By Peter Zalewski/Market Intelligence Report
As the Miami real estate market shows signs of stabilizing in certain submarkets, the situation could not be more different in the two other U.S. condo markets that experienced a similar volume of vertical construction during the boom: Las Vegas and San Diego.
This is the assessment of Condo Vultures® founder Peter Zalewski after spending 10 days in Las Vegas and San Diego visiting more than 30 new condo projects that have failed to sell out. Zalewski visited the projects unsolicited and unannounced to gather market intelligence on pricing, product quality, and local professional insight.
"We see a lot of similarities in the Las Vegas condo market today that reminds us of market conditions in Miami in autumn 2008," said Zalewski, who is a principal with the Bal Harbour, Fla.-based real estate consultancy Condo Vultures® LLC. "Our impression of San Diego - where some of the new towers are just now opening - reminds us a lot of Miami in late 2007. Overall, we think the price declines that have already been realized in Miami will be experienced in the near future in Las Vegas and San Diego."
Consider that many Miami developers in summer 2008 were seeking $300 per square on a bulk basis and $400 per square foot on a retail basis for unsold units in any one of the numerous new condo towers that were standing empty at the time.
Compare that to now where bulk asking prices are currently about $300 per square foot in Las Vegas and $400 in San Diego. Retail prices are generally about $100 per square foot more than the bulk asking prices. Replacement costs in Miami, Las Vegas, and San Diego are about the same $250 per square foot but land costs vary dramatically, Zalewski said.
In retrospect, December 2008 was a turning point in Miami's condo market. This is the time when the first arm's length bulk deal closed at $200 per square foot, forcing the entire South Florida market - bulk buyers, individual purchasers, developers, and lenders - to take notice and begin adjusting prices.
Added to the pricing change was a series of bank failures, a foreclosure action against a new condo tower, an unwillingness by buyers with preconstruction contracts to close on units, and a virtual freeze on condo financing.
Within the course of the next six months after the first bulk deal closed, a new retail price range for unsold condos in Greater Downtown Miami emerged at between $200 and $250 per square foot depending upon view, quality, and size. Another trend to emerge, all-cash buyers suddenly became the only inquiries that were taken seriously by sellers given the difficulty in obtaining financing.
"Today, as soon as a new condo tower in Greater Downtown Miami reduces its price to $200 per square foot, the project is swarmed by investors and first-time home buyers looking to purchase a unit," Zalewski said. "Inevitably, the Greater Downtown Miami condo tower sells off a majority of its units in a period of eight weeks or less. The remaining product - typically the least desirable of the lot - is then bundled up by the developer and sold off to a private equity buyer at an even lower price."
Some bulk buyers, facing competition from individual buyers who are depleting the inventory by purchasing one or two units each, have begun paying prices that are closer to the retail asking prices out of concern about the shrinking inventory.
On a bulk basis, there have been 14 bulk deals to close in South Florida since July 2008, and nine transactions since June 2009. At least three additional bulk deals are scheduled to close or already completed but not recorded in government records.
Bulk buyers have acquired a total of 806 units with 946,000 square feet for nearly $199 million, or $210 per square foot. A dozen of the 14 closed bulk deals have occurred in Miami-Dade County, according to the Condo Vultures® Bulk Deals Database.
The failure of Corus Bank, a Chicago lender with 2,300 unsold units in South Florida, is expected to further impact the market. The Federal Deposit Insurance Corp, which insures deposits at U.S. banks up to $250,000 per account, collected bids this week from institutional investors for the Corus Bank portfolio, which is comprised of condo construction loans on new towers located in South Florida, Las Vegas, San Diego, and other places.
The winning bidder, whichever one is ultimately selected, is expected to immediately resell a portion of the units acquired from the FDIC at a deep discount
.
Even without a government induced discount, buyers are purchasing real estate product including even land. A Boca Raton company paid $39 million, or $130 per square foot, on Sept. 21 for nearly 300,000 square feet of vacant land situated on nine parcels in Downtown Miami, according to a new CondoVultures.com report.
