Luxury Snaps Back

originally appeared in The Wall Street Journal:

With their children through college, a California couple decided to sell their three-bedroom Santa Monica, Calif., home in May and move to San Diego. Given the soft housing market, they weren't sure how buyers would react to their $1.8 million asking price.

They found out quickly. Within hours of listing the property, they had an offer for $25,000 above their listing price. They soon had six others. We got extremely lucky, says the 55-year-old actress, who bought the home 10 years ago for $1.1 million.

After a soft 2011, the luxury home market made a comeback in 2012, driven by growing buyer confidence, strong foreign demand, low mortgage rates, more realistic sellers and sharp drops in the number of home listings. Sales of homes priced at $1 million and above rose by 9% in the first nine months of 2012 compared with the same period one year ago to the highest level in four years, according to DataQuick MDA, a real-estate data firm that tracks public records in the 98 largest U.S. metro areas.

Still, many homeowners are finding that their homes are worth less than the peak values of six years ago. That has likely prompted some to hold their properties off the market. The supply of million-dollar-and-above homes being offered for sale dropped by nearly 8% this year, according to Realtor.com. Also, banks are taking back fewer foreclosed properties. Nearly 2,000 million-dollar homes went through foreclosure this year through October, down by 33% from the same period last year and by more than half from 2010, according to Zillow.

That has left more buyers chasing fewer homes, giving some sellers the upper hand.

There's a real shortage of inventory throughout our markets in the United States, according to the chief executive of Sotheby's International Realty Inc. We have many more buyers than the high-end homes that we have to sell.

At the current sales pace, it would take nearly 12 months to sell the supply of million-dollar properties available for sale in October, down sharply from 21 months one year ago, according to the National Association of Realtors. The supply shortage is becoming particularly acute in the West, where the supply of million-dollar homes stood at just six months in October.

In California, some 18,760 previously owned homes sold for more than $1 million in the first nine months of the year, a 14.8% increase from last year and the highest level since 2007, according to DataQuick. Buyers had better come to the table prepared, says a real-estate agent with Rodeo Realty in Los Angeles who represented the couple. She says 2011 was lethargic, adding, We didn't have a lot of inventory, but then, we didn't have a lot of buyers.

This year, bidding wars have become commonplace in affluent California markets from Brentwood to Palo Alto, where new land is scarce and where investors have pushed up prices by making all-cash offers to buy older homes that can be torn down and rebuilt.

I had so many calls this year from disappointed buyers who thought they had a deal, and the next thing they knew, it was a bidding war and they lost, according to the chief executive of the luxury brokerage Corcoran Group.

Those disappointments are helping to create urgency among buyers. When you have 25 offers on a property, you now have another 24 buyers who didn't get that home, according to the president of J. Rockcliff Realtors in San Francisco's East Bay. They realize very quickly that prices aren't going to get any better.

The real-estate agent with Rodeo Realty represented a buyer from Dallas who flew to Los Angeles to sign a purchase contract last month on the same morning that a $3.7 million Brentwood home hit the market. The four-bedroom home, which has a swimming pool and a guest house, drew better offers. But her client acted quickly and got the house, she says.

To be sure, many sellers are finding that their homes aren't worth anywhere near what they fetched at their peak, and sales are rising from extremely depressed levels of the past few years. Sales of $1 million properties for the first nine months of the year were nearly half of what they were in at the peak of the housing boom in 2006. Lending standards are still conservative. Banks generally require at least 20% down payments and excellent credit and are thoroughly scrutinizing a borrower's income and the property appraisal.

A local Chicago-area homebuyer and his wife were shocked when their offer to pay $1.3 million for a five-bedroom home in Glenview, Ill., listed at $1.6 million was accepted. We thought there was a 1% chance they'd say yes, he said, who is thrilled with the home that sits on the golf course of the local country club.

The homebuyer was ready to buy last year, but he had trouble qualifying for a loan. Because he runs his own small business, a sales-consulting firm, he struggled to meet tougher underwriting criteria that require him to prove his income with two years of tax returns. After renting for 18 months in the suburbs, he found a bank that was willing to make the loan.

