The Real Estate Fountain

Same story as last month as far as the Case-Shiller Home Price Index for Miami is concerned.  The index for the three-month period ending in January registered 148.32, slightly lower than the 148.66 for the period ending in December.

For anyone interested in the New York metro area, that too posted a modest decline, from 171.91 to 171.27.  S&P says New York and Washington have held up best over the whole cycle, each still 70% higher than they were in January 2000.  That’s entirely believable, as other data show New York remains dangerously overpriced.  Anecdotally, I’m familiar with a home that sold at the top of the market in a New York suburb in 2005, and it’s back on the market now — for about the same price.    Hmm, New York and DC . . . bankers and politicians . . . best real estate markets.  Naaah, I’m sure it’s just a coincidence.

Here’s a poster child for how real estate in Miami, Coral Gables and other phony markets bankrupted the U.S. financial system.

2430 Indian Mound Trail in Coral Gables is, shall we say, a simple home.  (To some, it would look more like a garage or a storage building, but that’s true of many homes in Florida.)  It’s 2233 square feet, with 3 bedrooms and 2 baths, on an 8,000 square-foot lot.  The location is excellent, amid various points of interest: Biltmore Hotel, Granada Golf Course, Coral Way, Church of the Little Flower, Salvadore Park, St. Philip’s school and church.

The little bugger sold for:

• $185,000 in 1987,
• $443,000 in 2003,
• $1,155,000 in 2007, and
• $470,000 in 2010

Here’s a mug shot:

2430 Indian Mound Trail, Coral Gables

The recent lucky seller for 60% less than the previous sale?  Nominally, Chase Home Finance LLC, but as a practical matter, maybe it was you and I, my fellow taxpayer.

Music fills the air this weekend at Fritz & Franz Bierhaus in downtown Coral Gables.  Check the Fritz & Franz website for a list of performers.  Last night, Bill Wharton (a.k.a. the Sauce Boss), cooked up his trademark gumbo onstage while spreading his message of music and brotherhood.

Bank of America will forgive up to 30% of the principal owed by debtors who have missed at least two months of mortgage payments and owe at least 20% more than their home is worth.

Separately, the federal government expanded its assistance program for defaulting debtors.  Most significantly, the plan pays lenders, who made bad loans, to reduce the amount owed by debtors, who borrowed more than they can afford to pay.  The Federal Housing Administration will then guarantee new loans at 97.5% of the current market value, or 115% if the debtor took out a second mortgage and spent all that money already.

To be eligible, the debtor’s loan balance must be less than $729,750, and the debtor’s monthly mortgage payments must be more than 31 percent of the debtor’s income.  The bigger the debt and the lower the income, the more likely the debtor is to qualify for government assistance.

Walk through the entryway at the 55 Merrick condo in downtown Coral Gables, and you’ll see this big fountain in the driveway that runs through the center of the building:

55 Merrick is right across the street from the Fritz & Franz Bierhaus, which is putting on its annual Bluesfest this weekend.  It’s not strictly blues, but it is strictly good music in a fun place.

Sales of new homes edged down to a seasonally adjusted annual rate of 308,000 in February, basically stuck at the record low of 309,000 originally reported for January.

Consolation?  The January figure was revised to a slightly less-horrible 315,000.  And February might have been depressed more than usual by winter storms.  That could lead to a rebound in March.  Maybe February will prove to be the bottom for this particular data series.

The unadjusted monthly number rose from 22,000 new home sales in January to 24,000 new home sales in February.  Again, this could be the bottom for new home sales.  Look at the seasonality: Sales always rise into the summer and fall into the winter.  But in a boom, there are higher highs and higher lows, and in a bust, there are lower highs and lower lows.  Notice how this winter’s low is not much below the previous winter’s low.  (As always, do not confuse sales and prices — sales can pick up even as prices continue falling.)

The median price of new homes sold rose to $220,500 in February from $207,900 in January.  The January figure was nearly the lowest for the whole down-cycle (only March 2009, at $205,100, was lower), even though one might have expected the median to rise after the $8,000 tax credit’s originally scheduled expiration in November.

The long-term chart below suggests that we’ve worked off the bubble and are back to the trendline.  But beware.  These are national data.  Your local community may be in better or worse condition.  Here in Miami and Coral Gables, prices have fallen, but remain well above the long-term trendline.

Here it is in logarithmic form, which smooths out the long-term destruction of the dollar by inflation, courtesy of the Federal Reserve.  (Disregard the log-scale numbers on the vertical axis — they don’t represent dollars amounts.)

All data are from the Census Bureau at the U.S. Department of Commerce.

Slightly more existing homes in the Miami metro area were sold in February than January, according to the Florida Association of Realtors.  But the median price took a significant hit.

Sales of existing single-family properties rose to 445 in February from 436 in January.

