kinds of losses and are wary of putting more of those loans on their books. According to a Real Capital Analytics' study of Federal Deposit Insurance Corp. and bank data, the default rate for commercial real-estate mortgages rose to 4.2%, amounting to $45.5 billion, for the first quarter of 2010. That's the highest default rate since 1992.

Commercial real estate loans have really hurt community and regional banks, which are key lenders to small businesses. They hold just more than half of bank-issued commercial mortgages and their portfolios are likely to hurt for some time. The default trend is expected to continue through 2011, when it may hit 5.4%, before abating, according to Real Capital Analytics.

Although the commercial real estate market has shown some tentative signs of life in the early months of 2010, there is little transparency about the value of many properties, says Sam Chandan, chief economist at Real Capital Analytics. Appraisals help determine price, he explains, but commercial property values are supported by other transactions in the area.

To overcome the credit challenge, experts say entrepreneurs can make themselves more attractive by submitting sound financial plans that back up their income projections and intent to repay the loan. Borrowers with solid credit histories and established bank relationships are more likely to get a loan.

Mr. Chandan says newer businesses can still land financing if they can bring equity to the table, especially if the borrower wants to purchase a vacant property that the bank is holding. But, he cautions, "lending standards have tightened considerably, so it will be challenging."

Jury Still Out on Home-Buyer Tax Credit, says Home-Builder CEO

USA Today

 

The CEO of Hovnanian Enterprises (HOV) said Thursday that a final push by homebuyers in April to qualify for a government tax credit didn't give the homebuilder's sales as big a boost as he'd hoped.

The company's new-home contracts tumbled 17% in the February-April quarter vs. a year ago. Excluding communities that are no longer open, new contracts were flat, however.

Those results exceeded the builder's internal projections, but still disappointed.

"I'd be less than candid if I didn't say we were hoping for better sales due to the impact of the homebuyer tax credit," CEO Ara Hovnanian said.

The tax credit — $8,000 for first-time homebuyers and $6,500 for repeat buyers — helped stoke sales for homebuilders this spring. In April, new-home sales nationwide jumped 14.8%; in March, new-home sales posted the biggest monthly increase in 47 years.

The government incentive expired April 30, although homebuyers have until June 30 to close on their purchase. That had many builders anticipating they would see a spike in sales as buyers raced to qualify for the credits.

Hovnanian said the deadline pulled some home sales forward into April, and that appears to have sapped some of the sales that ordinarily might have happened in May.

The builder's sales per community were slower last month than a year earlier.

"Given the fact that the tax credit is no longer in place, this reduction in sales per community in May seems reasonable," Hovnanian said. "The jury is still out as to what the impact will be on the expiration of credit on sales going forward."

Many experts anticipate home sales will decline in coming months now that the government incentive has ended, although some homebuyers in California can still qualify for a $10,000 tax credit enacted by the state legislature. New Jersey lawmakers are working to enact a $15,000 tax credit of their own.

Regardless, high unemployment and job insecurities continue to keep many buyers on the fence.

Hovnanian, based in Red Bank, N.J., reported Wednesday a smaller net loss of $28.6 million, or 36 cents a share, in its second quarter. Revenue dropped to $318.6 million from $398 million a year earlier.

Management said home prices remain stable in most of the company's markets, which has helped raise its profit margins and led to smaller write-downs. The builder also saw a lower rate of cancellation on new home contracts than a year earlier.

Manhattan Condos Overpriced for Sale May Be Recycled as Rental Apartments

Bloomberg News

 

When Richard J. Bailes and his family paid $4.1 million in March for a four-bedroom apartment in the glass and steel Georgica on Manhattan’s Upper East Side, just eight of the building’s 58 units were occupied, he said.

Bailes and his family had plenty of places to choose from. About 8,700 new condos sit empty in Manhattan, with 75 percent not even listed for sale yet, said appraiser Miller Samuel Inc. Priced at levels the market no longer supports, they’re selling so slowly it would take as long as seven years to find buyers for them all, said Jonathan Miller, president of Miller Samuel.

Miller teamed up with Westwood Capital LLC and developer Gerald Guterman to raise as much as $1 billion to buy empty condos and manage them as rentals. Guterman made his name in the 1980s doing just the opposite.

“Things are going to run out of steam at pretty predictable times,” said Daniel Alpert, managing partner of New York-based Westwood Capital. “In the case of these condos, it’s when the reserve funds run out.”

