Boomer’s Blog

As the number of U.S. home foreclosures topped one million this month, cities in the states hardest hit by foreclosure: Arizona, California, Florida and Nevada were named by Fortune magazine as the hottest markets for real estate investment. In addition, emerging reports of real estate market overhang are not surprising. Especially in light of the mid-decade building frenzy in Arizona, California, Florida and Nevada that was spurred by gravity-defiant home prices and easy money loans.

During the Boom
Back then CNNMoney says, dramatic price surges were fueled by investors who used risky mortgages to cash in on hot market activity, Today, these four states combined hold one-third of the nation’s foreclosures, with nearly 400,000 homes hanging in the balance.

According to the Mortgage Bankers Association Q1 report, Arizona, California, Florida, and Nevada combined represent:

• 62 percent of all foreclosures started on prime ARM loans, and 84 percent of the increase in prime ARM foreclosures;
• 49 percent of all of the subprime ARM foreclosures started in the country during the Q1, and were responsible for 93 percent of the increase in subprime ARM foreclosures
• 29 percent of prime fixed-rate foreclosures and 60 percent of the increase in those foreclosures; and
• 25 percent of subprime fixed-rate foreclosures and 53 percent of the increase in those foreclosures.

Fortune’s Five Hottest REI Markets
Especially now that the chips appear to be down, it seems that everyone wants in on the real estate game, and Fortune magazine has named five cities as ideal for real estate investing. These markets are generally the hardest hit in the foreclosure epidemic:

1. Miami
   According to the S&P/Case Shiller index, prices and sales here appear to be circling the drain. Miami house prices have dropped a whopping 21.7 percent in the past year, and dwindling median condo prices. Miami condo and home sales have plunged 40 over last year, and market activity has slowed dramatically. Fortune recommends that the following markets are ripe for real estate investment: Aventura, Bal Harbour, Sunny Isles Beach and Coral Gables
2. Tampa
   The Case-Shiller index reports that in the past year, real estate values have fallen 17.5 percent. Still, Fortune predicts a rebound is in the forecast for Tampa because of its strong local economy and other market forces. Currently, the median home price is $222,000, down from $275,000 last year, and the National Association of Realtors (NAR) predicts 20 percent or greater appreciation value over the next five years. Today, home prices are 50 percent lower than they were during the boom. Those surges may be attributed primarily to speculators flipping houses for quick profits, Fortune says. When the deals began to recede and the investors started started pulling out in 2006, the prices began their free fall. Now, Fortune says, this market is ripe for high-end real estate investment: Gulf-front luxury condos in Clearwater or St. Petersburg, are down from the $1 million a few years ago, to around $600,000 today.
3. Las Vegas
   Here, the real estate bubble swelled with annual price increases of up to 50 percent, making for today’s dramatic price drops and hot bargains. According to the Case-Shiller index, Las Vegas is the hardest-hit locale nationally, with prices dropping nearly 23 percent in one year, and one in 44 homes hitting foreclosure Q1 alone. In this market, with the third-highest rate of foreclosure in the U.S., Fortune predicts that the sun-drenched climate, proximity to pleasure, and glut of luxury homes, combined with the absence of state income tax will attract droves of retirees — and a speedy market recovery. Here, Fortune recommends investing in new construction in outlying areas like Summerlin and Providence, or in high-rise condos, especially in light of their 10 percent price drops since last year.
4. San Diego
   Prices here have plunged nearly 10 percent and foreclosures have surged in the past year, according to Moody’s Economy.com. Despite the fact that the Council for Community and Economic Research deems San Diego County’s cost of living 47 percent higher than the national average, the area’s natural beauty and beach-front locations give it the strength to conquer adversity and recover quickly from the mortgage crisis. Again, Fortune’s forecast is growth in the high-end property appreciation, as these properties have been the slowest to move in the inventory glut.
5. Phoenix
   Although Moody’s Economy.com shows its real estate values plummeting by 8 percent over the past year, and RealtyTrac reports its foreclosure rate has tripled since 2007, Phoenix, like Las Vegas will continue to attract retirees. Here, Fortune says, the planned communities that surround the metropolitan area offer hidden bargains. Also, amenities such as golf, shopping and luxurious recreation centers add additional value for the retirement crowd. Fortune suggests that here, areas like Sun City Anthem, Palm Valley, and Avondale are great places to find housing bargains that’ll likely offer healthy returns as the markets continue their recovery.

A three-year standoff between the U.S. Justice Department (DOJ) and the National Association of Realtors (NAR) over the association’s attempts to virtually monopolize its multiple listing service (MLS) data is one legal hurdle away from resolution. Both litigants have consented to a settlement agreement just weeks before the case was slated for the Federal docket in Chicago.

