Monday, June 02, 2008

You Don't Have to Be Rich to Own a Home on the Beach

Rob Rose worked with the Wall Street Journal’s Brett Arends as he took a tour through Florida's best luxury real estate deals last month. Here is an article the Brett wrote about his observations of the market in southeast Florida

Miami Beach, Fla. --Yes, this state is on sale. But how cheaply can you get a weekend home? After all, not everybody is in the market for a multimillion-dollar residence, or is ready to spend $1,000 a month on condo fees. So what kind of deals are out there now for the rest of us? The answer is that for less than $200,000 you can now get something pretty reasonable, on or near the water.

Whether you count that as value may depend on a lot of things. But these are prices not seen down here since well before the bubble.

For example, $150,000 might now get you a three-bedroom house in a distressed sale in Cape Coral, a town on the Gulf coast just north of Naples. "I've got one in a short (read distressed) sale," says local agent Joan Psarros at Re/Max. "It's 2,000 square feet, on a fresh water canal, and it has a pool. It's only a few years old – it was built in 2005."

The owner, a speculator from Connecticut, paid $275,000 for it in the boom.

Some of the best bargains are to be found in the southeastern crescent, from Miami to West Palm Beach. That's where the torrent of new homes flooding onto the market has washed all prices downstream.

In West Palm Beach, if you look hard, you can find new, upscale one-bedroom condos for less than $200,000 if you look hard. A few years ago, when they were being built, the same units were selling for nearly twice that.

You have to do serious detective work to find the best deals. Look beyond the sticker prices. There is a lot of inventory around. There's often a desperate seller.

I looked at one unit that was on the market for $225,000 – while a few floors below an almost identical apartment was being offered in a distressed sale for $175,000.

In Fort Lauderdale, the cheapest bargains are in some of the older co-ops a few blocks from the beach. I looked at some one- or two-bedroom units for around $150,000. A few years ago, they would have cost around $250,000 or more.

No, they aren't fancy. The architecture is what brokers, with some humor, call "mid-century modern." That means they were new in 1950.

But the buildings are perfectly sound, your fees may be only $200 a month, and you'll find yourself with a pool and a five-minute walk to the beach.

If you want to go 20 minutes west, $200,000 or less will buy you a brand new two-bedroom unit in a development with gyms, spas, pools and tennis courts. When they were being built, they were being sold for twice that.

But probably the cheapest deals I saw were in the historic Art Deco district of Miami Beach itself. Here you can get small one-bedroom units for well under $200,000. Some are selling for much less than that.

South Beach broker Leslie Cooper of Douglas Elliman Florida showed me a tiny one-bedroom of about 450 square feet that is being sold in a distressed sale for $139,000. You might get it for less. The owner, an artist, bought it a few years ago for $175,000 and has also fixed it up beautifully. You even get a designer bathroom, if such things matter to you.

I also looked at one-bedroom units nearby that had been completely renovated and are now being offered for about $170,000.

Lots of these places are on the market in the Art Deco area. They're a short walk from the Lincoln Road shops and restaurants and a short walk to the beach. What else are you looking for? You'll even have the New World Symphony around the corner.

At the height of the boom these prices were a lot higher. "A few years ago many of these types of units were selling for $230,000, some as high as $270,000," says Ms Cooper, the real estate broker.

By the standards of the Northeast, let alone Europe, these prices seem cheap. To those elsewhere in the country, they may not. But they are certainly a lot cheaper than they were.

Friday, May 23, 2008

Rob Rose Interviewed by Wall Street Journal on S. Florida Real Estate

Brett Arends is in south Florida for a week writing a series of articles on the real estate market. Rob spent two days with Brett as he visited Miami, Fort Lauderdale, Delray and Palm Beach. Here is his first article on the market in SW Florida.

Florida for Sale!
May 22, 2008 7:18 p.m.

NAPLES, Fla.-- You can hardly escape the real estate crash down here. Even the young woman who checked me into my hotel just lost her home.

So if you are looking to buy a place, someone is going to make you a deal.

The surprising twist: It isn't just at the bottom end of the market. As my colleague June Fletcher noted in March1, there have been huge price drops in areas where foreclosures are at record highs. But you also see deep discounting in the snazzier parts of town. For three years, Americans have been using Web sites like Zillow to rubberneck the biggest real estate crash since the Great Depression and, maybe, to scout for values. But there's only so much the Web, or the statistics, can tell you. So I decided to come down here to see it up close. I'll be writing a series of columns over the next few days to tell you what I've learned.

