Archive for the 'Real Estate News' Category

Listings of Bank-Owned (REO) Luxury Homes Surge in Coral Gables Real Estate Market

posted on April 15th, 2011 filed under: Real Estate Market Data, Real Estate News

In the last 90 days, more bank-owned (REO) homes have been listed over $900,000 in Coral Gables than were listed in the preceding year.

Since January 15, 2011, 14 bank-owned homes have been listed in Coral Gables.  Five of them — more than a third — have been over $900,000.

From January 15, 2010 to January 14, 2011, 67 bank-owned homes were listed in Coral Gables.  Four of them — less than one sixteenth — were over $900,000.

825 Coral Way

825 Coral Way

There were already cracks in the ice of the overpriced upper end of the Coral Gables real estate market.  The surge in luxury-home liquidations will add to the downward pressure on prices in this bloated segment.

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Real Estate Still Overvalued in Miami and Coral Gables

posted on April 1st, 2011 filed under: Financial Responsibility, Real Estate Market Data, Real Estate News

There’s something evil about pushing people into committing more and more of their income to house payments, as the the financial-realty complex managed to do over time.  If it were a modest consumer good, people could retreat at will from overspending.  But housing is different.  It’s the mother of all purchases, demanding that the buyer leverage the next 30 years of income.

The amount of misery this has produced in the Miami metro area is staggering.  The Center for Housing Policy recently released its annual housing affordability analysis and found that 42% of working households in the Miami metro area had a severe housing cost burden (too much income devoted to housing) during 2009, the last period for which the relevant data are available.  That’s the highest percentage of households in any metro area in the nation.  Remember to say thanks to your bankers and brokers, everyone.

Homes are assets that produce no income (although they replace the expense of renting).  So it’s hard to value a home like a business.  But we can analogize.  A basic measure of stock valuation is the price-earnings ratio.  Stocks were historically cheap in 1974 when they were trading for about 7 times earnings, and overvalued in 1999 when they were trading for about 40 times earnings.  Similarly, we can compare homes prices to family incomes.

The chart below compares the median price of single-family houses in Coral Gables, Florida to the median family income there.  (Note: family is defined as more than one person related by blood or marriage; household is one or more people.)  In 1999, this price-to-income ratio was about 3.19.  By 2007, it had risen to 6.58.  Now, it’s down to about 4.39.

Coral Gables Real Estate -- Single-Family Homes -- Price to Income Ratio -- April 2010

A few noteworthy observations:

  • Overvalued conditions always revert to normal.  Bubbles always burst.
  • Property values in Miami and Coral Gables are not back to normal yet.
  • Most of the progress in normalizing property values in Miami and Coral Gables real estate has been through falling prices.  Incomes have risen, but the boom and bust is mainly about prices.
  • Prices are still falling.

The rest of the normalization process will be a combination of falling prices and rising incomes.  Comparing the current price-to-income ratio to the pre-boom 1999 price-to-income ratio, real estate remains about 30% overvalued.  That can be worked off through any combination of rising incomes and falling prices, over any time frame.

  • If prices fall 10% per year and incomes rise 5% per year, all of the overvaluation will be mopped up in 2 years.
  • If prices fall 5% per year and incomes rise 2.5% per year, the overvaluation will be mopped up in 4 years.
  • If prices stabilize, valuations would not be back to normal for 6 years at 5% income growth, or 12 years at 2.5% income growth.

If you find a good deal, you can grab it without worrying too much about the residual overvaluation.  Otherwise, caveat emptor.  Be careful out there.

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New Home Sales Plunge, CNBC Real Estate Reporter Calls Double Dip in Housing

posted on March 23rd, 2011 filed under: Real Estate Market Data, Real Estate News

Today’s disastrous numbers from the Census Bureau on the number of contracts signed in February to purchase new homes in the U.S., combined with other recent data showing renewed weakness in housing, led CNBC’s real estate reporter Diana Olick to officially call this a double-dip in housing.

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Cost of Living Comparison: New York Versus Miami

posted on March 8th, 2011 filed under: Financial Responsibility, Real Estate News

With oil above $100 per barrel again, it’s worth comparing the key factors in the cost of living in New York versus Miami.  It ain’t cheap to fill up the tank of a house.  How ’bout burning through a couple thousand bucks every month or so in the winter?

Coral Gables Real Estate Photos -- House DrawingMiami Real Estate -- Insurance Versus Winter Heating OilNow that’s money up in smoke.  As noted here in 2008 when oil was at $135 per barrel, you could easily spend five or six thousand a year on heating oil and another thousand or two on electricity in a medium-size home up north.

But what New Yorkers lose up the chimney, homeowners in Miami are forced to spend on the ever-soaring cost of property insurance.  The home that costs five thousand dollars to heat in New York could easily cost eight thousand dollars to insure in Miami or Coral Gables.

If energy and insurance roughly cancel each other out, what other cost-of-living factors weigh in the balance?

The pay scale is generally much higher in New York than in Miami.  But there’s no state income tax in Florida, which is especially nice if your income tends to be from investments rather than from a salary.

