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Two houses for sale on my block illustrate the importance of getting the price right at the start if you want to sell your home quickly. One house, a four bedroom Spanish-style one, came on the market at the end of May at $1.49 million (this is Los Angeles). The asking price has been lowered twice with no takers. It’s currently listed at $1.29 million.
The second home came on the market July 7 and sold immediately. The broker held just one open house but whispered to me that she already had an offer that would likely be accepted that day. The word on the street is that it sold for slightly above asking. The list price was $1.29 million, same as the new price on the house above.
The difference is that the second house--that's it up there--is 2,600 square feet, almost 50% larger than the first home. Yet they were asking for less money. The second home is in a Craftsman style, with a swimming pool and many Frank Lloyd Wright-inspired finishes. It needs work. The first house had just been remodeled, with all-new bathroom and kitchen fixtures. The second one still seemed like a better deal.
The seller of the second house—he wrote the screenplay for Pretty Woman by the way—could afford to accept less. He had bought the house for $560,000, probably with all those Pretty Woman profits, in 1990. The owner of the first home is a house flipper who paid $900,000 for it in March. I’m not sure how much he put in to fix it up, but clearly he has less price flexibility.
Anyone else have any home pricing stories like this?
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I wrote an item last week about the still-hot real estate market in Houston, particularly at the high end. For a more gossipy look at real estate in America’s fourth largest city check out swamplot.com. The site, run by “founder and chief promoter” Gus Allen, has been following the trials and tribulations of Royce Builders, a national homebuilder that seems to be in a bit of financial trouble lately.
Swamplot’s tipsters tell of wild parties, lavish spending by the founding Speer family, and even a barking toilet seat brought out at company sales meetings. Employees were apparently encouraged to rub the seat for good luck and chant Royce! No wonder the company appears to be in the toilet.
Allen has also got some funny items on the real estate dealings of Joel Osteen, the toothy TV preacher whose chief advice to aspiring home buyers appears to be 1) pray and 2) fork some of your income over to the church and the Lord will take it from there.
Here’s how Osteen described it in his book Your Best Life Now: 7 Steps To Living At Your Full Potential:
At the time, we were making double mortgage payments on the townhome, in an attempt to pay the principal down sooner. We decided to make the one required payment, and we’d sow the second part of that money as a seed, believing for God’s favor. We did that faithfully for several months, believing for the townhome to sell. After about the fourth month, we got a call from our Realtor. She said, “I have good news! I’ve got a contract for your house.”
“That’s great,” I said. “How much is it for?”
She said, “Let me just come by your house and talk to you about it.”
My heart sank. Usually when the Realtor wants to talk to the seller about the received offer, that means the offered price is low. But when she arrived at our home, we were pleasantly surprised that the contract was for the full price we were asking for our townhome. We thought we’d have to discount it thousands of dollars. But I believe, because we sowed a seed in faith, God not only brought us a buyer, but He did more than we could ask or think. He gave us even more than we were hoping for!
That’s just how our God operates.
- If you haven’t already discovered it HSH Associates runs a great Web site with lots of free data for checking the latest mortgage rates. One of the things I keep hearing from Realtors and home builders is that rates are still low. That’s true if you’re comparing them to the 20% prime rate of 1980. Today’s rate of around 6.3% for a 30 year fixed rate mortgage is actually high when compared with other income investments. A 10-year Treasury bond yields 3.8% for example.
HSH analyst Keith Gumbinger says his firm went back and looked at the spread between 30 year mortgage rates and Treasury securities going back to 1986 and found a spread larger than today in only 32 of the more than 1,100 weeks. Those weeks were mostly back in 1986 and 1987. What that tells us is that investors are more than willing to buy safer government bonds today and less interested in riskier mortgage securities.
“Mortgage buyers are just on strike right now,” Gumbinger says. He figures if mortgage rates reflected a more normal spread to Treasury bonds, a home loan would cost more like 5.5% today.
Since my Mom keeps asking me what she should do with her beaten-up Fannie Mae and Ginnie Mae mortgage securities I asked Gumbinger the same. Don’t sell, he said. “Take your yield, be happy,” he said. “They make a very attractive investment right now.”