DOJ launched its anti-trust suit against NAR in 2005, over anti-competitive policies revolving around NAR’s proprietary MLS database listings of real estate properties for sale. Keeping the listings under wraps, the Fed said, keeps consumers’ costs artificially high and inhibits competition among traditional and online brokers for home and condominium sales.

WWW Infoscape Changed while NAR Battled DOJ Anti-Trust Charges
In its lawsuit, DOJ aimed to open access to the data beyond NAR’s broker network to include consumers, data aggregators and property discounters who don’t meet state-mandated minimum requirements for providing real estate services to sellers.

While DOJ and NAR have been fighting it out, Web 2.0 technologies offering free on-line property information have transformed the real estate business and quietly built a mighty market presence that imperils the relevance of the traditional real estate business model. They also bring into question the future of the 6 percent broker commission.

Innovation, Free Online Data Jeopardize NAR’s Proprietary Model
By democratizing real estate data, Web sites such as Redfin, Trulia and Zillow have shattered NAR’s MLS-intrinsic business model and showed online real estate shoppers a new and easier way to do business: A way that doesn’t require buyers to sit in the back seat of a broker’s car, or sellers to trust that their broker always has their best interests at heart.

Online Brokers Win Right to Distribute Electronic Tear Sheets
NAR has been widely criticized for allowing brokers to block their listings from being displayed on Web sites that offer discounted commissions or standard broker fees on real estate transactions. In the settlement with DOJ, NAR agreed to adopt policies that don’t discriminate against on-line real estate brokers. Specifically, the agreement requires that online brokers be able to provide the same information online that traditional brokers offer to folks who visit their offices.

Pending final court approval, a process likely to take three months or more, the settlement agreement could provide consumers with easier access to MLS data, which could enhance their market research and help them save money on real estate purchases. It also could alter some current trends in how MLS data are obtained and used in the virtual real estate marketplace.

The changes NAR agreed to likely won’t have a dramatic impact on the real estate marketplace as a whole, but it might affect those who have capitalized on NAR’s ongoing stabs at keeping MLS data secret.

Realty Times predicts that the following practices are likely to change dramatically when the settlement agreement is finalized:

• Lead generation services such as Lending Tree may have to stop filtering MLS data through broker shell companies.
• Data mining companies such as Home Buyers Marketing (HBM2.com) may have to stop reselling MLS data for profit.
• More open access to MLS data could detract from the credibility of values attached to property listings in real estate communities such as Zillow.

Registration Requirement Reinstated for MLS Data
Also as a result of the settlement agreement, NAR says it will reinstate an updated version of its virtual office Web (VOW) policy, and resume requiring customers to register before they can search MLS home listings online. NAR says it rescinded that policy in 2005, when its provisions were first challenged by DOJ.

The National Association of Realtors (NAR) latest quarterly report indicates prices are rising in one-third of the nation’s metropolitan housing markets, and appear to be strongest in areas unscathed by the subprime loan debacle. As mixed results are reported for many markets, the numbers alone may fail to show the big picture, especially as it is captured by real estate investors nationwide.

Generally, sales for Q1 were the slowest in high-cost areas. At the same time, foreclosures from subprime mortgages rose dramatically, NAR says. The strongest price gains are emerging in neighborhoods with little subprime exposure, and the most dramatic drops are in those where higher instances of subprime lending has led to record foreclosure rates and bargain sales prices.

Overall, NAR says that total state existing-single family home and condo sales in Q1, at a seasonally adjusted annual rate of 4.95 million units, are 22.2 percent below the 6.36 million-unit pace marked in Q1 2007. Single family homes and condos in some markets however, managed to beat the odds and show impressive gains for Q1.

Single Family Home Gains
In Q1, the largest single-family median home price hikes over the same period in 2007 were:

• Binghamton, N.Y. is up 11.8 percent to $109,70;
• Peoria, Ill. is up 10.4 percent to $119,000; and
• Spartanburg, S.C. is up 10.1 percent to $130,300.

Condo Markets on the Rise
The strongest median condo price gains in Q1 over the same period in 2007 were:

• Bismarck, N.D., is up 36.4 percent to $124,900
• New Orleans-Metairie-Kenner area of La., is up 15.3 percent to $170,500; and
• Wichita, Kan. is up 11.7 percent to $106,600.

Technologies offering free on-line property information are changing the real estate business and quietly building a mighty force that is poised to obliterate the National Association of Realtors‘ (NAR) virtual monopoly on property information and decimate the concept of the 6 percent agent commission.