Builders can’t afford to cut prices because they borrowed too much at the height of the market, according to Miller. He and his partners are betting that lenders will seek to sell their condo units at a loss rather than foreclose on the building and assume all the developer’s liabilities until the units are sold.

Developers taking out construction loans borrow an additional amount for interest reserves, which is intended to cover the monthly payments on the loan while the project is under construction and until sales begin, Miller said. Alpert estimates that reserves on loans made in 2007 and 2008 will dwindle in the second half of 2010 and early 2011.

12 Unit Sales

The Georgica’s developer started marketing the apartments there in May 2008, and by the time Bailes bought his, 12 had sold, according to StreetEasy.com, a property listing service.

“On one side of the building at nighttime, ours are the only lights on,” Bailes, a director at the Americas division of the architectural firm RMJM who moved to Manhattan with his family from Short Hills, New Jersey, said in April. “You have all the facilities and staff to yourself.”

The pace of sales at the building has subsequently picked up, with 32 apartments closed and nine more under contract, according to Judy Kekesi, a senior sales associate for Corcoran Sunshine Marketing Group, the firm in charge of marketing the 58-unit Georgica. A call to Ascend Group, the developer of the property, wasn’t returned yesterday.

Rent Multiplier

Condominium Recovery LLC, the firm started by Miller, Westwood and Guterman, bases its analysis of the market on Manhattan’s “gross rent multiplier” -- the purchase price of an apartment divided by the annual cost of renting a similar one.

The relationship between home prices and rents typically remains steady within a market, Miller said. In Manhattan, the average apartment, adjusted for inflation, cost 8.1 times annual rent from 1991 to 1997, according to Miller Samuel data. That means that in those years, buyers in Manhattan concluded that the long term benefits of owning an apartment -- tax savings and property appreciation -- were worth an initial investment of eight times the cost of renting.

Then in 1998, Manhattan prices began a decade-long climb, with year-over-year values rising by 10 percent or more in most quarters. By the second quarter of 2008 apartment prices peaked at 22.4 times annual rent, according to Miller Samuel data.

Buy Vs. Rent

At that level, buying rather than renting in Manhattan only makes sense if the purchaser expects prices to continue rising at a meteoric clip, with future sales’ profits justifying ownership costs that also include property taxes, interest and maintenance fees. New York is the No. 1 city in the U.S. where the overall costs of buying are “significantly more expensive than renting,” according to a report released yesterday by property website Trulia.com.

Manhattan’s multiple in the first quarter of 2010 was 19 times rent, even as rental prices fell 6.1 percent from a year earlier, according to data from Miller Samuel.

“That suggests a few things,” Miller said. “One is that prices are poised to slip further.”

The median value of apartments for resale in Manhattan has already fallen 31 percent since 2008, narrowing their spread over rents, Miller said. By comparison, apartments in new developments, which are saddled by debt for construction loans made during the property boom, have fallen by 24 percent -- and much of that drop was due to smaller units being sold rather than significant price reductions by the developer, Miller said.

Pet Spas

New apartments, built with amenities like pet spas and wine vaults, won’t be able to reduce their price tags enough to compete with existing buildings -- and still satisfy their lenders, Miller said.

The hurdle for new developments during the slump stemmed from a lack of financing for would-be buyers. Mortgage-finance company Fannie Mae doesn’t back loans made in new buildings where fewer than 51 percent of the units are in contract. That in turn makes mortgage lenders hesitant to make loans at such properties, said Orest Tomaselli, chief executive officer of National Condo Advisors LLC, a White Plains, New York-based consulting firm that helps developments comply with Fannie Mae and Federal Housing Administration lending requirements.

16% of Sales

New development purchases made up 16 percent of all Manhattan sales in the first quarter, compared with 43 percent of all sales in the first three months of 2009. The newly built apartment units that did close in the first quarter were on the market for 385 days, while resale properties spent 103 days on the market, according to Miller.

Bailes, who didn’t need financing for his purchase at the Georgica, said he was attracted to the building in part because it hadn’t yet secured enough sales to meet Fannie Mae approval. It made the developers more willing to negotiate on price in exchange for a cash offer.

“You get more of a deal,” said Bailes, who purchased the unit at a 17 percent discount off the asking price, according to StreetEasy.com.

“The market is still not back,” he said. “But we’re in it at least three years. We’re not looking to make any money any time soon on where we live.”

At One Rector Park, a Battery Park City rental building converted in to 174 condominiums, the sales office has been shuttered. There have been no sales in the building, according to StreetEasy. Melissa Cohen, sales director at Buttonwood Development LLC didn’t return a call for comment. Neither did a spokesman for the project’s lender, iStar Financial Inc.