WSJ's Brett Arends shows some high-end homes in Florida that are selling at cut-rate prices.

And who knows? I'm not really in the market for a winter home here. But you never know...

What I'm finding so far?

The market's even worse than you hear. Which means, if you're a buyer, it's even better.

The biggest price drops haven't fully shown up in the official data because that stuff isn't selling at all.

Some condo developments out in alligator swampland -- excuse me, on 'pre development golf courses' -- have gone dark.

Meanwhile, hard though it is to believe, plenty of others in the market are still in denial.

Brokers will tell you about homes still being offered vainly at $899,000 long after identical units in the same building have sold for $500,000.

This extends to some brokers too. When I called around before flying down, a remarkable number told me, "Gosh, I'm just the busiest I've ever been! The market's really picking up."

I guess they were gambling I hadn't read a newspaper in, oh, about three years.

But the good news is that there are deals around in the kinds of places you might actually want to buy.

Realtor Craig Jones of John R. Wood in Naples showed me a two-bedroom, sixth-floor co-op near the beach that probably would fetched more than $600,000 at the peak. Today it's on the market for $498,000. And Ms Jones whispers you can probably get it for $425,000.

That' a big price cut. The apartment has spectacular Gulf views and is a five-minute walk to the beach.

According to official data, this unit sold for $480,000 back in July 2002. So in some cases we are back to those prices, maybe even earlier. That's pretty much pre-bubble.

Zillow, for its part, says this co-op was last worth about $425,000 in 2000 --2001.

Incidentally, Zillow now thinks this property is worth $740,0002. And the Web site says the value has risen by $200,000 in the past year.

So much for relying on the Web. What's actually happening in these markets isn't always showing up right away.

Meanwhile, a one-bedroom condo near the beach just sold for $237,000. At the end of 2004 the owners bought it for $370,000.

It's the same elsewhere along the west coast. On Siesta Key, near Sarasota, a corner condo right on the water is on the market for $500,000, and you could probably get it for $450,000. Realtor Raul Elizalde, at Michael Saunders and Associates, says that at the peak it sold for more than $700,000.

There are other deals on the island. It looks more interesting than snooty neighbor Longboat Key, where the lawns have been trimmed with toenail scissors, and former Florida Congresswoman Katherine Harris has a home.

Along the coast there are gorgeous, brand new homes on the water down from $3.1 million to $2.1 million; and the broker whispers you can get them for $1.8 million.

Bill Earls in Naples is showing a waterfront mansion with a boat dock for $9.9 million that "would have sold for $12 million, maybe $ 14 million, a few years ago." Sure, he's a broker; he would say that. But it's not implausible.

I was tempted to buy it and put it on my expense account. But the place was a little ornate for my taste.

Mr Earls largely deals with the high end and the very high end of the market. But he says the rich are as reluctant to buy as anyone.

Write to Brett Arends at brett.arends@wsj.com3

Barbara Corcoran Sites Fort Lauderdale Among 6 Scariest Markets

Barbara Corcoran was on the Today Show last week and sited Fort Lauderdale as one of the top 6 scariest markets.Here is what she says:

Fort Lauderdale, Fla.

One in 73 homes is in foreclosure in Fort Lauderdale, about twice as many as this time last year. The median home price is $345,900, down 5.7 percent from last year. Unemployment is slightly below the national average at 4.3 percent.

There are some factors here that are keeping prospective buyers on the fence. One reason is that there's too much candy on the shelf. Between standard listings, foreclosures and short sales, there is entirely too much product from which to choose. Media reports predicting that real estate hasn’t neared bottom yet encourage buyers to try to time the market. Sellers reluctant to come down to reality are still holding on to peak market prices. But brokers say buyer confidence here is improving and that they’re seeing increased activity over the past six months as people realize they have a terrific opportunity to get a great value in a home in the current market.

Friday, May 09, 2008

Has the Market Bottomed Out?

Here is an article from the Wall Street Journal that is good news for the housing market. I am finding that I am super busy with buyers who suspect it is time to buy.

