Archive for the 'Real Estate News' Category

Fed Nearing End of Mortgage-Buying Orgy — Could Affect Rates and Real Estate in Miami and Coral Gables

posted on March 7th, 2010 filed under: Financial Responsibility, Real Estate News

The Federal Reserve is supposed to stop buying mortgage-backed securities (MBS) at the end of this month, which could lead to higher mortgage rates as private buyers demand a higher return for MBS risk.  As a chart by financial blogger Calculated Risk illustrates, MBS are now the single biggest chunk of Fed holdings, far outstripping the Fed’s position in U.S. Treasury securities.

Try to wrap your mind around that.  Before 2008, the Fed held no MBS.  Banks and Wall Street firms packaged the stuff and sold it to private buyers.  Once real estate was revealed to be a fraudulent Ponzi scheme, the private buyers vanished.  But the Fed stepped in, printing dollars out of thin air to buy what nobody else wanted, thus keeping the mortgage market from completely shutting down.

The result is that the Fed, which started 2008 holding well under a trillion dollars in U.S. Treasuries and little else, is putting the finishing touches on a buying spree that will leave it with $1.25 trillion in MBS.

Economists are divided on how much the Fed’s departure from the MBS market will cause mortgage rates to rise.  And real-estate brokers can spin the prospect of rising rates as a reason to buy now.

See both sides.  If homes in Miami and Coral Gables are more affordable now while the Fed artificially depresses mortgage rates, homes might be worth less if rates go up.  Indeed, rising rates played a significant part in the bursting of the bubble.  So if you buy that property in Miami or Coral Gables today while rates are low, be prepared for the possibility of its losing value as rates rise and affordability drops.

The risk would be less if incomes could be expected to rise in tandem with rates and thus support affordability.  While possible, such an outcome is no sure thing.

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Update 02/13/10:  See Feb. 13, 2010 post titled “With Fed Ending Mortgage Purchases, Fannie and Freddie Step In — What It means for Real Estate in Miami and Coral Gables

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Sales Pace Backs Off, Prices Continue Higher for Miami Real Estate in January

posted on March 1st, 2010 filed under: Real Estate News

The Florida Association of Realtors reports 436 homes sales at a median price of $208,100 in January 2010 for the Miami metropolitan statistical area.

The number of sales is down from the torrid 623 sales reported for December 2009.

The median price of $208,100 for January is significantly higher than the $204,300 reported for December 2009, which itself was a stupendous jump from the $184,800 for November.

A likely explanation for the erratic price data is the government’s $8,000 homebuyer tax credit.  The credit spurred lots of activity at the low end, where $8k makes the biggest difference to people.  Because the credit was originally set to expire at the end of November, closings were scheduled to close by that deadline.  Closings for December and January reflect costlier properties for which the credit was not a necessary factor.

Bottom line?  Market-wide data are distorted by government intervention, so pay especially close attention to micro-market data like recent sales in the neighborhoods that interest you.

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Mortgage Fraud and Real Estate Values in Miami and Coral Gables

posted on February 25th, 2010 filed under: Real Estate News

According to the Miami Herald, “[i]t should come as no surprise that the Financial Fraud Enforcement Task Force kicked off the first of its mortgage-fraud summits in Miami.”  No doubt they came to Miami for a “summit” because they wanted to see firsthand what a moldy foreclosure looks like, not because it’s sunny and warm here in February.

The subject, however, is serious.  If you’re an honest person who wants a place to live in Miami or Coral Gables, the recent history of rampant mortgage fraud poses a continued challenge to your financial security.  Many homes for sale are still priced too high relative to fundamentals such as incomes, rental costs and historical rates of appreciation.  To what extent is the market still overpriced because of phony mortgage money?

