Archive for the 'Real Estate News' Category

Coral Gables Single-Family Homes Sales Running Flat Year-Over-Year?

posted on January 21st, 2010 filed under: Real Estate News

It’s become a reliable assumption that real estate has found some kind of bottom, if not in prices, then at least in sales.  Heck, I told you a long time ago that sales would recover before prices.

But the number of closings has seemed rather thin of late.  Sure enough, a data check on the MLS shows that the number of closed transactions for single-family homes in Coral Gables from December 1, 2009 to January 15, 2010 was exactly the same as the number from December 1, 2008 to January 15, 2009.  For each period, the MLS shows 41 closed sales.

A few more will probably trickle in from lackadaisical brokers for the ’09-’10 period.  But the year-over-year sales gains had been tremendous in the months running up to the initial November 30, 2009 expiration of the $8,000 buyer tax credit.  Now the gains appear to have largely evaporated.

Real estate sales in Miami and Coral Gables may have fallen back down from a government-induced sugar high.

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Expiration of Government Programs Looms for Real Estate Market in Miami and Coral Gables

posted on January 21st, 2010 filed under: Real Estate News

The federal government has implemented lots of measures to support unnaturally high real-estate prices in Miami, Coral Gables and all the other bubble markets.  Two of those measures will soon expire.

At the end of March, the Federal Reserve is supposed to stop buying all the securitized mortgages that nobody else wanted once the real-estate market proved to be a Ponzi scheme.  The Fed’s intervention is believed to have driven mortgage interest rates artificially low.  Ipso facto, when the Fed stops, rates will probably rise.

At the end of April, the already-extended $8,000 tax credit for buying yourself a home is scheduled to expire.  Tax credit means you get the money even if you don’t pay taxes.  The credit is believed to have supported prices, especially at the low end of the market where $8,000 compensates for the meager 3.5% downpayment you need to get an FHA loan.  Ipso facto, when the credit expires, the support for prices expires too.

In the meantime, there could be a rush of buyers trying to lock in low rates and government handouts.  Home sales could surge again in Miami and Coral Gables as the expirations approach.

The problem with joining the crowd is that fundamentals (price-to-income, price-to-rent, etc.) suggest that real estate in Miami and Coral Gables remains generally overvalued.  When the government supports are removed, the fundemantals could reassert themselves, eliminating buyers, frustrating sellers and ultimately driving prices lower.

You can take the bait of low rates and an 8,000 handout now — and if you’ve found the perfect home, I don’t blame you.  Just realize there is a risk that home values in Miami and Coral Gables could resume the inexorable process of mean reversion once some semblance of a free market returns.

Of course, overvaluation could be worked off if incomes and property rents rise in Miami and Coral Gables while property prices remain stable.  But there’s some heavy lifting to be done here, and price declines probably still need to do some of it.

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How Overpriced is Coral Gables Real Estate?

posted on January 20th, 2010 filed under: Real Estate News

Sales have picked up and prices have generally fallen, so why maintain that real estate in Coral Gables is still overpriced?

Because the bigger the bubble, the greater the correction needed to unwind the overvaluation, and we’re not there yet.  Jeremy Grantham and Robert Shiller, who saw both the tech-stock bubble and the real-estate bubble for what they were, describe the real-estate bubble as a “three-sigma” event.  That’s statistical talk for something that deviated from normal not just a little, but by a terrific, almost unimaginable degree.

To understand where the real-estate market in Miami and Coral Gables could go, you have to understand where it came from.  And that means not just where it was when the bubble was fully blown, but where it was before the bubble.

One objective indicator is the relationship between the cost of buying and the cost of renting.  It makes sense to pay a little more each month if you’re building up equity and hoping for capital appreciation over time.  So it’s normal for the purchase price of a home in Miami or Coral Gables to be about 12 to 14 times the annual rent of the same or a comparable home, making the cost of renting about 7% to 8% of the purchase price, even though the cost of ownership is generally about 9% to 10% of the purchase price.

Want examples?  In May 2001, before the bubble really started to expand, a prospective buyer or renter in the Coral Gables market had the following options (among others):

  • 3601 Durango Street, a 3-bedroom, 3-bathroom home with pool, was available for sale at $565,000 or for rent at $3,800.  That’s a price-to-rent ratio of 12.39.
3601 Durango St.

3601 Durango St.

  • 525 Blue Road, a 2-bedroom, 2-bathroom home, was available for sale at $350,000 or for rent at $2,500.  That’s a price-to-rent ratio of 11.67.
525 Blue Rd.