‘Shadow Inventory’

The 8,700 unsold new condos in Manhattan exceed all residential sales in the borough in 2009, according to Miller. About 6,500 of those units are “shadow inventory” and have not yet been listed for sale, he said.

“If you flush that all into the market you tank the market,” Westwood’s Alpert said. “So the only way you can effectively push that into the market is to bleed it out very slowly. Well, the lenders don’t really have the option to bleed it out slowly because they can’t hold onto it for six years.”

Condominium Recovery, formed in 2009, is in the process of securing $350 million in equity commitments from private equity firms, Alpert said. The partnership plans to approach lenders of stalled condominium projects in Manhattan and Florida, and offer cash in exchange for bulk increments of 50 to 200 units --enough to take control of the homeowners’ association, cancel the sales plan, and operate the property as a luxury apartment building, Alpert said. They are making bids on Florida properties, and will turn to New York later this year.

Distressed Investing

There are currently 90 U.S.-based private-equity funds with an aggregate $37.9 billion dedicated to investing and acquiring distressed real estate, according to London-based research firm Preqin Ltd.

“Most investors would be happy to buy apartments for operation as rentals, but most sellers and their lenders would not,” said Susan Hewitt, president of Cheshire Group LLC, a New York real estate investment and development firm that bought unsold condos in the last property downturn.

“The original developer isn’t interested in any price below the value of his interest and the lender isn’t interested in writing it down until they’re forced to for regulatory reasons,” she said. “That accounts for the paralysis right now.”

So long as regulators don’t force lenders to write down the value of their condo loans, they won’t, said Alexander Goldfarb, an analyst at Sandler O’Neill & Partners LP in New York.

Big Haircut

“Here’s the challenge,” Goldfarb said in an interview. “At the peak, a for-sale condo in New York cost, let’s say $1,000 a square foot to build. To make it work as a rental -- conceptually you need a pretty big haircut.”

In Washington, Equity Residential, the largest publicly traded apartment company, paid $167 million for a two-tower, 559-unit building that was developed as a condominium, the company announced in April. The property will become a rental building.

Essex Property Trust Inc., another publicly traded apartment rental company, acquired Orange County, California- based Skyline at MacArthur Place condos from a lender for 55 percent of the initial construction costs, according to a March 5 statement. AvalonBay Communities Inc. the second-largest publicly traded apartment owner in the U.S., is in talks with lenders about buying unsuccessful condominium projects in the markets where it operates rentals, Chief Executive Officer Bryce Blair said in an interview last month.

‘Miami ‘08’

“New York is Miami ‘08 right now,” said Peter Zalewski, principal of Condo Vultures LLC., a Bal Harbour, Florida, real estate brokerage and consulting firm specializing in bulk sales.

“If Miami is reflective of what will happen in New York, I would say the only suitable use for those condos that are vacant right now is rental,” Zalewski said.

In downtown Miami, where 23,000 new condo units were built between 2003 and 2010, the paralysis happened in 2006, as new home sales nationally began to decline, Zalewski said. The logjam for investors targeting the oversupply of condos in Miami broke in July 2008, with the bulk purchase of 146 apartments at 50 Biscayne Blvd. by Philadelphia private-equity firm Lubert- Adler Partners LP and the project developer, Related Group of Florida. The firms bought the properties for $36.4 million, or half the cost of the individually sold units, Zalewski said.

All the units were rented out, and as of March, 50 have been resold to individuals at a price more reflective of the market, according to Zalewski.

Bulk Sales

There have been 44 bulk transactions in Miami since July 2008, covering about 3,600 units, according to Zalewski. In many of the transactions, the developer holds on to the best apartments in the building for sale as condos, while selling the lesser ones in bulk to investors.

In New York, Corcoran Sunshine, the new-development sales unit of New York brokerage Corcoran Group, tried spurring sales at some of its properties in March by holding 12 simultaneous open houses and releasing a list of “Top 10 Reasons to Buy New Development.”

“Brand new everything,” was the No. 2 reason on the list, which also cited “intelligently designed” materials and “immediate occupancy.”

Kelly Mack, president of Corcoran Sunshine, said she doesn’t expect any of her new developments to become rental buildings. With no new projects introduced to the market in the fourth quarter, and the development pipeline slowing, there will be an eventual shortage of new apartments to buy, she said.

“In today’s environment, buyers have a unique opportunity,” Mack said. “They have a lot to choose from.”