- Unlike previous housing slumps, the one we're in now has spread from coast to coast. But that doesn't mean that every market is suffering equally. The worst markets -- the ones in Florida, California, Arizona, and Nevada -- seem to get all the attention. But in places such as Charlotte, Dallas, Denver, and Portland sales have slowed, but prices haven't dropped much.
The Bespoke Investment Group published a chart on its Web site using data from the Case-Shiller Median Home Price Index. It shows how much median home prices have fallen from their peaks in each of the 20 cities the index tracks.
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It’s nice to know some parts of the country are still seeing home prices climb—one of them is Houston, the energy capital of the U.S. The Houston Association of Realtors reports that the average home price there rose 8% in July to $226,000.
It’s not just oil and gas that’s driving the economy, says long time Realtor Martha Turner. She says the Texas Medical Center, one the nation’s premiere healthcare facilities, is expanding, as is the Port of Houston. About 15% of the sales are corporate relocations, as low-cost Houston remains a good a place to do business.
The big explanation for the rise in home prices though is that Houston’s rich are getting richer. Turner says the city saw 508 homes sell for over $1 million so far this year, up 10% from the same period last year. Houston’s overall home sales were down 12% in July.
In River Oaks, Houston’s version of Beverly Hills, Turner says the number of homes on the market is at a 15-year low. When homes do become available they typically get multiple offers, often from people who plan on tearing them down to build bigger mansions. Turner says one client who’d made a killing in the oil business in South America bought a $15 million mansion on Kirby Drive just to use for entertaining. The client kept his main River Oaks home to live in. “People with unlimited funds want to do unlimited things,” Turner says.
It’s not just River Oaks that’s seeing the rise in house prices. As Houston’s employment has spread out all over the metropolis and commutes are getting tougher, prices are soaring in suburbs such as the Woodlands, Kingwood and the I-10 “energy corridor.” The Kingwood home pictured above is on the market for $1.8 million. “We used to never see million-dollar houses in the suburbs,” Turner says.
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Newspapers across the country are in turmoil as advertising revenue continues to flood out of print and onto the Web. Classified advertisements, especially the real estate listings that papers have long depended on, have shifted to Craigslist and other free Web sites.
A new home-finder application for the iPhone that I wrote about this week could be something else for publishers to worry about. The Trulia.com iPhone app finds your location and then displays all available open houses and other listings on an interactive map. With a couple taps of the screen, you'll find details about the house, agent contact information, and photographs. Why carry around the bulky weekend newspaper when you can pull up real-time open house information for free while you're actually in the neighborhood where you want to buy?
Trulia CEO Pete Flint told me that the application will go "right at the heart" of newspaper real estate ad revenue.
"Unfortunately, this is another nail in the coffin of newspapers," Flint said.
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Home search site Realtor.com gives us a list of the markets showing the biggest increase in searches on their site in July, versus the same month a year ago. It’s worth noting that these markets are among the hardest hit by the housing bust. Las Vegas, Miami, Naples, Sacramento. Realtor.com’s overall traffic is up 22% this year. These cities are seeing increases double or even quadruple that.
What this tells you is that a lot of people are starting to bottom-fish in these markets. Whether that leads to a bottom in housing prices remains to be seen.
Stockton-Lodi, CA 140.9%
Las Vegas, NV 93.9%
Riverside-San Bernardino, CA 86.3%
Oakland, CA 73.6%
San Jose, CA 71.4%
Fort Myers-Cape Coral, FL 69.5%
Naples, FL 66.2%
Sacramento, CA 65.0%
Orange County, CA 62.8%
Miami, FL 56.7%
- First the good news.
Home sales in July jumped by 3.1%, the highest level in five months, the inventory of unsold single-family homes declined slightly, and home prices in the Midwest climbed 1% compared to a year ago.
But the National Association of Realtors July report released Monday also has plenty in it to worry about.
