Archive for the 'Real Estate News' Category

Google Trends: No Sign of Renewed Interest in Miami and Coral Gables Real Estate

posted on May 16th, 2010 filed under: Real Estate Market Data, Real Estate News

Is there any reason to think that people around the world are about to flock to Miami and Coral Gables to buy real estate?  Not if Google Trends is any indication.

Google Trends shows how popular a search term is — i.e., how many times people are searching for that term on Google.  Here’s the result for the search term “miami real estate”:

Google Trends Chart -- Miami Real Estate

The boom has busted.  The dream is over.  And as with most dreams, we almost surely will not experience it again as long as we live.

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Strategic Nonforeclosure: Banks Leave Condo Associations to Suffer

posted on May 13th, 2010 filed under: Financial Responsibility, Real Estate News

When a borrower defaults on a mortgage in a condo building, the borrower often stops paying not only the mortgage but also the condo association maintenance fees.  The usual remedy would be for the condo association to file a lien against the unit, or exercise a right to take title from the defaulting owner.

The mortgage, however, remains, and has priority over the condo association’s interest.  So the association has to wait for the lender to foreclose and sell the property before the association can get paid anything that might be left from a sale after covering the mortgage (doubtful), or at least get a new owner in place who will start paying the unit’s share of common charges.

But in Miami and other hard-hit real estate markets, lenders are purposely not foreclosing on delinquent loans.  Like borrowers who practice strategic foreclosure and walk away from loans despite being able to pay, lenders are practicing strategic non-foreclosure.  By not foreclosing, lenders avoid realizing losses on their balance sheets and avoid all the costs of condo ownership: taxes, insurance and condo association maintenance fees.  As a result, the unit remains empty and the remaining condo residents are left to share all of the building’s maintenance and insurance costs.

Miami Real Estate Photos -- Biscayne Bay & Miami Beach 1

A case in point, according to the Daily Business Review, is 7149 Bay Drive in Miami Beach.  The condo association waited two years for Citibank to foreclose and take responsibility for a unit.  The association finally brought a quiet-title suit to force Citibank’s hand.  The unit is worth about $45,000.  Citi evidently had no desire to pay past and future taxes and maintenance fees, or the attorney’s fees and other costs of foreclosure.  So Citi simply canceled its $166,000 mortgage, giving the association clean title.

One real estate analyst likened it to a “100% short sale.”

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Mortgage Rates May Drop Again

posted on May 6th, 2010 filed under: Real Estate Market Data, Real Estate News

What a difference a month makes.

The yield on the 10-year Treasury note spiked higher at the beginning of April, raising the prospect of higher fixed mortgage rates, which are generally correlated with the yield on the 10-year.  Now, with fears of Greek and other sovereign debt problems rocking Europe, the flight to safety in U.S. Treasury securities has driven the 10-year yield right back down.  Fixed mortgage rates should decline significantly as well.

The 4% level is proving to be very strong resistance.

U.S. 10-Year Treasury Yield (1-1-07 to 5-5-10)

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$8,000 Tax Credit Tempts Tax Cheating

posted on May 4th, 2010 filed under: Real Estate News

There have been plenty of scammers who claimed $8,000 homebuyer tax credits they did not deserve.  But when the government extended the credit beyond the original November 30, 2009 expiration, the new deadline was structured in a way that will test even the most button-down taxpayer’s scruples.

The tax credit is available for anyone who signed a contract by April 30 and closes by June 30.

Query:  Would parties signing a contract in these first couple of weeks of May be tempted to date the contract April 30, by any chance?

Maybe somewhere, but I’m sure things like that never happen in Miami.

Miami Real Estate Photos -- Biscayne Bay & Downtown

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A Dark Hour for Biltmore Hotel in Coral Gables?

posted on May 2nd, 2010 filed under: Miami and Coral Gables Living, Real Estate News

The Biltmore Hotel’s management has been widely reported to be seeking renegotiation of their lease arrangement with the City of Coral Gables, which owns the hotel building and land.  The managers claim that business is way down because of the economy.

Indeed, something must be going on if the highly rated Palme d’Or restaurant and the classic Biltmore Bar are closed on a Sunday evening in early May.

Coral Gables Real Estate Photos -- Biltmore Hotel (3)

The odd thing is that the hotel made it through the 2001-03 recession, despite the intense fear of travel that crimped tourism after the 9/11 attacks.  Back then, the hotel slashed prices and offered hefty incentives for guests.  The Simple Pleasures package combined low, tax-inclusive room rates and in-hotel spending credits, for an effective rate of something like $100 per night.

The deals now are not quite as good, but from May 1 to September 30, the Simple Pleasures package is priced at about $149 per night, not including tax and after accounting for the in-hotel spending credit.