The median price is where the action was, falling from $208,100 in January to $191,100 in February.  That’s the lowest since November’s reading of $184,800.

As explained in connection with last month’s data release, the originally scheduled November 30 expiration of the $8,000 tax credit probably caused the median price to pop higher in December and January.  Now the pop has turned to a drop.

Perhaps more low-end purchases are working their way through the system before the new, extended expiration of the credit (contracts by April 30, closings by June 30).  But it’s also possible that the government engineered a dead-cat bounce in the real estate market over the past year, and that prices will take another leg down once the artificial price supports are removed.

After all, real estate prices in Miami and Coral Gables remain markedly elevated relative to the fundamentals: incomes, rents and historical property values.

A recent post explained that walking away from your mortgage could leave you in hock in states, like Florida, where lenders have recourse against borrowers for the difference between the loan amount and property value.  Several news outlets have since published similar reports.

For example, an article in the Miami Herald reports that investors are buying the rights to collect second mortgages and other liens such as home equity lines of credit.  The practice is especially relevant in non-recourse states like California, where first-mortgage lenders can look only to the property to satisfy the debt, but junior lienholders apparently can pursue the debtor personally.

In places like Miami and Coral Gables, real estate became so ridiculously overvalued that a foreclosure or short sale does not even recover enough to satisfy the first mortgage.  Nothing is left for the second mortgage or HELOC lender, who gets zero cents on the dollar.

To mitigate the loss, the lender sells the loan (at a substantial haircut, no doubt) to a collection agency, which then hounds the debtor until the end of time.

[L]enders have been quietly selling second mortgages and home equity lines left unpaid after foreclosures and short sales.  The buyers: collection agencies, which in some states have years to make a claim.

If they win court judgments, these collectors could have years to pursue borrowers with repayment plans, and even garnish their wages . . . .

“The only relief a consumer will have is entering into a debt negotiating plan or filing for bankruptcy” . . . .

Debtors can attempt to head off these troubles by negotiating a solution at the time of a short sale.  But many don’t know better, and aren’t warned by real estate agents who often are “not really equipped . . . . They’re set up to make the sale.”

Buyers attracted by seeming bargains among foreclosure auctions can instead lose their shirts.  An easy way to buy Miami or Coral Gables real estate on the cheap turns out to be an easy way to lose a whole lot of money.

As the Miami Herald reported a few weeks ago, the new online auction system for foreclosures in Miami-Dade County streamlines the process of buying foreclosed properties so much that amateurs are getting involved — and getting burned.

The problem is that foreclosures are sometimes brought by junior lienholders, meaning the sale does not discharge senior liens.  If you buy the property at foreclosure, you’re still subject to the senior lien.  This can be disastrous.

Here’s an urgent case study:  601 Sunset Drive in Coral Gables.  This property will be auctioned soon.  The lender has listed its maximum bid at just under $300,000.  If you bid more than that, and more than any other bidders, you will win the auction.  It’s a decent-size house on a big lot, so even in today’s ailing real estate market in Miami and Coral Gables, it seems like a screaming bargain.

601 Sunset Dr.

Public records, however, suggest a huge pitfall (do your own homework on this and decide for yourself, of course).  Citibank is the foreclosing lender.  But Citibank is foreclosing on a home equity line of credit.  That’s not the first mortgage.  And there is a whopper of a first mortgage: $825,000 to JP Morgan Chase.

So let’s say you win the auction with your bid of $300,000.  That could turn out to be nothing more than a downpayment, because public records suggest the property is still subject to the $825,000 first mortgage.  If that’s the case, you have effectively paid $1.125 million, not even counting whatever fees Chase can pile on top of the mortgage balance, plus the property taxes that Chase has apparently been paying.

The same thing happens in condo foreclosures.  Let’s say there’s a condo worth $200,000 today that somebody bought for $400,000 at the top of the real estate market in Miami and Coral Gables.  And let’s say there’s a $350,000 mortgage outstanding.  The person defaults on the loan and stops paying maintenance fees to the condo association.  The lender doesn’t foreclose, because that would mean taking responsibility for taxes, maintenance fees, et cetera.  So the association forecloses, not because they think they’ll get any money (the $300k lender is senior and gets the whole $200k in a forced sale), but to force the lender to take title and responsibility in what’s known as a “reverse foreclosure.”  If you buy the association’s lien — say, $20k — you have bought a property worth $200,000 for $20k, but it’s subject to a $300k mortgage.  You’re in for $320,000, not $20,000.

Miami has an excellent online system for searching public records, but unless you understand it all — mortgages, liens, lawsuits, forms of ownership, homestead rights, and more — you might just be America’s Next Foreclosure.  WATCH OUT!!!

Another charming, blink-and-you-missed-it feature of northern Coral Gables.  On Sevilla Avenue at San Domingo Street.