Public education is phenomenal in many New York suburbs, with lots of high schools boasting average SAT scores at the 90th percentile or higher.  But to pay for those fabulous education systems, property taxes are stratospheric.

Bronxville High School, Bronxville, NY

Bronxville High School, Bronxville, NY

In South Florida, there are some excellent educational opportunities if you do your homework, and your property-tax assessments can be capped at a three percent annual rate of increase.

Of course, if you want to use private schools, you’re going to pay a hefty price per child no matter where you are, snowshoes or sunshine.

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Miami Home Values: Price to Income Ratio Bounces Off Low

posted on March 3rd, 2011 filed under: Financial Responsibility, Real Estate Market Data, Real Estate News

(As predicted here . . .)

The National Association of Home Builders and Wells Fargo maintain a Housing Opportunity Index (HOI) that compares median home prices to median incomes in a couple hundred metro areas.  Back in early ’09, the HOI showed that the price-to-income ratio for the Miami metro area was between 4 and 5 to 1, based on 4Q08 data showing a median home price of $225,000 and a median income of $49,200.  That was better than the 6-to-1 ratio at the peak, but nowhere near the 2.5-to-1 that prevailed back in the late 1990s, before the real estate mania began.

Accordingly, The Real Estate Fountain observed that home prices in Miami and Coral Gables would have to fall another 30% to 50% to return to their normal historical relationship to incomes.

Coral Gables Real Estate Photos -- Elevated View -- Downtown to Southwest and Biltmore Hotel

And so it came to pass.  According to the HOI, median homes prices in the Miami metro area continued to fall, plunging especially steeply as the artificial effects of the $8,000 government-handout program wore off.

1Q09: $185,000

2Q09: $174,000

3Q09: $160,000

4Q09:  $185,000

1Q10:  $170,000

2Q10:  $134,000

3Q10: $126,000

4Q10:  $142,000

The median income has risen from $49,200 to $52,200 over the same period — a negligible change compared to the change in median price.

Bottom line:  In 2Q10 and 3Q10, we hit the old 2.5-to-1 ratio and bounced off it.

Make no mistake.  The price-to-income ratio is not likely to continue rebounding.  Do not expect another wave of irrational exuberance to goose the valuation of Miami and Coral Gables real estate.  Indeed, valuation measures like the price-to-income ratio often overshoot to the downside during a bust that follows a boom.  We haven’t even seen that yet.

On the other hand, the price-to-income ratio is back near normal, and that takes a lot of the risk out of buying.  You may not get rich buying real estate at merely normal valuation levels, but you’re a lot less likely to be ruined.

Break out the party hats.

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Bankers Held In Contempt Over Bird Grove Condo

posted on January 18th, 2011 filed under: Financial Responsibility, Properties in Focus, Real Estate News

The Daily Business Review reported last week that a Miami trial judge held six banks in contempt of court, and threatened bankers with jail, in connection with the default-besieged Bird Grove Condo at 2734 Bird Road in Coconut Grove.

Miami Real Estate Images -- Bankers Held in Contempt

The Bird Grove exemplifies one of the ways in which the financial industry has socialized the consequences of the bust after privately profiting from the boom.  Two units in the Bird Grove are bank-owned (REO or real estate owned).  Seventeen others are in default, but banks have not followed through on the foreclosure process and taken ownership.  With ownership comes responsibility for condo association dues, taxes, insurance, maintenance and all the other joys of home ownership.  And when repossessed properties are sold, banks must recognize the losses on their balance sheets.

So instead, banks leave the units in limbo, avoiding expenses and deferring loss-recognition.  When half of the unit owners aren’t paying either, the condo association is starved for dues and the building goes downhill fast.

The court appointed a receiver for the Bird Grove, who found a condo building where “garbage hadn’t been collected for weeks, electricity was about to be cut off, the building had no insurance, and an elevator was broken,” according to the DBR.

Bird Grove Condo, 2734 Bird Rd.

Bird Grove Condo, 2734 Bird Rd.

The good news for the banks is that the law is on their side.  Florida law, as interpreted by the appeals court with jurisdiction over the Miami area, simply does not require banks to pay condo dues and expenses until they take ownership.

The banks involved are Bank of America, Flagstar Bank, GMAC, PNC Bank, SunTrust Bank, U.S. Bank and Wells Fargo.  Congenial billionaire Warren Buffet, whose company is Wells Fargo’s largest shareholder, probably doesn’t have to worry about garbage collection and electricity.

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1010 and 1033 Asturia — Bank-Owned (REO) Foreclosures in Coral Gables

posted on January 8th, 2011 filed under: Properties in Focus, Real Estate News

For all the sturm und drang of the real estate collapse in South Florida, there haven’t been that many bank-owned (REO) properties for sale in the more desirable parts of Coral Gables.  Recently, however, two listings have cropped up that ought to please even the most finicky bargain-hunters.  Both are on Asturia Avenue, a pleasant street two blocks north of historic Coral Way, and one block south of Granada Golf Course.  Locals enjoy walking, jogging and biking around the golf course as much golfing on it.