525 Blue Rd.

We are nowhere near being back to normal.  In Miami and Coral Gables, the price-to-rent ratio is still about 20 in many cases, making the cost of renting about 5% of the purchase price compared to 9% to 10% for owning.

This imbalance will resolve itself through some combination of falling prices and rising rents.  Considering that prices went ballistic while rents remained fairly stable in relation to incomes, don’t expect much help from rising rents.  The only thing that would tip the balance would be significant wage inflation.  No sign of that yet.

It is occasionally possible to find properties listed for a fairly defensible price relative to their rental value.  Those are the only properties you should consider buying if you want your purchase to make economic sense.

Participants in the Coral Gables real estate market may be tempted to sing along with the old Doors song Been Down So Long It Looks Like Up to Me.  For sellers of many still-overpriced properties, it may be a while before the music’s over.

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Why You Want a Commission Rebate When Buying Real Estate in Miami or Coral Gables

posted on January 20th, 2010 filed under: Real Estate News

What is a commission rebate, and why do you want one when buying real estate in Miami or Coral Gables?

What It Is. A commission rebate is money that a buyer’s real estate broker gives to a buyer from the commission that the buyer’s broker earns in a transaction.

Why You Want It. To borrow a quotation from my tattered old Things I Learned at Harvard Law School t-shirt: “You always want more money, not less money.”  Seriously.  If one broker offers you a large pile of money and the other does not, what is there to think about?

How much money are we talking about?  Most listings in the Miami and Coral Gables market offer a buyer’s broker about 3% (half of the 6% that most large brokerages charge sellers to list property).

How would you like 1.5% back as a rebate when you buy a home in Miami or Coral Gables?

  • $7,500 if you purchase a $500,000 home
  • $15,000 if you purchase a $1 million home
  • $75,000 if you purchase a $5 million home

Too good to be true?

No, just progress.  Commission rebates are relatively new to the competitive landscape of real estate.  Most buyers don’t know better.

You do.

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New Home-Appraisal Rules Threaten Real-Estate Overpricing

posted on January 18th, 2010 filed under: Real Estate News

Why must real-estate professionals behave as though the right direction for property prices is always up?  Honestly, has nobody learned anything?

Beginning February 15, mortgage brokers will not be allowed to order appraisals in connection with FHA loans.  This follows the adoption of similar rules by Fannie Mae and Freddie Mac last May.  The rules are designed to mend one of the worst tears in the tattered fabric of the real-estate lending industry.  Mortgage brokers would hire appraisers they knew would come through with sufficiently high appraisals to support idiotically booming prices.  Appraisers knew if they didn’t come through, they wouldn’t get the work.

The National Association of Realtors, however, complains that the new rules have resulted in excessively low home values, supposedly because lenders have been relying on appraisal management companies that use appraisers who are less experienced and often unfamiliar with local areas.

It’s as if NAR was unaware that FHA is damn near broke from all the fraud, phony appraisals and general overpricing that it swallowed over the last few years.

The NAR’s explanation, moreover, is confused and troubling.  It’s confused because an inexperienced or otherwise unknowledgeable appraiser could just as easily make a mistake on the upside in valuing real estate in Miami, Coral Gables, or wherever.  It’s troubling because it diminishes the whole point of the appraisal profession, which is to follow standards that are objectively applicable in any locale and that minimize reliance on subjective considerations.

In the wake of the failure of Fannie Mae and Freddie Mac, the teetering condition of FHA, and the overall disastrous scam that real estate proved to be in the last few years — especially in Miami, Coral Gables and other hotspots of mortgage fraud — it is rather unseemly for salespeople to attack efforts to improve the reliability of the information on which loans are based.

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What Will Your Property Taxes Be if You Buy a Home in Miami or Coral Gables?

posted on January 18th, 2010 filed under: Real Estate News

Ever look at a listing sheet for a property for sale in Miami or Coral Gables and see an attractively low figure for property taxes?  Don’t be misled.  The figure on the listing sheet is almost certainly not the amount you will pay.  Do not rely on it.

To get a realistic estimate of the property taxes on that home you’re thinking of buying in Miami or Coral Gables, there is no substitute for the Tax Estimator on the Miami-Dade Property Appraiser web page.  Go to

http://www.miamidade.gov/pa/tax_estimator/TaxEstimator.asp

check the box for approving the terms of use, and click the button to Proceed to the Tax Estimator Worksheet.