The seller paid a combined $32.3 million, or $108 per square foot, for the land, which was acquired between August 1999 and March 2006, according to Miami-Dade County records.
"South Florida has provided many of the opportunistic buyers a laboratory of sorts to figure out how to buy distressed product whether it be on an individual or bulk basis," Zalewski said. "We are encouraged that the skills and experience we have accumulated in South Florida will serve us well when widespread capitulation occurs in the other overbuilt condo markets."
Friday, September 25, 2009
Monday, September 14, 2009
Washington Report: On Modifications and Short Sales
Kenneth R. Harney for Realty Times:
Congress got back to work last week after its summer break, and immediately took up two key real estate questions: Are the Obama administration's efforts to keep financially distressed families out of foreclosure working?
And are major lenders doing their part, helping modify loans and restructure homeowners' debts, or are they dragging their feet?
At a House Financial Services Committee hearing, chairman Barney Frank, a Massachusetts Democrat, didn't hold back: Not only are the administration's results “disappointing,” he said, but major lenders are performing so poorly that Frank plans to push legislation allowing bankruptcy court judges to slash consumers' mortgage debts and payments - the so-called “cram down” approach that lenders hotly oppose.
On the other hand, Obama administration representatives at the hearing said lenders and servicers are picking up the pace of loan modifications, and that a new program to facilitate short sales will be rolled out shortly.
FHA Commissioner David Stevens said that since the start of the White House's “home affordable” efforts, lenders and servicers have offered 571,000 loan modifications to delinquent home owners, and that 360,000 borrowers are now in three-month trial modifications involving sharply lowered payments.
If those owners successfully complete their trials by paying on time, their loans will be permanently modified at the reduced payment levels.
Stevens predicted that the administration's goal of having more than half a million modifications completed or underway by November 1st will be achieved.
He also said the government is starting a “second look” program, whereby auditors double-check cases where modifications were turned down by loan servicers in error. The program will reopen borderline cases and possibly lead to additional modifications.
Stevens didn't provide much detail about the upcoming short-sale and deed-in-lieu effort, but did use the word “incentives.” That was interpreted by industry analysts as suggesting the government could provide financial incentives to lenders - especially those holding second liens on properties - to encourage them to speed short sales rather than stalling them.
Second lien holders often demand significant payoffs as the price of agreeing to short sales, even when the property is deeply underwater and the value of their collateral has been totally wiped out.
The Obama administration's plan almost certainly will offer payments or set minimum compensation levels for such lenders. Details of the program are expected within a week or two, and could be good news for realty brokers seeking to list and close short sales, and for borrowers who urgently need to bail out of houses that have lost much of their value.
Published: September 14, 2009
Congress got back to work last week after its summer break, and immediately took up two key real estate questions: Are the Obama administration's efforts to keep financially distressed families out of foreclosure working?
And are major lenders doing their part, helping modify loans and restructure homeowners' debts, or are they dragging their feet?
At a House Financial Services Committee hearing, chairman Barney Frank, a Massachusetts Democrat, didn't hold back: Not only are the administration's results “disappointing,” he said, but major lenders are performing so poorly that Frank plans to push legislation allowing bankruptcy court judges to slash consumers' mortgage debts and payments - the so-called “cram down” approach that lenders hotly oppose.
On the other hand, Obama administration representatives at the hearing said lenders and servicers are picking up the pace of loan modifications, and that a new program to facilitate short sales will be rolled out shortly.
FHA Commissioner David Stevens said that since the start of the White House's “home affordable” efforts, lenders and servicers have offered 571,000 loan modifications to delinquent home owners, and that 360,000 borrowers are now in three-month trial modifications involving sharply lowered payments.
If those owners successfully complete their trials by paying on time, their loans will be permanently modified at the reduced payment levels.