Until recently, it was challenging to operate in the residential real estate market without access to the NAR’s multiple-listing service (MLS) because only realtors really knew what homes in any given area were selling for. Realtors who shared the information generally expected a return for their data sharing and professional services, usually in the form of a 6 percent commission on subsequent property transactions. But times are rapidly changing.

The Holy Grail: Data Accuracy
Soon, an estimate for just about any home’s value will be available online from sources such as Zillow.com. Many already are. But are the data accurate? A 2007 Wall Street Journal analysis of 1,000 home sales shows that Zillow’s “Zestimates” often are accurate, often within a few percentage points of the actual price paid. But when Zillow is off, the disparity can be dramatic.

Zillow.com officials say that constant refinements to their system make the data more accurate today than ever. Changes to the back-end of the system and enhancements like adding a process whereby owners can update their property information in Zillow.com’s system all work to maximize on-target data reporting.

Objectivity Fuels Credibility
Still, services such as those offered by Zillow.com are not yet perfect. Zillow’s valuation protocol is most accurate for mid-price homes in areas where there is high property turnover; it is less effective in neighborhoods where people seldom move. But the time may come when Zillow is seen as more reliable than human brokers, Money magazine reports.

Often, brokers and owners have an incentive to inflate estimates to win prospective clients and are not always tuned in to market changes. Data from sources such as Zillow.com are far more objective and are becoming more widely used by consumers, brokers and by major media media outlets to establish important benchmarks in the real estate market.

In other words, if everyone uses the data, the provider can become a significant force in the market. For example, financial news giant Bloomberg recently reported that U.S. home values dropped 7.7 percent in the first quarter to the lowest in almost three years, based on estimates by Zillow.com. The article says this is the largest decline in 12 years of data compiled by the Seattle-based online data provider. When the media major players cite a particular data provider as a source, it lends great credibility to the quality of the information outfits like Zillow.com provide.

All Aboard the Gravy Train
Zillow.com launched its Web site in 2006 to provide homeowners, real estate agents and potential buyers with value assessments called “zestimates” for single-family homes, co- operative apartments and condominiums. The company has since become a real estate powerhouse, recently expanding its operation to provide mortgage market information services. In the past couple of years, competitors have sprung up for a taste of the gravy snatched from the plates of brokers and others working from the tradtional MLS system data model.

According to Online Media Daily, in December 2007, San Francisco-based Trulia.com managed to edge out Zillow.com, AOL Real Estate and HouseValues in terms of unique visitors. The site nearly tripled its audience from the previous year, growing from 579,000 unique visitors to 1.6 million. Trulia recently sweetened the user experience by offering not only listing info and photos, but access to view the property via Google’s popular Street View Map option. Google Street View where it’s available, gives users an interactive, mobile, street-level view of properties and neighborhoods.

John Vogel, who teaches economics and real estate at Dartmouth, says that the democratization of real estate data imperils the future off the 6 percent real estate commission. Real estate brokers will retain a role as marketers, especially in tough markets. But, Money magazine says, like stock brokers before them, they’ll find that as they lose their traditional monopoly on information, they just can’t command their traditional price.

Below is a list of five top real estate valuation Web sites (My personal favorites are Trulia and Zillow).

• AOL Real Estate
• HomeGain.com
• RealEstateABC.com
• Trulia.com
• Zillow.com

As a growing number of homeowners dangle over foreclosure’s jagged edge, many lenders have historically been slow to approve short sale deals, but there are signs that they’re changing their ways.

The short sale is a long-standing investment technique that can benefit buyers, lenders and homeowners alike. According to the National Association of Realtors (NAR), Short sales currently account for about 18 percent of overall home sales. But as the housing market continues to stall, some major lenders and loan servicers are streamlining their processes for accepting short sale deals, and this may make short sales a more viable option for investors than it has been in the recent past.

(more…)

The National Association of Realtors (NAR) has issued more startling data regarding the U.S. housing market that may serve as a spoiler alert for sellers hoping the season will blossom in Spring. Here are selected highlights of NAR’s most recent report:

National Market Overview
Overall, February homes sales slid nearly 24.0 percent from the same period last year. Sales of existing homes fell nearly 13.0 percent in 2007, to 5.65 million, the largest decline in 25 years.