The worksheet will first require you to enter the sale price or market value.  If you’re buying a foreclosure or short-sale property, be careful.  The Miami-Dade Property Appraiser will value your house according to non-distressed sales of comparable properties in the area, unless all the sales have been distressed sales.  So if you’re buying a foreclosure or short sale in Miami or Coral Gables, enter a realistic value in a normal transaction.

Nest, you’ll need to enter either the municipality or the property’s folio number (a unique identification number assigned to every property in Miami-Dade County).  The folio number is more exacting, and is easy to find by searching the property information at the Property Search page of the Miami-Dade Property Appraiser web site.  If you haven’t used that resource, you should.  Lots of important info like the official square footage of the structure and lot, number of beds & baths, and the last recorded sale date and price.

The tax estimator gives only that — an estimate.  But it’s the best approach to figuring out what your property taxes will be if you buy real estate in Miami or Coral Gables.

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Buy Versus Rent: Moments of Lucidity in Coral Gables Real Estate

posted on January 17th, 2010 filed under: Real Estate News

The cost of owning a home in Coral Gables (or anywhere) is generally about 10% of the purchase price annually.  The cost of renting the same or similar property in Coral Gables historically has been about 7%-8% of a property’s market value.  In recent years, the cost of renting has typically been running at about 5% of a property’s market value — making it economically irrational to buy.

The combination of falling prices, unusually low interest rates and generally stable rents has narrowed the spread for some Coral Gables properties.  In the low-to-mid-priced market segments where values have fallen, and with 5% interest rates making the cost of ownership more like 9% than 10%, some properties are now listed for sale at prices that are not far from normal compared to rental prices.  For example, one property is listed for sale at about $900,000 or for rent at about $60,000 annually.  The rental price is about 6.67% of the sale price, or put differently, the sale price is 15 times the rental price.  That’s not extreme.  And the rental price is not arbitrarily high — it actually rented for about that much in the recent past.

This is not to give the Coral Gables real estate market a clean bill of mental health.  For many properties, the purchase price remains about 20 times the annual rental price — way above the historical 12-to-14 times.  One property was recently listed for sale at about $1 million or for rent at about $50,000 annually, and another for sale at over $600,000 or for rent at about $35,000 annually.

But at least the real estate market in Coral Gables is displaying moments of lucidity.

The luxury segment of Coral Gables real estate is still in its own private Idaho on a buy-versus-rent basis.  Luxury properties are still much cheaper to rent than to buy.  Prices have not fallen as much and interest rates are not as favorable.  One Gables manse can be bought for over $8 million or rented for under $250,000 annually.  Another is for sale at about $2.5 million or for rent at about $100,000 annually.

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Foreclosure Data in Miami and Coral Gables Condos

posted on January 16th, 2010 filed under: Real Estate News

Condo buyers in Miami and Coral Gables need to be sure they understand the building’s financial situation.  If there are a lot of owners in default on loan obligations, that can mean nonpayment of condo fees, leaving others in the building to make up the difference.  (Sure, the condo association can put a lien on the unit, but if the owner is deep underwater on a mortgage, the bank(s) will probably take the entire proceeds of any forced sale.)

Why do some condo buildings in Miami and Coral Gables have so many foreclosures while others do not?  The best explanation is usually the year of construction.  Anything built between about 2004 and 2007 was by definition sold at the top of the market.  Everyone bought at once, and everyone lost.

A few examples, showing year built and the number of property records reflecting some stage of foreclosure (based on current foreclosure-tracking data):

10 Aragon, Coral Gables.

  • Condo built in 2004
  • 30 of 186 condo units in some stage of foreclosure
  • 4 bank-owned sales already occurred

Compare that with:

Gables Plaza, 625 Biltmore Way, Coral Gables.

  • Condo built in 1969
  • 2 of 90 condo units in some stage of foreclosure
  • No bank-owned sales

Or how about:

Jade, 1331 Brickell Bay Drive, Miami.

  • Condo built in 2004
  • 58 out of 341 condo units in some stage of foreclosure
  • 48 bank-owned sales already occurred

Compare that with:

Brickell Bay Tower, 1408 Brickell Bay Drive, Miami.