For the past few years, strong foreign demand has also helped to push prices higher for trophy properties in Manhattan, beachfront properties in Long Island's Hamptons, and newly built condominium towers in South Florida. Canadians, Asians, Brazilians and Europeans have been lured by a range of factors: fears of a real-estate bubble at home, a favorable exchange rate and the desire for a safe place to park their cash.

The big difference this year was that the Americans finally got off the fence, according to the owner of Daley and Company in Vero Beach, Fla. Europeans and Canadians had accounted for the bulk of her sales in 2011.

Few luxury markets did as well this year as those benefiting from the technology stock boom in the Silicon Valley. Atherton, Calif., topped the list of the most-expensive markets in the U.S., with an average home value of $3.77 million, up 18% from one year ago, according to Zillow. Values rose by 20% in Los Altos, Calif., to $2.16 million, and by 19% in Marin County's San Anselmo, to $2.17 million.

Ga. counties sue HSBC for bad home loans

originally appeared in USA Today from The Associated Press:

Three counties in Georgia have filed a lawsuit claiming that British bank HSBC cost them hundreds of millions of dollars in expenses and damage to their tax bases by aggressively signing minorities to housing loans that were likely to fail.

The Georgia counties' failure or success with the relatively novel strategy could help determine whether other local governments try to hold big banks accountable for losses in tax revenue based on what they claim are discriminatory or predatory lending practices.

Similar lawsuits resulted in settlements this year worth millions of dollars for communities in Maryland and Tennessee.

Fulton, DeKalb and Cobb counties say in their lawsuit, filed in October, that the housing foreclosure crisis was the "foreseeable and inevitable result" of big banks, such as HSBC and its U.S. subsidiaries, aggressively pushing loans that were destined to fail. The counties say the crisis has caused them tremendous damage.

The lawsuit says predatory lending practices include: targeting vulnerable borrowers for mortgage loans with unfavorable terms; directing credit-worthy borrowers to more costly loans; putting unreasonable terms, excessive fees or pre-payment penalties into mortgage loans; basing loan values on inflated or fraudulent appraisals; and refinancing a loan without benefit to the borrower.

The counties are asking the court to order the bank to stop its behavior and to take steps to prevent similar predatory lending in the future. They are also seeking financial compensation for the damages they've suffered and punitive damages to punish the bank for its "willful, wanton and reckless conduct." The counties say the financial injury they've suffered is in the hundreds of millions of dollars.

A lawyer for HSBC and its subsidiaries, said he couldn't comment on the case. A federal judge has given the bank until Jan. 25 to respond to the counties' complaint.

According to DeKalb County Commissioner, it's not only the personal damage that was done to people in our communities. That has a ripple effect on our tax digest and the demand for public services in these areas.

The city of Atlanta straddles Fulton and DeKalb counties; Cobb County is northwest of the city.

The lawsuit says the banks violated the Fair Housing Act, which provides protections against housing or renting policies or practices, including lending, that discriminate on the basis race, color, national origin, religion, sex, family status or handicap.

The counties say their tax digests — which represent the value of all property subject to tax — have declined from a high point in 2009.

Fulton's tax digest has dropped about 12%, from $32.7 billion to $28.7 billion; DeKalb's has dropped about 20%, from $22 billion to $17.5 billion; and Cobb's has dropped about 15%, from $25.5 billion to $21.3 billion, the lawsuit says. That reduces their ability to provide critical services in their communities, the counties say.

In addition to decreased tax income, vacant or abandoned homes that are in or near foreclosure create additional costs for the counties, the lawsuit says.

Their housing code and legal departments have to investigate and respond to code violations, including having to board up, tear down or make structural repairs to unsafe homes. They have to deal with public health concerns, such as pest infestations, ruptured water pipes, accumulated garbage and unkempt yards. And fire and police departments have to respond to health and safety threats.

Lawyers for the counties declined interviews on the case, but one of them, said in an e-mailed statement that they are continuing to investigate other banks and could file additional complaints.