Single-family home prices fell 7.7% compared to a year ago when the credit crunch was just beginning. In the west, prices fell 22% compared to a year ago, though sales during the same period were up 0.9% on a seasonally adjusted basis (Sales are increasing because first-time home buyers and investors have been jumping on foreclosures and other bargains).
We're a long way from recovery, I'm afraid. Interest rates are creeping up and the foreclosure crisis isn't letting up in California, Florida, Nevada, and Arizona. And even in the relatively strong Northeast market, Connecticut, Massachusetts, abd Rhode Island are in tough shape and could weaken further when homeowners get their winter energy bills.
It could be a while before we see a really positive home-sale report.
- Donald Trump Jr., The Donald's 30-year-old son and the Trump Organization USA's executive vice president of development and acquisitions, recently announced that he's launching a $1 billion Indian hedge fund that will focus on luxury real estate investment.
He got the idea last November after speaking at a real estate conference in Mumbai. At the time, India's real estate market was in the fifth-year of a boom and international funds were investing heavily in apartment buildings, hotels, and shopping centers across the country.
The market has changed quite a bit since then. Inflation and interest rates are climbing and shares of Indian builders, home price appreciation, and demand for land are slowing.
Of course, this might be a good time to jump in and pick up land at distressed-sale prices. But he will be competing against established players (including U.S. companies such as Wachovia, Trinity Capital, Vornado Realty Trust, and Tishman Speyer). Dubai firms have been investing heavily in Indian estate for years now and have good connections with landowners and government officials and a deep understanding of the country's shadowy world of land acquisition and development.
Trump says his fund will start slow, investing first in luxury real estate in Mumbai before expanding to cities such as Bangalore, Hyderabad, and Delhi where the IT sector is strong.
India's population of U.S.-dollar millionaires is growing faster than any other place in the world, according to a recent study. And Mumbai has some of the most expensive real estate in the world.
"The fund will be for acquisitions of real estate in the high end and across the spectrum," Trump told a reporter at Bloomberg. "We'll start it off relatively small and grow it as we get more familiar with the Indian market. Our entry has to be in Mumbai, and that's where everything is going on right now in terms of high-end real estate."
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Citigroup analyst Josh Levin picked a gutsy time to initiate coverage of home builder stocks. It’s telling too that he called his first report House of Blues.
Levin paints a still gloomy picture of the industry. He doesn’t think the recently passed housing bill will do much to stimulate new home sales despite tax credits for first time home buyers. Levin sees home prices falling another 10-15% in the next year. He doesn’t think prices for existing homes will begin to appreciate again until 2011.
Sales of new homes should bottom out this year at around 550,000 per year. Just a couple years ago the industry was selling more than twice that.
Still Levin says it may be time to purchase two builders that look like they will weather this storm. He says Pulte Home’s management has been taking steps to strengthen the company’s balance sheet. And luxury home builder Toll Brothers has burnished its finances by reaching out to an Abu Dhabi investment fund for cash. One builder told Levin: “Gas prices are killing us.” Toll Brothers found a way to get some of those petrodollars back.
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I was playing around this morning with the National Association of Realtors’ second-quarter home sales data (I know, I lead an exciting life) and I noticed something startling.
We’re entering a kind of real estate Twilight Zone.
Many of the states with the best housing and job markets (Washington, Idaho, Oregon, Hawaii, North Carolina) have had the biggest drops in sales, and the worst markets, in terms of foreclosure rates and home price declines (Arizona, California, Nevada, Ohio and Florida), are now seeing the strongest sales. Home sales in the robust Washington state market fell 36.6% in the second quarter compared to the same period a year ago. During the same one-year stretch, home prices in the Yakima (Wash.) metro area increased by 8.9% -- the highest appreciation of any metro area tracked by the Realtor group. Home sales in Nevada increased 17.9% in the second quarter and home prices fell 23.6% in the Las Vegas-Paradise metro area.
To explain this phenomenon, it helps to remember that the credit crisis began one year ago. Last summer, the weakest housing markets, in Nevada, California, Arizona and Florida, were already seeing rapidly falling home prices and sales. But the stable markets in Utah, Idaho, Washington and North Carolina weren't. After the credit-crunch began in August, those markets suddenly began to flag as buyers found it increasingly difficult to secure mortgages.