The Housing Crisis Is Over

May 6, 2008; Page A23

The dire headlines coming fast and furious in the financial and popular press suggest that the housing crisis is intensifying. Yet it is very likely that April 2008 will mark the bottom of the U.S. housing market. Yes, the housing market is bottoming right now.

How can this be? For starters, a bottom does not mean that prices are about to return to the heady days of 2005. That probably won't happen for another 15 years. It just means that the trend is no longer getting worse, which is the critical factor.

Most people forget that the current housing bust is nearly three years old. Home sales peaked in July 2005. New home sales are down a staggering 63% from peak levels of 1.4 million. Housing starts have fallen more than 50% and, adjusted for population growth, are back to the trough levels of 1982.

Furthermore, residential construction is close to 15-year lows at 3.8% of GDP; by the fourth quarter of this year, it will probably hit the lowest level ever. So what's going to stop the housing decline? Very simply, the same thing that caused the bust: affordability.

The boom made housing unaffordable for many American families, especially first-time home buyers. During the 1990s and early 2000s, it took 19% of average monthly income to service a conforming mortgage on the average home purchased. By 2005 and 2006, it was absorbing 25% of monthly income. For first time buyers, it went from 29% of income to 37%. That just proved to be too much.

Prices got so high that people who intended to actually live in the houses they purchased (as opposed to speculators) stopped buying. This caused the bubble to burst.

Since then, house prices have fallen 10%-15%, while incomes have kept growing (albeit more slowly recently) and mortgage rates have come down 70 basis points from their highs. As a result, it now takes 19% of monthly income for the average home buyer, and 31% of monthly income for the first-time home buyer, to purchase a house. In other words, homes on average are back to being as affordable as during the best of times in the 1990s. Numerous households that had been priced out of the market can now afford to get in.

The next question is: Even if home sales pick up, how can home prices stop falling with so many houses vacant and unsold? The flip but true answer: because they always do.

In the past five major housing market corrections (and there were some big ones, such as in the early 1980s when home sales also fell by 50%-60% and prices fell 12%-15% in real terms), every time home sales bottomed, the pace of house-price declines halved within one or two months.

The explanation is that by the time home sales stop declining, inventories of unsold homes have usually already started falling in absolute terms and begin to peak out in "months of supply" terms. That's the case right now: New home inventories peaked at 598,000 homes in July 2006, and stand at 482,000 homes as of the end of March. This inventory is equivalent to 11 months of supply, a 25-year high – but it is similar to 1974, 1982 and 1991 levels, which saw a subsequent slowing in home-price declines within the next six months.

Inventories are declining because construction activity has been falling for such a long time that home completions are now just about undershooting new home sales. In a few months, completions of new homes for sale could be undershooting new home sales by 50,000-100,000 annually.

Inventories will drop even faster to 400,000 – or seven months of supply – by the end of 2008. This shift in inventories will have a significant impact on prices, although house prices won't stop falling entirely until inventories reach five months of supply sometime in 2009. A five-month supply has historically signaled tightness in the housing market.

Many pundits claim that house prices need to fall another 30% to bring them back in line with where they've been historically. This is usually based on an analysis of house prices adjusted for inflation: Real house prices are 30% above their 40-year, inflation-adjusted average, so they must fall 30%. This simplistic analysis is appealing on the surface, but is flawed for a variety of reasons.

Most importantly, it neglects the fact that a great majority of Americans buy their houses with mortgages. And if one buys a house with a mortgage, the most important factor in deciding what to pay for the house is how much of one's income is required to be able to make the mortgage payments on the house. Today the rate on a 30-year, fixed-rate mortgage is 5.7%. Back in 1981, the rate hit 18.5%. Comparing today's house prices to the 1970s or 1980s, when mortgage rates were stratospheric, is misguided and misleading.

This is all good news for the broader economy. The housing bust has been subtracting a full percentage point from GDP for almost two years now, which is very large for a sector that represents less than 5% of economic activity.

When the rate of house-price declines halves, there will be a wholesale shift in markets' perceptions. All of a sudden, the expected value of the collateral (i.e. houses) for much of the lending that went on for the past decade will change. Right now, when valuing the collateral, market participants including banks are extrapolating the current pace of house price declines for another two to three years; this has a significant impact on the amount of delinquencies, foreclosures and credit losses that lenders are expected to face.