Egypt’s Real Estate to Outperform the Region, Credit Suisse Says

Bloomberg / Business Week

Egyptian Property stocks will outperform their peers in the Middle East and North Africa in the next 12 months on strong demand in the most populous Arab country.

The growth will come from “strong domestic housing demand recovery that should filter through developers’ sales figures this year, especially on the middle income segment,” Dubai- based analyst Ahmed Badr wrote in a report.

The Egyptian housing market remains a cash market that offers stable outlook for pricing compared to the Gulf, Badr wrote. The analyst expects “strong growth potential” in Cairo’s commercial property market, where occupancy rates remain at almost 100 percent, he wrote.

Microsoft eyes 60M Homes for Energy Hogs

USA Today

More than 60 million U.S. homeowners, by simply typing in their address, can now see how their energy efficiency compares with others in their neighborhood or state.

Microsoft Hohm, a free online service that gives tips on how to boost home efficiency, announced Wednesday a new feature that scores homes nationwide. Its estimates are based on public information about a home's size, age and location and other data on an area's typical weather and utility bills.

"The big deal here is that we built the Hohm Score to answer a simple question: Am I an energy hog or an energy miser?" Troy Batterberry, Hohm Score's general manager, says in the announcement.

This new tool comes as companies increasingly compete in the home energy market, either by offering smart meters that connect a home's appliances or -- like Hohm and Google's PowerMeter -- online services.

Which states have the most and least efficient homes?

The average Hohm Score is 61, based on a 1-100 scale. Homes in Hawaii top the list, with an 81, followed by those in Delaware and Maryland (each 70), District of Columbia (68) and New Jersey (67.)

The lowest score went to homes in Texas, Tennessee and Nevada, each with a score of 51, followed by those in Oklahoma (52) and Arkansas (53.)

The scores are estimates unless a homeowner inputs more detailed information, which allows Hohm to provide customized tips for conserving energy such as caulking windows or adding insulation.

Consumers can automatically link their energy bills to a private Hohm page if they're served by these utilities: Seattle City Light, Sacramento (Calif.) Municipal Utility District, and Xcel Energy (eight states in the Midwest and West.)

"Someone could easily save $200, $300, $400 a year just by taking advantage of some of the more basic recommendations we offer you with Hohm," Batterberry says in the announcement.

Hohm charges nothing for its reports, but it may at some point start charging contractors for consumer referrals and utilities for its software, Marja Koopmans told Green House in a March interview. Koopmans is general manager of marketing for Microsoft's start-up business group, which includes Hohm.

Homeowners Stop Paying Mortgages and Stop Worrying

NY Times

For Alex Pemberton and Susan Reboyras, foreclosure is becoming a way of life — something they did not want but are in no hurry to get out of.

Foreclosure has allowed them to stabilize the family business. Go to Outback occasionally for a steak. Take their gas-guzzling airboat out for the weekend. Visit the Hard Rock Casino.

“Instead of the house dragging us down, it’s become a life raft,” said Mr. Pemberton, who stopped paying the mortgage on their house here last summer. “It’s really been a blessing.”

A growing number of the people whose homes are in foreclosure are refusing to slink away in shame. They are fashioning a sort of homemade mortgage modification, one that brings their payments all the way down to zero. They use the money they save to get back on their feet or just get by.

This type of modification does not beg for a lender’s permission but is delivered as an ultimatum: Force me out if you can. Any moral qualms are overshadowed by a conviction that the banks created the crisis by snookering homeowners with loans that got them in over their heads.

“I tried to explain my situation to the lender, but they wouldn’t help,” said Mr. Pemberton’s mother, Wendy Pemberton, herself in foreclosure on a small house a few blocks away from her son’s. She stopped paying her mortgage two years ago after a bout with lung cancer. “They’re all crooks.”

Foreclosure procedures have been initiated against 1.7 million of the nation’s households. The pace of resolving these problem loans is slow and getting slower because of legal challenges, foreclosure moratoriums, government pressure to offer modifications and the inability of the lenders to cope with so many souring mortgages.

The average borrower in foreclosure has been delinquent for 438 days before actually being evicted, up from 251 days in January 2008, according to LPS Applied Analytics.

While there are no firm figures on how many households are following the Pemberton-Reboyras path of passive resistance, real estate agents and other experts say the number of overextended borrowers taking the “free rent” approach is on the rise.

There is no question, though, that for some borrowers in default, foreclosure is only a theoretical threat for a long time.

More than 650,000 households had not paid in 18 months, LPS calculated earlier this year. With 19 percent of those homes, the lender had not even begun to take action to repossess the property — double the rate of a year earlier.