There’s no way of telling for sure, but the problem is real.  According to the Herald, one fraud ring bought properties through their own mortgage brokerage, flipping the properties to one another for higher and higher prices until they ran out of funding, leaving the lenders with $7 million in losses.  More commonly, mortgage brokers, motivated solely by quick fees and in contempt of borrowers’ ability to pay, fed loans through the financial system, supporting higher and higher sales prices until the bubble burst.

[youtube]http://www.youtube.com/watch?v=6khYSTqHrqM&feature=PlayList&p=D40AA770D39E1068&playnext=1&playnext_from=PL&index=2[/youtube]

With phony lending came higher prices.  With the end of phony lending, prices have fallen.  But how can you tell whether those artificial effects have been washed out of prices in the Miami or Coral Gables neighborhood where you’re thinking of buying a home?  If major institutions like Citibank don’t really know what they have on their books because the loans were products of mortgage brokers’ imaginations, how can you be sure what you have in front of you now?

You can’t.  Fraud and phony lending goosed prices throughout Miami and Coral Gables, not only for the subject homes but for all other properties in the surrounding area.  And there’s no way to know for sure that the last drop of bogus pricing has been wrung out of the system.

To protect yourself, follow defensive buying practices.  Focus on fundamentals.  Do area incomes, rents and historical rates of appreciation support the price you’re being asked to pay?  If not, you might become another injured bystander.

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Miami Luxury Property Sells for Same Price After Ten Years

posted on February 25th, 2010 filed under: Real Estate News

The home at 8400 SW 52 Avenue (a.k.a. School House Road) in the High Pines and Ponce/Davis vicinity Miami (adjacent Coral Gables) sold in November 2009 for $2.3 million.  That’s barely more than the $2.25 million that the seller paid for the property in 1999 — and less after transaction costs (e.g., brokerage commission) are taken into account.

Not that the seller, Charles Stiefel, was in financial straits.  Glaxo SmithKline bought Stiefel Laboratories for $2.9 billion in July 2009.  Sellers at the high end may have more staying power — but they also have more going power!

Miami and Coral Gables Real Estate Photos -- 8400 SW 52 Ave.

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U.S. New Home Sales Hit Record Low

posted on February 25th, 2010 filed under: Real Estate News

Last month in The REF, a renewed tailspin in new home sales was noted.

The latest figures from the Census Bureau at the Commerce Department ain’t pretty.  Sales dropped to a record-low seasonally adjusted annual rate of 309,000 in January — way below December’s 342,000, and well under the previous low of 329,000 in January 2009.  Recordkeeping began in 1963.

U.S. New Home Sales Chart -- Jan. 1963 to Jan. 2010

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Case-Shiller Home Price Index Posts Slight Decline for Miami

posted on February 24th, 2010 filed under: Real Estate News

Home prices in Miami fell slightly for the three-month period ending December, compared to the period ending November, according to the Standard and Poor’s Case-Shiller Home Price Index.  The index declined from 149.08 to 148.66, a drop of 0.3%.

This answers the question posed last month whether the Case- Shiller data would confirm the outsized gain in prices observed in the Florida Association of Realtors data, which showed a large gain for Miami median home prices in December.  (Answer: No.)

The Case-Shiller index is not broken down by locality or price range, so specific conclusions about, e.g., Coral Gables or the luxury market cannot be drawn.

Incidentally, the index for the New York metro area declined again, from 173.24 at the end of November to 171.91 at the end of December, a drop of 0.7%.

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Coral Gables Real Estate: 2711 San Domingo Sells for $525,000

posted on February 22nd, 2010 filed under: Real Estate News

The house at 2711 San Domingo Street in Coral Gables is a window onto the state of the mid-range market for real estate in Coral Gables.

The property is a mixed bag, with a small house (3 BR, 2BA, 1860 sf), but a larger lot than most others on the street (12,800 sf).  A big refreshing pool is a plus, but is exposed to the St. Theresa (Little Flower) church school and parking lot.  The neighborhood is one of the more desireable in Coral Gables, just around the bend from the Biltmore Hotel.