1010 Asturia was listed as a short sale a while back and seemed to have sold, but apparently the deal never closed.  Now its’ a bank-owned (REO) listing.  I remember seeing this property a few years ago when the asking price was about $900,000.  Today’s listing price: $499,000.

1010 Asturia Ave.

1010 Asturia Ave.

Similar story with 1033 Asturia: previously listed as a short sale, went pending, now back on the market as a bank-owned (REO) home for sale.  Price: $678,150.

Tough times on the 1000 block of Asturia Avenue in Coral Gables.  But with crisis comes opportunity.

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Be Realistic About Insurance Costs When Buying a Home in Miami

posted on November 20th, 2010 filed under: Financial Responsibility, Real Estate News

Your monthly payment for a home — assuming you take out a loan — consists of principal, interest, taxes and insurance.  PITI for short.

If you’re not from South Florida, you might not appreciate how expensive insurance is here.  Homeowner’s insurance can easily cost 1% to 1.5% of the home’s value per year.  And those are non deductible, after-tax dollars.

But you can’t do without it.

Hurricane Andrew -- NOAA Radar Image

Hurricane Andrew

Insurance varies depending on the size of the home, the exact location and the type of construction, among other things.  Older homes like the classic Old Spanish houses in Coral Gables can be very costly to insure, not because they aren’t generally built well but because their roofs are not fastened to the rafters and exterior walls the way current building codes would require.

Windstorm mitigation can make a huge difference in your premiums.  On an old house, going from no mitigation to impact windows and a roof retrofit can probably save 25% to 50% on premiums and pay for itself in a fairly small number of years.

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The Great Godot of Inflation

posted on October 14th, 2010 filed under: Financial Responsibility, Real Estate Market Data, Real Estate News

The previous post reported the current outlook of hedge fund manager Kyle Bass, who made a fortune off the recent collapse of the financial-realty complex.  Essentially, Bass sees hyperinflation in America’s future, like what happened in Zimbabwe.  At the same time, Bass sees median real estate prices staying flat at best for several more years, and high-end real estate prices heading lower.

Anyone see a contradiction in that?  Would real estate sputter along if hyperinflation took hold?  Hardly.  Real estate is a classic inflation hedge.  Property prices will skyrocket if hyperinflation develops, just like in Zimbabwe, where property prices increased at an annual rate of 5,000% during that country’s hyperinflation.

About the only thing confirming the hyperinflation thesis is the price of gold and other precious metals.  But that could well be a fad that will end in tears just like every other bubble that sucked in money from the weakest among us before popping.  The gold-bug advertising littering all media right now could signal that the end is near.

The last time gold shot to the moon (in 1979-80), inflation was already soaring into the double-digits, eventually exceeding 14% year over year.  Are we experiencing anything like that now?

U.S. Inflation -- CPI (YoY) -- Chart

Likewise, the last time gold shot to the moon, wages were leaping ahead in a desperate struggle to keep pace with inflation.  Now?  We’ve just finished the latest gap down in a 30-year, secular downtrend of wage and salary disinflation (i.e., lower and lower inflation).

Wages and Salaries Inflation -- Annualized -- BLS ECI

So far, the inflation crowd has been waiting for Godot.

Maybe someday the Fed will spur some inflation.  But there’s no clear evidence of that yet.  And until then, we’re sticking to our story.  Real estate in Miami and Coral Gables generally remains overpriced relative to the fundamentals: incomes, rents, historical values, and (in the upper price ranges) months’ supply.  Buyers have time on their side.

In other words, we agree with the Kyle Bass who sees real estate prices flat to down for several more years before a new phase of rising prices, not the Kyle Bass who sees hyperinflation.

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Insight on Real Estate and Inflation from Hedge Fund Manager Kyle Bass

posted on October 8th, 2010 filed under: Real Estate News

Kyle Bass was one of the hedge fund managers who correctly predicted — and mightily profited from — the housing bust.  He’s now predicting hyperinflation as a result of the Federal Reserve’s wild creation of new money (that “quantitative easing” stuff you heard about on the news lately).

  • The challenge for investors is where to put your money if we as a nation are losing control of our monetary base and monetary policy, which he believes is starting to happen.
  • We have a monetary base of $2 trillion and the Fed is talking about printing another $1 trillion.
  • The Fed is experimenting and they admit they do not know what they’re doing.

On the subject of real estate, Bass cites data from 28 housing busts in developed countries since 1970, and estimates that we’re about three years away from a housing recovery.  Peak to trough, the decline in median prices has taken about six years on average, with the bulk of the decline occurring in the first four years.  If the housing bust started in late 2006, we’re mostly done with the price declines in the moderate price range.

But there’s so much inventory that, even if prices don’t go down much more, they’re not going to go up for about three years, because there will be continual supply as yesteryear’s failed buyers get washed out.  In real estate markets like Miami and Coral Gables, where it still costs much more to own than to rent, Bass’s timeline would suggest there’s no urgency to hop from renting back to owning.

Bass sees a more troubled picture for the high end, where he thinks prices are still coming down.  Prices could thus continue falling for luxury real estate in Miami and Coral Gables.

That’s pretty much the opinion that’s been offered here time and again (and again and again and again and again and again and again).  Glad to be in such good company.

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