More home sales and smaller price declines means fewer homeowners will be underwater on their mortgages. They will thus have less incentive to walk away and opt for foreclosure.

A milder house-price decline scenario could lead to increases in the market value of a lot of the securitized mortgages that have been responsible for $300 billion of write-downs in the past year. Even if write-backs do not occur, stabilizing collateral values will have a huge impact on the markets' perception of risk related to housing, the financial system, and the economy.

We are of course experiencing a serious housing bust, with serious economic consequences that are still unfolding. The odds are that the reverberations will lead to subtrend growth for a couple of years. Nonetheless, housing led us into this credit crisis and this recession. It is likely to lead us out. And that process is underway, right now.

Mr. Moulle-Berteaux is managing partner of Traxis Partners LP, a hedge fund firm based in New York.

Tuesday, May 06, 2008

How the Market has Changed

I’ve received lots of feedback on the lead story in my last newsletter in which I lamented the current state of the real estate business in south Florida. Although it felt great for me to vent about my frustrations, I realized the article was not especially helpful to the very people I have dedicated my business to serving: prospective buyers. The fact is, many people from around the country view this as an unprecedented occasion to buy into what remains one of the nation’s most desirable communities. And I’d like to help them. Beginning with this newsletter, I am going to offer some insight about the current environment and some practical suggestions for buyers who are serious about getting the most from their real estate investment – and their broker – during tough times.

Many of the people seeking to buy real estate in and around Ft. Lauderdale today have had prior exposure to the market. Maybe they invested in property and sold it shortly after purchase for a significant profit. Or they came close to buying but decided to wait until prices came down. Or maybe they have spent time here over the years and decided they would like to buy a second home or a place for retirement when the time is right. In order to get the best deal -- and the best service -- in this environment, it is important for buyers to understand the ways in which the market is the same as they have experienced in the past and the ways in which it is has changed.


Diverse Properties

Ft. Lauderdale offers a wide range of Florida traditional and contemporary homes, condos and apartments at prices to suit every buyer.

More Inventory

Real estate development has outpaced recent growth and significantly more people are selling than average, so there are many more properties available.

Motivated Sellers

Divorce, relocation, and settling estates are among the life changes that motivate some sellers to try to sell their properties quickly and price them accordingly.

Different Motivations

Today, some of these sellers are more likely to be motivated by financial hardship and are reluctantly selling real estate to help regain solid financial footing.

Pricing Factors

To fairly price real estate today, sellers and their agents still take into account time-tested factors, including quality and condition of the property, location, and recent comparable sales.

Off-Market Deals

In addition to properties openly listed for sale at market-tested prices, there are now other opportunities that are not widely promoted including foreclosures and short sales.

Financing Options

Qualified buyers will find responsible and responsive lenders willing to offer a range of financing options.

Focus on Highly Qualified Buyers

Reputable lenders are now more risk averse and will only consider prospective buyers with excellent credit history.

Complex Transaction

The process of buying real estate is time-consuming and complex and requires buyers and sellers to have professional counsel and to maintain focus.

Emotional Transaction

Real estate transactions today are often highly emotional, with all parties feeling somewhat compromised by the process or the ultimate deal.

Solid Long-Term Investment

Ft. Lauderdale real estate has shown solid growth over the long term and remains a good investment today.

Short Term Risk

Buyers who purchase now will need to wait longer for properties to appreciate and they may face some risk of short term decline.

By understanding the changes in the market, buyers are in a better position to go into the process of buying real estate in south Florida with realistic expectations. From my perspective, the more my clients know about the market dynamics we’re going to be dealing with as a team, the easier it is for me to help them navigate the new environment and find just the property they’re seeking.

Thursday, April 10, 2008

Sugar Makes a Real Estate Transaction Go Down.

In the 26 years I have been in real estate I have not seen a more aggravated and aggravating time for buyers, sellers and Realtors. These are stressful times. Realtors are being run ragged by a backlog of buyers spending lots of time with few actually buying. Listing agents have never worked harder and with less gratitude, as their best efforts fail to produce a buyer. Sellers are at the end of their ropes with properties languishing on the market after multiple price reductions, only to get unrealistically low offers. Buyers are hesitant, wondering if the market has bottomed out, and are making low ball offers wasting everyone’s time. I understand all of this. Sellers are carrying a huge financial burden, and buyers seem to think it will help their cause to kick them, and the Realtors, while we all are down. Disloyalty, lack of professionalism and plain old fashioned bad manners are showing there ugly faces like never before.