At the same time, foreclosures pushed home prices so low in California, Arizona, Florida, and Nevada markets that they became more affordable and attractive for first-time homebuyers and investors. Sales in many of the weakest markets suddenly began increasing. I’ve heard anecdotally that some foreclosed homes in California are getting competing offers from investors and first-time buyers.
States like New York and Texas, which have good job markets, don't seem to be following this trend. They have maintained relatively stable home prices and sales.
And now, the states with the best and worst sales for the second quarter:
BEST
1. NEVADA 17.9%
2. CALIFORNIA 3.7%
3. ARIZONA -4.2%
4. VIRGINIA -8.1%
5. SOUTH DAKOTA -8.7%
6. OHIO -10.5%
7. MINNESOTA -10.8%
8. NORTH DAKOTA -11.4%
9. NEW YORK -11.6%
10. COLORADO -11.7%
WORST
1. WASHINGTON -36.6%
2. IDAHO -33.7%
3. OREGON -33.5%
4. IOWA -31.7%
5. HAWAII -31.1%
6. MARYLAND -30.0%
7. DELAWARE -29.3%
8. NORTH CAROLINA -29.1%
9. WYOMING -28.2%
10. District of Columbia -28.0%
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Avoiding Realtor commissions might seem like a good idea now that home prices are falling and many people owe more in mortgages than their homes are worth. Free sites like Craigslist.org certainly help that approach. Forsalebyowner.com was among the first sites to facilitate such sales online. It charges a fee of from $90 to $900 for advertising on its site. That’s a lot less than a 6% commission.
Data from the National Association of Realtors shows that fewer people are finding the homes they buy through agents. Last year 29% of all home buyers found their home on the Internet first versus 34% through their agent. Ten years ago those numbers were dramatically different. Half found their homes through an agent and only 2% through the Internet.
Those are the home buyers though. I'm sure the agents don't mind that home buyers are doing some of their work for them. I’d like to see data on how many people try to sell their homes on their own first and then call an agent.
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Real estate Web site Zillow.com released data today suggesting that the average U.S. home fell 10% in value in the past year, to $207,000. That was the largest year-over-year decline in twelve years. Homes prices are now back to 2004 levels, according to Zillow’s calculations, which are based on analysis of 165 cities.
Some other bad news in Zillow’s numbers: One in four homes sold in the past year have been sold at a loss. In some markets, such as California’s Central Valley, more than half of all home sales were foreclosures. In Washington, D.C., foreclosures represented 17% of sales. In New York, where the market remains strong, just 3% were foreclosures.
According to Zillow, nearly one-third of all Americans who bought a home since 2003 now owe more on their mortgage than their house is worth. That's called negative equity. It's even worse for those who bought in 2006, 45% of them are underwater.
Zillow burst on the scene in 2006 with its “Zestimates” of what people’s homes are worth. Looking up the numbers soon became a national past time and the subject of water cooler chat. Zillow’s estimates have come under criticism for their accuracy however. And now that prices are falling, will people still be interested in seeing what Zillow says their house is worth?
- Ordinarily I wouldn't point you to something that came out way back in March, but I just saw it today and it's funny. Bess Levin of Dealbreaker.com imagines an IM chat between past Fed Chairman Alan "The Maestro" Greenspan and current Chairman Ben "Gandalf" Bernanke.
One little excerpt:
Maestro69: ... What sagely advice did I convey?
GaldalFed: That's the thing, Big Guy. You suggested I get an adjustable rate mortgage that resets after three years.
Maestro69: ROTFLMAO. shit dropped the phoen again.
Check it out here.
- It seems that more and more Americans faced with foreclosure are renting out rooms in their homes to help pay the mortgage. Of course, this is a trend that is difficult to quantify, but it's something that a bunch of newspapers and television stations have picked up on in the last month.
When the cold weather arrives this fall, I'm guessing that the idea will gain favor with Bostonians, Minnesotans, Rhode Islanders and others with high heating bills and weak housing markets.