The property was on and off the market for a while, but finally sold last month.  When I spoke with the owner (during one of its unlisted spells), he wanted well north of $700,000 — and that was already a reduction.  But he was feeling the strain of paying both local and French property taxes (he was a French citizen and had to pay property tax to France — on property located in the U.S.!).

Evidently, the patience of buyers wore down this particular seller, because the property just sold for $525,000.

Don’t feel sorry for the seller, though.  The $525k sale price represents a handsome return of about 8.5% since the previous sale for $219,000 in 1993.  That’s a high rate of appreciation for residential real estate, even for a desirable neighborhood near the Biltmore Hotel in Coral Gables.

Coral Gables Real Estate Photos -- 2711 San Domingo

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Declining Rents Help Push Core CPI Negative for First Time Since 1982

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

Thanks in significant part to a decline in the cost of housing, the core CPI inflation gauge for January 2010 posted the first month-to-month decline since 1982.  You might want to keep that little tidbit in mind the next time someone selling real estate in Miami or Coral Gables tries to scare you into thinking you’ll miss the boat if you don’t buy now.

Real estate prices in Miami and Coral Gables are unlikely to mount a serious comeback in the context of a deflationary economy.

U.S. Core CPI -- 1960 to Jan. 2010

The Bureau of Labor Statistics bases the housing component of core CPI on the cost of renting, not buying.  (Data wonks requiring explanation can get it at the BLS website.)

Sellers might like to think that prices can rise for home purchases while falling for home rentals.  That kind of wishful thinking hasn’t worked out too well lately.  During the boom, the cost of buying real estate in Miami and Coral Gables deviated way beyond any normal relation to the cost of renting.  That deviation has barely begun to resolve itself, and falling rents would only exacerbate the imbalance, pulling home values further downward.

Granted, the government’s methodology for calculating inflation has changed over the years, with a systematic bias toward reducing the stated inflation rate compared to previous methodologies.  (See www.shadowstats.com.)  But by any measure, core inflation is hitting a new low despite the firehose of money that the government and Federal Reserve have aimed at the economy.

Score one for the deflation camp.

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Luxury Home in Ponce/Davis Neighborhood of Miami and Coral Gables Sells for 20% Less Than 2005 Sale Price

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

The Mediterranean-style home at 8345 Ponce de Leon Road, in the Ponce/Davis neighborhood of Miami (adjacent Coral Gables), sold in December 2009 for $2,764,500.  That’s 19.9% below the previous sale price of $3,450,000 in December 2005.

Built in 2004, 8345 Ponce de Leon is a 6BR, 7BA, 8212 sf luxury home on a 43,560 sf (1 acre) lot.  The $2.7645M sale price works out to $337/sf.

Miami and Coral Gables Real Estate Photos -- 8345 Ponce de Leon Rd.

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U.S. Housing Starts May Have Risen Moderately Last Month

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

The Census Bureau recently reported that housing starts in January rose to a seasonally adjusted annual rate of 591,000, up 2.8% from a revised December figure of 575,000.  The numbers carry a margin of error of about 11%, so the monthly gain is murky.

Compared to a year ago, however, starts are up by 21% with a margin of error of 12%.  So year-over-year, there is clearly more activity.

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

Pulling the camera back, the housing industry is clearly struggling to get back to business, compared to previous cycles in which the level of activity made a clear “V’ bottom.

U.S. Housing Starts -- 1960 to Jan. 2010

It will be interesting to see how the data weather the scheduled expiration of the $8,000 homebuyer tax credit.  Contracts must be signed by April 30 and deals must close by June 30, and some of the rebound in starts is believed to have resulted from buyers and builders getting projects underway in time to meet the deadline.  Seems mad for just $8k, but could be true.

These are national numbers and are not necessarily indicative of the real-estate markets in Miami and Coral Gables.  Yet real estate in Miami and Coral Gables followed the national data up in the boom and down in the bust, so give the data some consideration.

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