Maybe I have just been in real estate too long. Maybe I just have an old fashioned sense of how to behave toward others. Yes, I really do believe that manners- treating others as you would like to be treated, and about making others feel comfortable, is important. I believe in the power of ethical and polite behavior.

Many marginal Realtors have gotten out of the business leaving the seasoned professionals to suffer the amateurs. Veterans remember well the days when our professional relationships meant something. The pros know that we will deal with each other time and time again, and that has always nurtured camaraderie. For the most part real estate was a gentle business. It was a small community of Realtors that embraced ethics and the power of cooperation through the MLS. While there were still untrustworthy agents, we all knew who they were, and still do.

Today there are a huge number of new Realtors in the business who lack the basic fundamentals of business behavior. Market knowledge, professionalism, respect for your peers, empathy, ethical behavior and adherence to the Realtor Code of Ethics are keys, if not to success, then certainly to a respectable career that doesn’t abuse the rest of us.

The nature of the business has changed so that the traditional mentoring relationship that a broker had with a new agent doesn’t exist. How can we expect professionalism when franchise offices recruit new agents like mad in pursuit of a desk fee? I am amazed by the number of Realtors who lack respect for the value of other Realtor’s time. Please, let’s not ruin it for everyone. At the very least can you speak clearly on the phone, make appointments in advance during the business day, get familiar with a map, qualify your buyers and be on time? Is that too much to ask?

Then we have the buyers. I am fortunate that most of my clients are people who have and appreciate good manners. Even people who don’t know me get a sense of what I am about through my website before we even meet. People who want to be treated well generally see that I am the one to do it. What a pleasure it can be working with that understanding. If you are on of those buyers, for the entire brokerage community I want to say thank you!

Then, of course, there is the underbelly of the buying public.

You know who you are. You are the Big Time Waster. You are the people who ask for information but refuse to give any, even your name. The people who think that Realtors provide a public service and that we are here at no cost or obligation to them. You are the people who take advice, information, council and market knowledge, but will throw us under the bus for the slightest misstep, or because you think you may save a buck doing so. You are the people who can’t seem to fathom that you are not our only client, and that your needs may not be addressed immediately during a phone call from at any time, day or night. You are the people who reward your new realtor friend the sale for our hard work.You are the people who act angry and demanding and disrespectful toward anyone at any time, because you can. You are the people who look at house after house after house, and offer no clue as to whether your agent is getting warm to your needs, like a poker player, holding any feedback close to your chest. You are the people who think we are all out to trick and deceive. You are the people who, when the reality of a property doesn’t meet your expectation, blame us for misleading you. You are bargain hunting opportunist who forsakes all in the pursuit of the deal, ignoring the fact that the list price is already well under market, and making an offer sure to be turned down. You, in other words, are the Big Time Waster.

I believe that there are two ways to go from being a real estate shopper to a real estate owner. You can use and abuse every agent that will tolerate you, insult the seller, and beat up everyone in sight, often ending up with nothing but aggravation. You can be the Big Time Waster. Alternatively you can treat yourself with some respect and share that respect with others involved in your real estate pursuit. You can be loyal to a professional, knowledgeable agent who you choose carefully and respectful of their time and knowledge. You can be clear on your objectives and realistic about expectations. Understand you are not the only person demanding of your agent’s time. Use it wisely. Say thank you. Please, please! Do not find a reason to cheat the Realtor out of the commission. We really do this for the money. Yes, you have the power to throw your agent under a bus by not giving them the carrot. It’s easy to find some way to blame your agent for you doing that, but don’t. If your agent doesn’t buy you lunch, respond as quickly as you would like, read your mind or take your call right away at any time, that’s no reason to cheat them out of a hard earned fee. Yes, there are bargains to be had in foreclosures and short sales in this market, and a good agent will help you find them. Trust me; a professional agent will jump through hoops for you as a buyer to find you the best property at the best price if you follow some simple rules.

If you are in the market to buy and sell real estate, and you are interested in a mutually beneficial relationship with a professional Realtor and a gentleman, I’d like to hear from you.