Similar suits were filed against Wells Fargo by the city of Memphis and surrounding Shelby County in Tennessee in 2009 and by the city of Baltimore in 2008. Those suits were settled earlier this year.

Both settlements included $3 million to the local governments for economic development or housing programs and $4.5 million in down payment assistance to homeowners, as well as a lending goal of $425 million for residents over the subsequent five years, according to media accounts.

As in those cases, the lawsuit filed by the Georgia counties says the bank, in this case HSBC, targeted communities with high percentages of Fair Housing Act-protected minority residents, particularly blacks and Hispanics.

Communities with high concentrations of such potential borrowers, and the potential borrowers themselves, were targeted because of the traditional lack of access to competitive credit choices in these communities and the resulting willingness of FHA protected minority borrowers to accept credit on uncompetitive rates, the lawsuit says.

The lawsuit says minority borrowers were disproportionately targeted with high-cost loans between 2004 and 2007.

Before the beginning of the subprime lending boom in 2003, annual foreclosure rates in metro Atlanta less than 1%, but U.S. Department of Housing and Urban Development data show the estimated foreclosure rates for each of the three counties now average more than 9% and are as high as 18% in communities with the highest percentages of minority borrowers, the lawsuit says.

It is the alleged targeting of minority communities that entitles the counties to seek action against HSBC for loss of tax income and other expenses, the lawsuit says.

If you can show that you yourself have suffered harm by an illegal act under the Fair Housing Act, even if you are not the target, even if you are not the intended victim, you can still sue to stop the behavior and to recover any damages that you can prove you suffered because of the violation of the Fair Housing Act, according to a lawyer whose firm was involved in the Memphis and Baltimore lawsuits.

The costs incurred by counties because of high rates of foreclosure are reflected in court records and related fees for each home, and police and fire departments can calculate the costs of responding to a given address, the lawyer said. He said it takes a lot of time and effort to gather the necessary records to prove the harm.

Another discouraging factor could be a lack of political will, according to a vice president of the National Fair Housing Alliance.

Politicians may not want to go up against the banks she said, adding that there will likely be other local governments that give this a try but she doubts the number will be high.

But an assistant law professor at the University of Georgia, says she thinks more cases are likely, at least in the short term as municipal governments continue to feel the squeeze of a tight economy and seek ways to refill their coffers.

They may try to test federal courts in different parts of the country, she said. Successes in multiple jurisdictions could lead to more attempts, but if courts start knocking the suits down that would likely discourage them, she said.

Mortgage delinquencies to remain high

originally appeared in USA Today:

Here's some good news on home loan delinquencies.

If not for all the homeowners who haven't paid their mortgages in more than a year, the nation's home loan delinquency rate would be only slightly higher than normal, shows new research from credit monitor TransUnion.

The delinquency rate would fall to about 2.5%, down from more than 5%, if those borrowers were excluded, says a TransUnion vice president.

Before the foreclosure crisis and housing bust, the normal mortgage delinquency rate was about 1.5% to 2%, TransUnion says.

The company expects the mortgage delinquency rate -- which looks at borrowers 60 or more days past due -- to finish this year at 5.32% and to drop only slightly to 5.06% by the end of next year.

The nation's higher-than-normal mortgage loan delinquency rate is not driven by new loans. It's a lot of folks ... who have been delinquent for a really long time, their vice president says.

Before the recession, it was unusual for a borrower to go more than 180 days without either being able to fix their situation or go through the foreclosure process, TransUnion says.

At the end of October, homes that went through a foreclosure sale were delinquent an average of 728 days, mortgage tracker Lender Processing Services says. That was up from 497 days two years earlier.

If the pace of improvement in curing delinquent loans doesn't pick up, national home loan delinquency rates will take another four years to get back to normal, TransUnion says.

More than 80% of the nation's currently delinquent home loans were originated before 2008, TransUnion's data show. The pre-2008 loans make up 54% of all mortgages, it says.

TransUnion predicts the biggest declines in mortgage delinquency rates next year will occur in several states that were hit hardest by foreclosures. Nevada will see a 19% drop. California and Arizona will post 12% declines.