The role of the Biltmore in sustaining Coral Gables real estate cannot be underestimated.  The hotel not only adds value to homes and properties in the surrounding neighborhood, but introduces a steady stream of potential future residents to the city.  City founder George Merrick knew as much when he sent Biltmore guests on real estate tours.  After all, Coral Gables is not an obviously desirable destination, and has always had to justify why people coming to Miami should situate themselves 8 miles inland from the ocean and world-famous beaches.

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Housing Starts and Homebuilder Stocks Say The Bottom Is In (But Not Necessarily for Real Estate in Miami and Coral Gables Just Yet)

posted on April 21st, 2010 filed under: Real Estate Market Data, Real Estate News

Those of us who have been negative on real estate values based our outlook in part on the enormous height that housing starts and homebuilder stocks scaled during the boom.  If real estate buyers in Miami and Coral Gables paid attention to such data, they could have sidestepped the brutal beating — even bankruptcy — that inevitably resulted from buying a depreciating asset with borrowed money.

But honest analysis demands that we acknowledge when housing starts and homebuilding stocks have bottomed.

Housing starts and homebuilding stocks appear to have bottomed.

Here are starts and stocks (HGX, an index of housing stocks) from 2008 to present:

U.S. Housing Starts -- 2008 to Mar. 2010

Homebuilder Stocks -- HGX -- 2008 to Apr. 2010

Here’s a longer view of housing starts (1990 to Mar. 2010):

U.S. Housing Starts -- 1990 to Mar. 2010

And a really long view (1959 to March 2010):

U.S. Housing Starts -- 1959 to Mar. 2010

Does this mean you should rush out to buy whatever home you can lay your hands on in Miami or Coral Gables?  No.  When bubble towns go bust, they can lag the national data both in turning down and in heading back up.  (More on this in an upcoming post.)  Starts and stocks thus serve as leading indicators.  Note that national housing starts and homebuilder stocks both peaked in 2005-06.  Real estate prices in Miami and Coral Gables did not peak until 2007.

U.S. Housing Starts -- 2004 to Mar. 2010

Homebuilder Stocks -- HGX -- 2004 to Apr. 2010

Real estate prices could easily fall for another year or two in Miami and Coral Gables.  The overpricing was too extreme for the local market to clear as fast as the national market.  Fundamentals — incomes, rents, historical price trends and the supply of homes on the market —  suggest that it is too soon to expect a sustainable rise in prices.  At least until wage and rent inflation rear their ugly heads.

The good news is that we are probably near enough to the bottom for real estate prices in Miami and Coral Gables that if you’re thinking of buying a house or condo here, you should be devoting a lot of time to shopping for a home and learning about the many neighborhoods and types of properties from which to choose.  And if you find the perfect home at an advantageous price, you can make your move without too much risk of loss.

Of course, to play defense and fatten your wallet, it’s always best to work with the broker who’ll give you half his commission.

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Threats to Luxury Real Estate Values in Miami and Coral Gables: Part II

posted on April 15th, 2010 filed under: Financial Responsibility, Real Estate Market Data, Real Estate News

Ah, tax day.  A fine time to point out another threat to the value of luxury homes in Miami and Coral Gables.

Seems that we got ourselves into quite a pickle by jacking up real estate prices with ever-looser borrowed money until the whole thing collapsed on itself like the Ponzi scheme it was.  So what did we do when our personal willingness and ability to borrow cratered?  We ramped up our public borrowing.  We the People are collectively borrowing to replace our private borrowing.

Federal Reserve Flow of Funds Data -- Home Mortgage Borrowing -- Table

There is a precedent for this.  Massive federal borrowing and spending replaced a collapse in private borrowing and spending during the 1930s — the Great Depression.  Similarly, the nation went deep in debt to fight two world wars.

How did we pay back all that debt?

Same way every time.  By raising tax rates.  Especially at the top.

Here’s a chart of the top tax rate since the federal income tax was adopted in 1913:

Income Tax and Real Estate in Miami and Coral Gables -- Top Rates -- U.S. -- FederalLow at first, rates rocketed higher to pay for WW I.  They plummeted in the 1920s (arguably producing the speculative bubble in real estate and stocks that led to the ’29 crash and Great Depression), and shot higher again to pay for the borrowing and spending that was used to fight the depression, and then higher still to pay for WW II.  Back down they went over the next several decades, arguably contributing to the greatest stock and real estate bubbles in human history.  Now the nation is living off public debt again.  As night follows day, taxes will rise.

How much?  Just to get the federal deficit to 3% of GDP — a mere few hundred billion a year , where it was under President Bush, rather than the $1.5 trillion it is now — will absolutely require significant tax increases.  According to a recent article by Diane Lim Rogers, Chief Economist with the Concord Coalition, an across-the-board, proportional hike in everyone’s marginal rates to reach the 3% deficit target would produce a top rate of 48%.  If only the top two brackets were hiked, they would go to 77% and 72%.

Ever feel like somebody has their eyes on you?

