by Prashant Gopal
Friday, January 30, 2009
Formerly resilient areas like Charlotte, N.C., and Boston are struggling, according to the latest S&P/Case-Shiller Home Price Index
Home prices in 20 major metro areas nationwide fell 18.2% in November -- a record annual pace -- as the deteriorating economy pulled down previously resilient markets, according to the S&P/Case-Shiller Home Price Index released Jan. 27.
All 20 metro areas in the index saw annual price declines, 14 of which were double-digit drops and 11 of which fell by record rates. Only Denver and Dallas experienced a drop of less than 5%.
The index, which is a three-month moving average ending in November, captures the impact of the financial crisis following Lehman Brothers' collapse in September. The November decline was terrible, but it wasn't much worse than the October drop, said Patrick Newport, U.S. Economist for HIS Global Insight.
"There is so much inventory," Newport said. "Prices are going to continue to drop for quite a while."
Bargains in Worst Markets
But in the worst markets, including Miami, Phoenix, Los Angeles, San Diego, and Las Vegas, the year-over-year price declines -- though deep -- have remained relatively flat since the summer. A wave of foreclosures has depressed prices so much in those markets that investors and other first-time home buyers have moved in to scoop up bargains. According to a survey released on Jan. 26 by the National Association of Realtors, sales of existing single-family homes jumped an unexpected 7% in December from November's seasonally adjusted annual rate.
In Los Angeles, for example, the annual decline has stayed between 25% and 27% since June, according to the index. In Miami, the annual declines since may have remained in the 28%-to-29% range.
"If you buy a home and rent it out in these markets, you can have a positive cash flow just because prices are so low," said Mike Larson, a real estate analyst with Weiss Research in Jupiter, Fla. "Even though the economy is crummy, some investors are willing to nibble when the price is right."
Other resilient markets were feeling the impact of the economic downturn. Year-over-year declines have been accelerating in Minneapolis, Boston, Chicago, Seattle, Atlanta, Washington, Detroit, San Francisco, and Charlotte, N.C.
Charlotte Market Stumbles on Banking Woes
In Atlanta, for example, the year-over-year declines increased steadily each month, from 2.12% in November 2007 to 11.25% in November 2008, according to the 20-city index. In Charlotte, the banking capital of the South, home prices fell 5.33% in November 2008. By comparison, prices jumped 2.9% in November 2007.
The Charlotte housing market was relatively stable until the summer because the area had benefited from a population boom and a strong job market. But buyers grew cautious as problems worsened in the financial sector. Charlotte-based Bank of America plans to eliminate up to 42,500 jobs worldwide as a result of mergers with Countrywide Financial and Merrill Lynch. And Wells Fargo also is expected to cut local jobs as a result of its acquisition of Charlotte-based Wachovia.
"People don't know how many layoffs there will be in Charlotte," said Professor Steven Ott, director of the Center for Real Estate, University of North Carolina at Charlotte. "There's a lot of uncertainty."
Charlotte appraiser Steven Stone said Charlotte's problems have worsened since November. Home sales were off 40% in December compared to the previous December. And prices are now down 15% to 20% for homes above $600,000 and down up to 20% for starter homes, he said.
The financial crisis is the "main reason Charlotte took the last punch compared with other markets," Stone said.
Gopal writes about real estate for BusinessWeek in New York.
Jason Donn
Saturday, January 31, 2009
Thursday, January 8, 2009
Radical cheap: $1,000 homes
The real estate market is so awful that buyers are now scooping up homes for as little as $1,000.
There are 18 listings in Flint, Mich., for under $3,000, according to Realtor.com. There are 22 in Indianapolis, 46 in Cleveland and a whopping 709 in Detroit. All of these communities have been hit hard by foreclosures, and most of these homes are being sold by the lenders that repossessed them.
"Foreclosures have turned banks into property management companies," said Heather Fernandez, a spokeswoman for Trulia.com, the real estate Web site. "And it's often cheaper for them to give these homes away rather than try to get market value for them."
In Detroit for instance, Century 21 Villa owner Randy Eissa has a three-bedroom, one-bath bungalow of about 1,000 square feet listed at just $500. It's a nice place with lots of light, but it needs a total rehabilitation inside, which Eissa estimates will cost between $15,000 and $20,000. But that's not bad, considering that the home last sold for $72,000 in late 2007, according to Zillow.com.
With prices this low, lenders aren't looking to make any money on these deals. They just want to get these houses off their books, so they don't have to bear the cost of maintaining them and paying property taxes.
In fact, the $500, $1,000 or $3,000 that a buyer forks over often goes straight to the real estate brokers as a commission. And often the lenders have to kick in extra cash to make it worthwhile for a realtor even take the listings, according to Eissa.
"Usually these homes are bank repossessions that the lenders have already tried to sell on the market, perhaps then put up for auction without success and then re-listed," he said.
Fixer uppers
These houses are almost always small fixer-uppers. Wiring, plumbing and heating systems have to be replaced, walls and ceilings sheet-rocked, plumbing and light fixtures installed and new kitchen cabinets and counters put in. Few come with working appliances.
Often buyers are legally required to rehab these homes to bring them up to code. In Detroit, buyers are required to sign Affidavits of Compliance Responsibility, which obligates them to make repairs outlined in an inspection report. Only after that can a certificate of occupancy will be issued, which makes the house legal to live in.
But even factoring in these costs, they're still bargains.
And as the housing crisis drags on, there are more and more four-figure listings popping up, as lenders try to unload their repossessed properties.
Cleveland is another city with many incredibly inexpensive homes. On Ardenall Avenue, in East Cleveland, McMullen Realty has a listing for a four-bedroom, one-and-a-half bath house for $1,900. It's been vandalized inside, but the outside is in good shape.