In all of those states, foreclosures don't go through the courts so they can occur more rapidly than they typically do in states where foreclosures do go through the courts.

Thirteen states will see mortgage delinquency rates rise next year, TransUnion says.

They are largely states that have lower delinquency rates now compared with the national average, TransUnion says, and include North Dakota, South Dakota and Nebraska.

Despite likely increases next year, those three states will end 2013 with the lowest mortgage delinquency rates in the nation, TransUnion predicts.

North Dakota, which is experiencing an energy boom, will be at 1.5% of home loans being 60 or more days late. Nebraska and South Dakota will come in at about 2.3%.

Florida will have the highest delinquency rate at almost 12%, followed by Nevada at just over 8%.

The national mortgage delinquency rate peaked in the fourth quarter of 2009 at 6.89% after rising 12 consecutive quarters from its 1.9% mark in the fourth quarter of 2006, TransUnion says.

Florida - Action Destination

Story first appeared smh.com.
 
From zooming on airboats to blasting with a jetpack or diving on wrecks — there's nothing dull about Florida.
When thinking of adventure destinations, Florida isn't exactly the first place to come to mind. The typical combination of families with children, sunseekers and retirees hardly screams adrenalin, while the Sunshine State's devotion to the needlessly large car doesn't encourage exercise in the great outdoors. But hunt beyond the headline attractions and Florida has a surprising amount to offer for active types.

Canoeing and kayaking

For many, the Florida Everglades are an excuse to get on an airboat - one of those ridiculous-looking craft powered by an industrial-size fan at the back. But airboat excursions tend to be mass-market affairs, whizzing you around the edge of the Everglades National Park for a cursory 30 minutes or so.
The Everglades - the soggy, swampy, slow-moving river that takes up much of the southern portion of the state - is much better explored by canoe. Providing you don't turn the thing over (unwise given the number of alligators hanging around), canoes are a much better option.
They allow you to take things at the requisite slow pace, discover the nooks and crannies that are too small for bigger craft, spot birdlife in silence and paddle under natural mangrove arches.
North American Canoe Tours offers both day-long and overnight Everglades canoeing adventures.
The Florida Keys archipelago is another obvious spot for canoes and kayaks. There's even a Florida Keys Overseas Paddling Trail, which stretches 176 kilometres from Key West to Key Largo, if you've nine or 10 days to spare and arms of steel. Florida Bay Outfitters in Key Largo can kit you out for the island-hopping stretch, or take you out on three-hour and day-long tours for a taster run.
Other good spots for a paddle include the Wekiwa Springs State Park near Orlando and the waterways around Cocoa Beach.

Diving and snorkelling

The Florida Keys is the best part of the state (and arguably the US) for getting under the water. A barrier reef - the largest in the US, and one of the most impressive in the world - runs parallel to the islands.
Added to this is the large number of shipwrecks - wreck salvage was once Key West's main industry and made it the richest city per head in the US - that life has now grown around. The reef isn't accessible from the shore, so divers will need an open-water certificate. Most dive shops in the area run four-day courses that will get you up to speed or snorkelling is an option for anyone who's happy to stay near the surface. Good diving and snorkelling spots are dotted along the Keys, but if you can pick only one, then it should probably be the John Pennekamp Coral Reef Park. It's packed with nearly 600 species of fish and 40 species of coral, while the headline act is the Christ of the Deep - a huge bronze sunken statue of Jesus with his arms reaching up to the skies.

Zipwiring

It's not quite getting back to nature, but balancing on wobbly wooden bridges then whizzing from tree to tree in a flying fox is hardly sedentary. Zipwiring seems to have become the standard adventure activity across the world for people who don't usually do adventure - soon every cruise-ship port will have a zipwiring course nearby - but it's undoubtedly good fun.
The Central Florida Zoo is a good place to clip on, tread gingerly across swaying walkways and fly across the woods.
There are two fairly substantial and testing courses that take about three hours to get around. Some of the wooden planks are brutes to get across, but there's a sense of achievement in doing so.