Income Tax Rates and Real Estate in Miami and Coral Gables -- Uncle Sam Wants YouHow does all this affect the value of luxury real estate in Miami and Coral Gables?  A cock-eyed optimist might say that people will pile into real estate for the sake of the deductions.  But you can’t deduct the interest on loan principal over $1 million, so the benefit is limited.  (Check IRS Pub. 936 for the rule applicable to your personal situation; for example, the limit is $500,000 if married filing separately.)

Think about it. If you went from making $600,000 a year after taxes on a $900,000 income, to making $450,000 a year after taxes on a $900,000 income, would that affect how much you would be willing to pay for a $2 million house in Coral Gables or condo in Miami Beach?

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Threats to Luxury Real Estate Values in Miami and Coral Gables: Part I

posted on April 13th, 2010 filed under: Real Estate Market Data, Real Estate News

The value of luxury real estate in Miami and Coral Gables faces severe headwinds in the near future.

Start with the lay of the land: the fundamental metric of months’ supply.  As noted previously, the number of homes for sale versus sold has been well above historically healthy levels.  That problem persists.  For example, there is currently a 28-month supply of homes on the market in Miami-Dade County, according to MLS data (922 homes for sale, 33 sold last month).  The picture is brighter in Coral Gables (16-month supply, 194 homes for sale, 12 sold last month), but still high.  A normal level for the luxury segment is probably about a 10- to 12-month supply (higher than the 6 months’ supply that is normal for the market as a whole, because luxury property sales move more slowly).

These numbers are improved from a year ago, but the market remains in a weakened state.

Now comes a new wave of potential mortgage troubles, and this one aims at the higher end of the real estate market, not the subprime sector.  Charts like the following have made the rounds for the last couple of years.  It shows that the subprime mortgage crisis coincided with the crescendo of rate resets that borrowers faced in 2007-08.  It also shows that a second wave of resets was scheduled to begin in late 2009 and carry into 2012, this time for supposedly higher-quality loans: prime, alt-A (i.e., between prime and subprime) and option ARM (offering flexibility in making payments).

Mortgage Reset Chart -- IMF & Credit Suisse

Chart from IMF, Assessing Risks to Global Financial Stability.

Investment managers like John Hussman have predicted a new round of economic troubles when this next wave of resets hits the real estate market and financial system.  Hussman thinks “we could quickly accumulate hundreds of billions of dollars of loan resets in the coming months, and in that case, would expect to see about 40% of those go delinquent.”

And sure enough, CNBC’s Diana Olick reported yesterday that Moody’s downgraded the credit quality of 201 tranches of residential mortgage-backed securities, composed of prime jumbo loans made by Wells Fargo in 2007-08, and another 134 tranches of the same stuff from 2006.  Moody’s based the downgrade on “rapidly deteriorating performance of these loans.”

Wells Fargo has been very active in lending to buyers of luxury homes in Miami and Coral Gables, so it would come as no shock if the recent downgrade partly reflected loan performance here in South Florida.  We’re not privy to the specific loans populating the downgraded securities, but it would be rather dangerous to assume that luxury real estate in Miami and Coral Gables is immune from broader trends.

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Mortgage Rates Spike — More Clouds on Horizon for Real Estate in Miami and Coral Gables?

posted on April 7th, 2010 filed under: Real Estate Market Data, Real Estate News

Well, that was fast.  Mortgage rates wasted no time going higher, as foreshadowed in recent posts on the rising 10-year Treasury yield and the end of the Federal Reserve’s mortgage backed securities purchasing program.

The Mortgage Bankers Association reported that mortgage rates jumped an eye-catching 27 basis points (0.27%) in a single week, to an average of 5.31% for the 30-year fixed.  That’s the biggest jump since rates spiked last June.

So what’s your strategy if rates keep rising?  Will you buy in order to lock in a lower payment?  In the 1970s, rates went through the roof, and property values rose the whole time.  Real estate can be a good hedge against inflation.

On the other hand, in the 2000s, rising rates sent property values into the dive that brought the financial system to its knees.  Higher rates could mean another leg down for real estate prices, especially in markets like Miami and Coral Gables where the fundamentals — oversupply combined with unfavorable pricing relative to incomes, rents and historical valuations — remain out of whack.

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Further Extension of Tax Credit Unlikely, Says NAR

posted on April 7th, 2010 filed under: Real Estate News

Looks like the $8,000 homebuyer tax credit will not be extended beyond its currently scheduled expiration (contracts by April 30, closings by June 30).  Originally, the credit was to expire on November 30 (closings).  The National Association of Realtors, which lobbied hard for the extension, is telling members that its efforts to get another extension are not likely to succeed.

Whether the credit was a good or bad idea — whether it truly generated demand or merely pulled demand forward — is debatable.  And whether you ought to buy now because the credit will soon expire is likewise debatable; an asset that draws more interest because of a government handout may be worth a little more while the handout is available — and a little less when the handout disappears.  Despite the risk, buyers in Miami and Coral Gables seemed to like the handout, as low-end real estate activity surged.

One thing appears certain:  It’s almost over.

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