It features a deep front porch with Doric columns, double dormer windows and a separate garage. It's an excellent opportunity, according to agent Tonya Stoudamire. The last time it sold was in March of 2008 when it went for $16,677, according to Zillow.
"East Cleveland has a beautiful housing stock," she said. "These houses just need someone to come in and love them a little."
Another property for sale in Birmingham Ala. is priced at $1,900. The one-bedroom, one bathroom home was built in 1923 and has major fire damage, according to its listing broker, Tom Murphy Realty. The listing states that "Rooms are hard to distinguish."
But it's on a nice-sized lot, about 0.38 acre, close to downtown and transportation and has all utilities. Nearby, comparable homes in good condition sell for about $100,000, according to Zillow.
Rehab money
Most of these $1,000 homes can be renovated relatively inexpensively, and buyers can actually get government help to finance these repairs. The U.S. Department of Housing and Urban Development (HUD) has a special loan program for just such purchases.
Its rehabilitation mortgage insurance, available through FHA-approved lenders, was designed to encourage banks to issue a single, long-term loan to buyers that covers both the acquisition and rehabilitation of a property, according to HUD spokesman Brian Sullivan.
He adds that there may also be grant money available from the $4 billion Neighborhood Stabilization Program, which was a part of the massive housing rescue bill passed by Congress in July, to assist buyers with grants for down payments.
Buying homes like these is certainly a leap of faith; they're generally not in the best of neighborhoods and they're often surrounded by many other vacant and deteriorating homes. Still, some of these neighborhoods may turn around and provide residents with good, dirt-cheap housing.
"It's a sad time," said Stoudamire. "But it's also a time of opportunity, especially for low and moderate income people."
Contact Jason Donn
There are 18 listings in Flint, Mich., for under $3,000, according to Realtor.com. There are 22 in Indianapolis, 46 in Cleveland and a whopping 709 in Detroit. All of these communities have been hit hard by foreclosures, and most of these homes are being sold by the lenders that repossessed them.
"Foreclosures have turned banks into property management companies," said Heather Fernandez, a spokeswoman for Trulia.com, the real estate Web site. "And it's often cheaper for them to give these homes away rather than try to get market value for them."
In Detroit for instance, Century 21 Villa owner Randy Eissa has a three-bedroom, one-bath bungalow of about 1,000 square feet listed at just $500. It's a nice place with lots of light, but it needs a total rehabilitation inside, which Eissa estimates will cost between $15,000 and $20,000. But that's not bad, considering that the home last sold for $72,000 in late 2007, according to Zillow.com.
With prices this low, lenders aren't looking to make any money on these deals. They just want to get these houses off their books, so they don't have to bear the cost of maintaining them and paying property taxes.
In fact, the $500, $1,000 or $3,000 that a buyer forks over often goes straight to the real estate brokers as a commission. And often the lenders have to kick in extra cash to make it worthwhile for a realtor even take the listings, according to Eissa.
"Usually these homes are bank repossessions that the lenders have already tried to sell on the market, perhaps then put up for auction without success and then re-listed," he said.
Fixer uppers
These houses are almost always small fixer-uppers. Wiring, plumbing and heating systems have to be replaced, walls and ceilings sheet-rocked, plumbing and light fixtures installed and new kitchen cabinets and counters put in. Few come with working appliances.
Often buyers are legally required to rehab these homes to bring them up to code. In Detroit, buyers are required to sign Affidavits of Compliance Responsibility, which obligates them to make repairs outlined in an inspection report. Only after that can a certificate of occupancy will be issued, which makes the house legal to live in.
But even factoring in these costs, they're still bargains.
And as the housing crisis drags on, there are more and more four-figure listings popping up, as lenders try to unload their repossessed properties.
Cleveland is another city with many incredibly inexpensive homes. On Ardenall Avenue, in East Cleveland, McMullen Realty has a listing for a four-bedroom, one-and-a-half bath house for $1,900. It's been vandalized inside, but the outside is in good shape.
It features a deep front porch with Doric columns, double dormer windows and a separate garage. It's an excellent opportunity, according to agent Tonya Stoudamire. The last time it sold was in March of 2008 when it went for $16,677, according to Zillow.
"East Cleveland has a beautiful housing stock," she said. "These houses just need someone to come in and love them a little."
Another property for sale in Birmingham Ala. is priced at $1,900. The one-bedroom, one bathroom home was built in 1923 and has major fire damage, according to its listing broker, Tom Murphy Realty. The listing states that "Rooms are hard to distinguish."
But it's on a nice-sized lot, about 0.38 acre, close to downtown and transportation and has all utilities. Nearby, comparable homes in good condition sell for about $100,000, according to Zillow.
Rehab money
Most of these $1,000 homes can be renovated relatively inexpensively, and buyers can actually get government help to finance these repairs. The U.S. Department of Housing and Urban Development (HUD) has a special loan program for just such purchases.
Its rehabilitation mortgage insurance, available through FHA-approved lenders, was designed to encourage banks to issue a single, long-term loan to buyers that covers both the acquisition and rehabilitation of a property, according to HUD spokesman Brian Sullivan.
He adds that there may also be grant money available from the $4 billion Neighborhood Stabilization Program, which was a part of the massive housing rescue bill passed by Congress in July, to assist buyers with grants for down payments.
Buying homes like these is certainly a leap of faith; they're generally not in the best of neighborhoods and they're often surrounded by many other vacant and deteriorating homes. Still, some of these neighborhoods may turn around and provide residents with good, dirt-cheap housing.
"It's a sad time," said Stoudamire. "But it's also a time of opportunity, especially for low and moderate income people."
Contact Jason Donn
Subscribe to:
Posts (Atom)