In some states, including California and Texas, lenders can pursue foreclosures outside of the courts. With the lender in control, the pace can be brisk. But in Florida, New York and 19 other states, judicial foreclosure is the rule, which slows the process substantially.

In Pinellas and Pasco counties, which include St. Petersburg and the suburbs to the north, there are 34,000 open foreclosure cases, said J. Thomas McGrady, chief judge of the Pinellas-Pasco Circuit. Ten years ago, the average was about 4,000. “The volume is killing us,” Judge McGrady said.

Mr. Pemberton and Ms. Reboyras decided to stop paying because their business, which restores attics that have been invaded by pests, was on the verge of failing. Scrambling to get by, their credit already shot, they had little to lose.

“We could pay the mortgage company way more than the house is worth and starve to death,” said Mr. Pemberton, 43. “Or we could pay ourselves so our business could sustain us and people who work for us over a long period of time. It may sound very horrible, but it comes down to a self-preservation thing.”

They used the $1,837 a month that they were not paying their lender to publicize A Plus Restorations, first with print ads, then local television. Word apparently got around, because the business is recovering.

The couple owe $280,000 on the house, where they live with Ms. Reboyras’s two daughters, their two dogs and a very round pet raccoon named Roxanne. The house is worth less than half that amount — which they say would be their starting point in future negotiations with their lender.

“If they took the house from us, that’s all they would end up getting for it anyway,” said Ms. Reboyras, 46.

One reason the house is worth so much less than the debt is because of the real estate crash. But the couple also refinanced at the height of the market, taking out cash to buy a truck they used as a contest prize for their hired animal trappers.

It was a stupid move by their lender, according to Mr. Pemberton. “They went outside their own guidelines on debt to income,” he said. “And when they did, they put themselves in jeopardy.”

His mother, Wendy Pemberton, who has been cutting hair at the same barber shop for 30 years, has been in default since spring 2008. Mrs. Pemberton, 68, refinanced several times during the boom but says she benefited only once, when she got enough money for a new roof. The other times, she said, unscrupulous salesmen promised her lower rates but simply charged her high fees.

Even without the burden of paying $938 a month for her decaying house, Mrs. Pemberton is having a tough time. Most of her customers are senior citizens who pay only $8 for a cut, and they are spacing out their visits.

“The longer I’m in foreclosure, the better,” she said.

In Florida, the average property spends 518 days in foreclosure, second only to New York’s 561 days. Defense attorneys stress they can keep this number high.

Both generations of Pembertons have hired a local lawyer, Mark P. Stopa. He sends out letters — 1,700 in a recent week — to Floridians who have had a foreclosure suit filed against them by a lender.

Even if you have “no defenses,” the form letter says, “you may be able to keep living in your home for weeks, months or even years without paying your mortgage.”

About 10 new clients a week sign up, according to Mr. Stopa, who says he now has 350 clients in foreclosure, each of whom pays $1,500 a year for a maximum of six hours of attorney time. “I just do as much as needs to be done to force the bank to prove its case,” Mr. Stopa said.

Many mortgages were sold by the original lender, a circumstance that homeowners’ lawyers try to exploit by asking them to prove they own the loan. In Mrs. Pemberton’s case, Mr. Stopa filed a motion to dismiss on March 17, 2009, and the case has not moved since then. He filed a similar motion in her son’s case last December.

From the lenders’ standpoint, people who stay in their homes without paying the mortgage or actively trying to work out some other solution, like selling it, are “milking the process,” said Kyle Lundstedt, managing director of Lender Processing Service’s analytics group. LPS provides technology, services and data to the mortgage industry.

These “free riders” are “the unintended and unfortunate consequence” of lenders struggling to work out a solution, Mr. Lundstedt said. “These people are playing a dangerous game. There are processes in many states to go after folks who have substantial assets postforeclosure.”

But for borrowers like Jim Tsiogas, the benefits of not paying now outweigh any worries about the future.

“I stopped paying in August 2008,” said Mr. Tsiogas, who is in foreclosure on his house and two rental properties. “I told the lady at the bank, ‘I can’t afford $2,500. I can only afford $1,300.’ ”

Mr. Tsiogas, who lives on the coast south of St. Petersburg, blames his lenders for being unwilling to help when the crash began and his properties needed shoring up.

Their attitude seems to have changed since he went into foreclosure. Now their letters say things like “we’re willing to work with you.” But Mr. Tsiogas feels little urge to respond.

“I need another year,” he said, “and I’m going to be pretty comfortable.”