Flying with jetpacks

The man-made excitement continues in Key West, where space-age dreams of getting around by jetpack have become a reality.
Well, sort of, anyway. With JetPack Adventures, you can strap yourself into a harness that is attached by a tube to a floating superpump in the water.
Press the triggers and the water is expelled from your "jetpack" with such force that you're launched forwards and upwards. Getting the hang of it is rather tricky, but get it right and you can fly above the sea sci-fi style.

Hiking

To really feel like you've developed superhuman powers, however, you can always set yourself the task of taming the Florida National Scenic Trail. As hiking routes go, it's a giant, stretching from the seashore at the end of the Florida Panhandle to the Everglades.
If you want to take on the 2240-kilometre trail, some careful planning and some awfully good boots will be required.
However, there are plenty of less severe day or weekend hike options that are within easy reaching distance of the big cities.
The bottom stretches through the Big Cypress National Preserve are about 45 minutes' drive west of Miami or Fort Lauderdale. More importantly, these chunks are among the best on the whole trail for wildlife spotting and variety of scenery - think swamp, prairie and forest.

Surfing

California is usually seen as the US surfing capital, but the most famous surfer of them all comes from Cocoa Beach on Florida's east coast. The island town - connected to the mainland by bridge - hogs the waves on which 11-time world champion Kelly Slater learnt his trade.
Cocoa Beach has now morphed into something of a well-to-do surf town - as you can immediately tell from its gigantic surf shops. The Ron Jon Surf Shop sprawls over almost two complete blocks and it also runs a surf school. A variety of lesson programs are available, while they've also started branching out into stand-up paddle-boarding for novices who want to discover another way of tumbling into the water.

Trip notes

Getting there
Orlando and Miami are the main entry points to Florida. United and Qantas are among the airlines that can get you to both from Sydney, transiting in Los Angeles. Return ticket prices cost from about $2000.

Should you fund your retirement with property?

Story first appeared on usatoday.com.



Q: I'm 59 years old. My retirement savings includes a vacation rental property worth $500,000 without a mortgage. It takes in $20,000 a year. I also have three mortgages that total $350,000. One is my primary residence, and two others take in monthly rent of $1,500, which is equal to the monthly mortgage. Should I sell the $500,000 property to pay off the mortgages? Or should I take out a loan on that property to pay off the mortgages? Any reason not to rely on property for my retirement future?

A: Congratulations in building a portfolio of properties that appears to be generating a nice positive cash flow. As the latest real estate downturn has proved, relying upon any one asset class is quite risky, and you hopefully have other assets besides Social Security to support you in retirement.
You do not mention the interest rates on the mortgages. Most likely your existing mortgages are a lot higher than the current national average of below 4%, which would suggest refinancing. Assuming you have a high enough credit score, refinancing the package of investment properties so that you only have one property with a mortgage would be ideal. Moreover, the current cheap money environment would most likely lower the total costs in any case.
Although it's not clear how long you have owned the vacation rental property, it is generally not an ideal time to sell. Prices have gone down significantly in many parts of the country and you may not get a good return on your investment. Cheap money vs. low selling prices supports the refinancing approach.
Your properties would then be generating income to pay off the new mortgage. Your annual rental income of $38,000 ($20,000 plus $18,000) should pay off all mortgages within 15 years. Obviously the details of your loans, such as your interest rates, length of mortgages, prepayment penalties and loan-to-value ratio, will determine the exact payoff time and the amount you can use to fund your retirement living.
As you know, there will always be down time for rental property when it is vacant as well as unexpected costs for repairs and upkeep. So minimizing the fixed mortgage expense works in your favor as you approach retirement. Assuming you are managing the properties, rental property can provide a nice income as well as a hedge against inflation as most properties are at a low value today.
If you have not done so, you might also consider putting the properties inside of a legal entity (such as a limited liability company, or LLC) to protect yourself in the event of problems. Providing a legal envelope protects your other assets in the event a tenant or others sue you for a fall or other claim. An umbrella insurance policy will help pay for the attorney to defend you.
There are many unknown factors, such as your income, expenses and other issues to consider, so consulting a knowledgeable financial adviser would be helpful in evaluating your decisions.