Stevens predicted that the administration's goal of having more than half a million modifications completed or underway by November 1st will be achieved.
He also said the government is starting a “second look” program, whereby auditors double-check cases where modifications were turned down by loan servicers in error. The program will reopen borderline cases and possibly lead to additional modifications.
Stevens didn't provide much detail about the upcoming short-sale and deed-in-lieu effort, but did use the word “incentives.” That was interpreted by industry analysts as suggesting the government could provide financial incentives to lenders - especially those holding second liens on properties - to encourage them to speed short sales rather than stalling them.
Second lien holders often demand significant payoffs as the price of agreeing to short sales, even when the property is deeply underwater and the value of their collateral has been totally wiped out.
The Obama administration's plan almost certainly will offer payments or set minimum compensation levels for such lenders. Details of the program are expected within a week or two, and could be good news for realty brokers seeking to list and close short sales, and for borrowers who urgently need to bail out of houses that have lost much of their value.
Published: September 14, 2009
Tuesday, September 1, 2009
New Loan Rules May Cause Escrow Delays
Under new rules adopted by the Federal Reserve Board, beginning July 30, 2009, mortgage lending will be subject to expanded disclosure requirements. This may well be a good thing. However, until everyone gets used to it, it also may cause occasional delays in closings. First, some background.
More than a few times home purchasers have been shocked at the time of closing to discover that they will have to pay more for their mortgage than they had anticipated. This doesn't necessarily meant that the interest rate on the loan is higher than expected. What is more likely is an increase in the costs associated with obtaining the loan. They may be charged an additional ½ point on the origination fee. Or perhaps a new fee has been added for an "underwriting review" or some such thing. When that happens, the APR (Annual Percentage Rate) changes, even though the interest rate on the loan (sometimes referred to as "the note rate" or "the nominal rate") may remain the same.
Most mortgage loans are subject to disclosure rules under the Truth in Lending Act (TILA). Hence, as most buyers have experienced, early on in the loan process the borrower receives a disclosure showing both the interest rate and the APR. The APR is the important number. It shows the actual cost of borrowing.
Suppose I offer to loan you $1,000 for one year at 10 per cent. At the end of one year, you will owe me $1,100. But now suppose that I modify that offer somewhat. I propose that you will pay me a 5 point "origination fee" ($50) and that I will also charge you a $50 processing fee. Still, at the end of the year, you will owe me $1,100 for the $1,000 dollar loan.
But, have I really loaned you $1,000 at 10%? If I took my charges up front -- out of the loan amount -- then I would really be only lending you $900, even though, at the end of the term, you would still owe me $1,100. Or, if you chose to pay me the $100 in origination and processing fees first, then you would wind up having paid me $200 for borrowing $1,000. Although the numbers will be slightly different in the two cases, you still will have paid substantially more than 10% of $1,000. This is what APR is all about. (Note two things: (1) There is no single universal method for calculating APR. (2) It really gets complicated when an amortized loan is involved.) APR shows you what you are really paying.
When the surprise costs are revealed at closing, probably the APR will have increased. But, what about the disclosures? Doesn't the lender have to comply? No. The disclosures are called a "good faith estimate." There have been no clear rules either for determining when the final figures departed too much from the good faith estimate or what might be the consequences of that happening.
All that is about to change. The Mortgage Disclosure Improvement Act (MDIA) of 2008 (and as amended in October 2008) has caused revisions to Regulation Z of the Truth in Lending Act. Among other things, MDIA makes some specific new requirements regarding loan disclosures. These rules apply to federally-related mortgages under RESPA. They apply both to purchases and refinances.
(1) A borrower must be provided with an initial Good Faith Estimate (GFE) within three business days of receiving a written loan application. No fees, except for a credit report, may be imposed until then .
(2) If the final APR at loan consummation varies more than 0.125% (1/8 of one per cent) from the initial APR on the early disclosure, then the lender must provide the borrower with a new disclosure at least three business days before closing. During that three day period the borrower has a right of rescission. (For these purposes a "business day" is all calendar days except Sunday and legal holidays.) The lender may not close the loan during this three-day period.