  • Condo built in 1964
  • 5 out of 160 condo units in some stage of foreclosure
  • 2 bank-owned sales already occurred

This doesn’t mean that every condo built in Miami and Coral Gables between 2004 and 2007 is in bad shape.  An example of a building that has remained stable:

100 Andalusia, Coral Gables.

  • Condo built in 2004
  • 3 out of 96 condo units in some stage of foreclosure
  • No bank-owned sales

Bottom line:  If you’re thinking of buying a condo in Miami or Coral Gables, get all the facts necessary to make a well-informed decision.

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Property Tax Appraiser Keeping It Real in Miami

posted on January 12th, 2010 filed under: Real Estate News

The Miami-Dade County Property Appraiser, Pedro Garcia, is keeping a campaign promise to revalue properties’ market values to reflect actual market conditions.  That may seem unremarkable, but the changes are dramatic.

This is especially true for Miami condos.  Market values have been slashed by nearly 50% in the Brickell area.  For example, a 2-bedroom unit in Jade saw its market value revised from $729,000 in 2008 to $401,000 in 2009.  A 2-bedroom at The Mark went from $458,000 to $252,000.

These are not low-ball valuations.  You can actually buy condos in Miami for about the price that the property appraiser is assessing them.  Not that they’re all screaming bargains.  Jade and The Mark are nice buildings, but you might need to pay high maintenance and run the further risk of assessments to cover deadbeats and delinquencies.  Tread carefully.

Some Coral Gables condos have seen significant reductions as well.  The market value of a 2-bedroom unit in Ten Aragon was revised from $382,000 in 2008 to $286,000 in 2009.  A 2-bedroom at 100 Andalusia went from $402,000 to $322,000.

The market values of single-family homes have been reduced as well.  For smaller homes in the north of Coral Gables, values are down about 20% from 2008 to 2009, like a 2-bed, 2-bath, 1600-sf house in the 1400 block of Medina Avenue that was valued at $453,000 in 2008 and $362,000 in 2009.

The smallest reductions have occurred in wealthy communities, no doubt reflecting the persistence of high asking prices, oversupply, and low sales activity in the market for luxury real estate in Miami and Coral Gables during 2009.  For example, a 6-bed, 6-bath, 7500-sf home in the Cocoplum neighborhood of Coral Gables was valued at $3.6 million in 2008 and $3.4 million in 2009 — barely more than 5%.  Of course, that should change as the ice breaks in the high-end market.

All of this information is easily found using the property search tool at the Miami-Dade Property Appraiser’s web page.  See for yourself at http://www.miamidade.gov/pa/property_search.asp.

Garcia is the first Miami-Dade Property Appraiser to have been elected rather than appointed.  He is well-qualified, having been a licensed appraiser for many years.  Those qualifications helped him win office in a run-off election in 2008 against a better-known opponent who was not a licensed appraiser.

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November Pending Home Sales Plunge in U.S. — and in Miami and Coral Gables

posted on January 5th, 2010 filed under: Real Estate News

The National Association or Realtors reported its Pending Home Sales Index for November, which showed a huge 16% decline from October.  The obvious reason is that the $8,000 tax credit for homebuyers was originally scheduled to expire at the end of November, so deals had to be in works before November began.

Data for the real estate market in Miami and Coral Gables are consistent with the national figures.  A quick check shows that Miami-Dade saw about 1200 properties go under contract in October and 912 in November, a decline of about 25%.  Coral Gables saw 34 go under contract in October and 23 in November, a decline of about 33%.  These figures, however, are not seasonally adjusted, and are comparable to the NAR’s national figures on a similarly unadjusted basis, which showed a 27.7% decline.

The tax credit has since been extended through April, and the income eligibility cap has been raised.  Details are available in an IRS news release.  How many buyers will the extension spur to action?  Hard to say, but probably not as many as the first time around.  The number of people who miss a deadline is usually not that large compared to the number who make it.

Raising the eligibility cap is nice, but the $8,000 has diminishing impact on higher-income buyers who usually buy higher-priced homes.  Getting $8,000 from Uncle Sam for buying a $100,000 condo in the Miami suburbs is a big deal and obviously convinced people to get off the fence and buy something.  Getting $8,000 from Uncle Sam for buying a $1,000,000 house in Coral Gables is probably inadequate to influence the decision whether to purchase.

And then, of course, there’s the whole question of how to value real estate in Miami or Coral Gables in the context of a government benefit that’s going to expire soon.  If the asset is worth $8,000 more to you now because of the government bennie, what will it be worth to the next buyer after the bennie expires?  Ah, the perils of government intervention.

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