• The median sales price for single-family homes and condominiums dropped 8.2 percent in February from last year, to $195,900.
• The median price for single-family homes dropped nearly 9 percent from a year ago: the worst decline in 40 years.
• Total housing inventory rose 1.0 percent at the end of March to 4.06 million existing homes available for sale. This represents a 9.9-month supply at the current pace, up from a 9.6-month supply reported in February.
• Single-family home sales fell 2.7 percent to a seasonally adjusted annual rate of 4.35 million in March from 4.47 million in February, and are 18.4 percent below the 5.33 million-unit pace reported in March 2007. The median existing single-family home price was $198,200 in March, down 8.3 percent from last year.
• Existing condominium and co-op sales rose 3.6 percent to a seasonally adjusted annual rate of 580,000 units in March, up from 560,000 reported in February, but still 25.5 percent below the 779,000-unit level reported for last year. The median existing condo price was $219,400 in March, which is 2.8 percent lower than March 2007.

Regional Snapshots
Data indicate a that a mix of market conditions prevails throughout the U.S., but areas showing healthy price gains include Des Moines, Iowa; Austin, Texas; and Durham, N.C. Because the slowdown in sales from last year’s rate is more pronounced in expensive areas than in low-cost markets, the national median price is suffering. Regionally, home sales rose in the Northeast and West but fell in the Midwest and South.

• Regionally, existing-home sales in the Northeast rose 2.2 percent to an annual pace of 910,000 in March, but are 18.8 percent below figures for March 2007. The median price in the Northeast was $284,300, up 4.6 percent from a year ago.
• Existing-home sales in the West rose 2.2 percent in March to a level of 940,000 but are still 22.3 percent below a year ago. The median price in the West was $285,100, which is 14.7 percent lower than it was in March 2007.
• In the South, existing-home sales fell 3.5 percent to an annual rate of 1.92 million in March and are 20.0 percent below sales closed in March 2007. The median price in the South was $167,200, down 7.1 percent from last year.
• Existing-home sales in the Midwest dropped 6.5 percent to an annual rate of 1.16 million in March, and are 15.9 percent below last year’s rate. The median price in the Midwest was $152,600, down 5.3 percent from March 2007.

National Real Estate Investor: Bloated Condo Market Ills set to Worsen
It appears that the days of the seven-figure condo are history. Investors in residential condominiums should sell before an additional new 100,000 units join the massive national inventory later this year, analysts say. The bottom line for investors is the growing glut on the condo market likely will hit the hardest in some of the markets that saw the greatest price gains during the boom. Chicago, for example, is expected to add 16,000 condos this year; New York has 14,600 condos currently under construction and Phoenix has 13,000 condos nearing completion. These units are expected to flood the burgeoning condo marketplace, already plagued with excess inventory, high construction loan delinquency rates, rising construction costs, fewer buyers and falling prices. Even platinum markets such as San Diego, Las Vegas, San Francisco and south Florida are expected to take huge hits on condos because their only interested buyers are likely to be investors waiting for prices to hit rock-bottom. In the past month, condos in downtown Miami have gone to auction with no minimum bid requirements. Many entrepreneurs consider this to be an engraved invitation to invest. But there are as many survivors of the price drops and and painful recovery in the wake of the Resolution Trust Corp. disaster. These folks warn that investors who wait for higher prices on their condo units may be in for a long, strange trip.

CNN: Wall Street Bets on Superman to Help Builders?
This report explores the Superman-like, “Bizarro World” disparity between the losses reported by many major home builders and their earnings on Wall Street. Analysts usually advise a “buy” when earnings are expected to be low, yet many of these stocks have rallied. Are fund managers throwing caution to the wind when they bet on a rebound in this sector? According to analysts at FactSet Research, which tracks institutional investments, several funds at Fidelity, T. Rowe Price, Manning & Napier and State Street have increased their stakes in Lennar, KB Home and other home builders in Q4, 2007. Also, Citadel Investment Group, a Chicago-based hedge fund, has shown increased holdings in KB Home, Ryland Group and Toll Brothers. These data suggest that the bottom for home builders may have an upside for investors willing to risk exposure to housing market kryptonite.

Bloomberg: HUD Secretary Quits Under Fire
Targeted by a federal investigation and under fire by legislators, U.S. Housing and Urban Development (HUD) Secretary Alphonso Jackson resigned today. Jackson has no immediate replacement, and the news comes as the White House works to ease the housing crisis. As HUD Secretary, Jackson advocated an industry-led program to encourage lenders to voluntarily refinance troubled loans rather than using federal funds to tackle the mortgage crisis. He came under fire in the U.S. Senate when he refused to answer questions regarding accusations that he improperly directed his staff to steer federal housing contracts to his associates. The Justice Department is investigating whether Jackson told the truth when he denied directing federal housing contracts to friends and political allies. The National Journal reports that investigators also are probing Jackson’s ties to a golfing partner who received more than $485,000 to manage construction work in New Orleans after Hurricane Katrina in 2005. Jackson received his post in 2001, and is credited with building the FHA Secure program, which increased federal financing for sub-prime borrowers.