(3) The borrower may waive the three-day waiting period if there is some bona fide personal financial emergency, such as a foreclosure about to take place. This would have to be specified by the borrower in writing. It can't be done on a pre-printed form.
As noted, all of this is probably good; but, in many cases, it is going to cause some changes in practices. Until most lenders get in the habit of staying within 1/8 of one per cent APR on their good-faith estimates, we can all expect some closings to be delayed.
Published: September 1, 2009
Bob Hunt for Realty Times
More than a few times home purchasers have been shocked at the time of closing to discover that they will have to pay more for their mortgage than they had anticipated. This doesn't necessarily meant that the interest rate on the loan is higher than expected. What is more likely is an increase in the costs associated with obtaining the loan. They may be charged an additional ½ point on the origination fee. Or perhaps a new fee has been added for an "underwriting review" or some such thing. When that happens, the APR (Annual Percentage Rate) changes, even though the interest rate on the loan (sometimes referred to as "the note rate" or "the nominal rate") may remain the same.
Most mortgage loans are subject to disclosure rules under the Truth in Lending Act (TILA). Hence, as most buyers have experienced, early on in the loan process the borrower receives a disclosure showing both the interest rate and the APR. The APR is the important number. It shows the actual cost of borrowing.
Suppose I offer to loan you $1,000 for one year at 10 per cent. At the end of one year, you will owe me $1,100. But now suppose that I modify that offer somewhat. I propose that you will pay me a 5 point "origination fee" ($50) and that I will also charge you a $50 processing fee. Still, at the end of the year, you will owe me $1,100 for the $1,000 dollar loan.
But, have I really loaned you $1,000 at 10%? If I took my charges up front -- out of the loan amount -- then I would really be only lending you $900, even though, at the end of the term, you would still owe me $1,100. Or, if you chose to pay me the $100 in origination and processing fees first, then you would wind up having paid me $200 for borrowing $1,000. Although the numbers will be slightly different in the two cases, you still will have paid substantially more than 10% of $1,000. This is what APR is all about. (Note two things: (1) There is no single universal method for calculating APR. (2) It really gets complicated when an amortized loan is involved.) APR shows you what you are really paying.
When the surprise costs are revealed at closing, probably the APR will have increased. But, what about the disclosures? Doesn't the lender have to comply? No. The disclosures are called a "good faith estimate." There have been no clear rules either for determining when the final figures departed too much from the good faith estimate or what might be the consequences of that happening.
All that is about to change. The Mortgage Disclosure Improvement Act (MDIA) of 2008 (and as amended in October 2008) has caused revisions to Regulation Z of the Truth in Lending Act. Among other things, MDIA makes some specific new requirements regarding loan disclosures. These rules apply to federally-related mortgages under RESPA. They apply both to purchases and refinances.
(1) A borrower must be provided with an initial Good Faith Estimate (GFE) within three business days of receiving a written loan application. No fees, except for a credit report, may be imposed until then .
(2) If the final APR at loan consummation varies more than 0.125% (1/8 of one per cent) from the initial APR on the early disclosure, then the lender must provide the borrower with a new disclosure at least three business days before closing. During that three day period the borrower has a right of rescission. (For these purposes a "business day" is all calendar days except Sunday and legal holidays.) The lender may not close the loan during this three-day period.
(3) The borrower may waive the three-day waiting period if there is some bona fide personal financial emergency, such as a foreclosure about to take place. This would have to be specified by the borrower in writing. It can't be done on a pre-printed form.
As noted, all of this is probably good; but, in many cases, it is going to cause some changes in practices. Until most lenders get in the habit of staying within 1/8 of one per cent APR on their good-faith estimates, we can all expect some closings to be delayed.
Published: September 1, 2009
Bob Hunt for Realty Times
Subscribe to:
Posts (Atom)