September 2009

STUDY LISTS 20 MOST ECONOMICAL MARKETS FOR HOMEOWNERSHIP

A study by REIS, a leading real estate data firm, ranked the 20 U.S. metropolitan areas by how economical they are for buying homes rather than renting. This study, published by BusinessWeek, determined average annual rental prices in the area and compared them with average annual costs of owning a home, using figures provided by Zillow.com.

“In some markets … the annual average cost to own a home has fallen to little more, and in some cases less, than the cost of renting,” wrote Diana Holden in a companion article to the published list.

The top 20 markets, named by the study, and the percentage of annual homeownership cost compared to average rental cost, in each market, are:

WHY MANY APPRAISAL VALUES ARE LOWER

Lender Processing Services, which provides integrated technology and services for mortgage and real estate entities, released its latest LPS Home Price Index earlier this month. The report indicated that real estate owned sales have a downward effect on average home prices. The significance of such an effect varies by state.

“REO sales account for as much as 60% of housing activity in some states,” said Dr. Nima Nattagh, senior vice president of LPS Applied Analytics, the division of the company that conducts the LPS Home Price Index studies. “Our study contains specific data to show this is causing precipitous drops in home values.”

The significance of such an effect varies by state.

“While REO sales activity has increased significantly across all regions in the country, there is clearly a dichotomy between states that have seen unprecedented levels of mortgage delinquency and those where the impact of the current housing crisis has been much more moderate,” Dr. Nattagh said.

The study noted that in Michigan, where foreclosure sales were 64% of its total housing market, the first half of this year, prices of non-REO homes declined 26% from where they were in 2005. When 2009 REO sales are added into the mix, home prices in Michigan have declined over 46% since 2005. On the other side of the coin, 14% of homes sold in Massachusetts the first six months of 2009 were REO. Non-REO home sales showed a 15% drop from ’05 and when REO sales are included, the drop in average home price from four years ago is 19%.

“This study clearly shows that when foreclosure levels are high and REO sales dominate the majority of transactions, their impact on the rest of the market should be taken into account accordingly,” Dr. Nattagh said.

This trend also tends to have an effect on appraisal values, particularly in areas where there are a lot of foreclosures.

“We’ve experienced some dissatisfaction among some clients when appraised values are lower than current sales contracts or sales prices of the same property a year or two ago,” said Charlie Elliott, MAI, SRA, president of ELLIOTT® & Company Appraisers. “These lower values are very real and are a reflection of the downturn experienced by the market.”

WOMAN GETS JAIL TIME FOR IMPERSONATING AN APPRAISER

An investigation by the FBI and HUD resulted in an eight-month prison sentence for a Massachusetts woman.

Dorie DiMarco of Andover, Mass., plead guilty last month on two counts of wire fraud, concerning real estate appraisals she performed for two New Hampshire mortgage brokerage companies. DiMarco had been charged with collecting about $12,000 in appraisal fees from New England Regional Mortgage and First Call Mortgages, despite the fact that she was not a licensed appraiser. She admitted to the federal court that she told these brokerages she indeed was a licensed appraiser and prepared appraisal reports on at least 30 properties for these businesses.

The federal wire-fraud charges came about because DiMarco e-mailed the appraisals from Massachusetts to the New Hampshire offices of these firms. According to the sentence, DiMarco will be on probation for three years once she is released from prison.

LESS BORROWING COULD MEAN SLOWER RECOVERY

Home loans are harder to get and, as a result, less money is being lent for mortgages.

“Banks are going to be in a defensive posture for several years,” said Christopher Whalen, managing director of Institutional Risk Analytics, a research company. “Most borrowers can’t reach their criteria.”

Stevenson Jacobs, in an article he wrote for The Associated Press, pointed out that five out of 10 mortgage applications were approved by banks last year, compared to seven of 10 when home sales were at their peak, earlier in the decade. He also noted that credit scores of 740 or above were needed to qualify for the lowest interest rates, compared to 650 during the boom years. As a result, the drop in mortgage-dollar volume from June to July was the largest the Federal Reserve has ever recorded in 66 years of keeping such records.

“If [the banks continue to] cut back, it would be catastrophic,” David Olson, president of Access Mortgage Research & Consulting, said of a reduction in home loans. “We could have a second downturn.”

OBAMA’S CHICAGO NEIGHBORS PUT THEIR HOUSE ON THE MARKET

A lot has happened at 5040 South Greenwood Avenue in Chicago since 1973, when Jacky and Bill Grimshaw purchased the 6,000 square-foot-mansion and surrounding property for $35,000. Barack Obama was 13-years old and living with his grandparents in Hawaii. Now Obama is a next-door neighbor of the Grimshaws when he is not living in the White House.

There has also been a lot of inflation, including a significant overall increase in housing prices for the past 36 years. While the Matt Garrison Group, which lists the property, has not put a price on it, Mr. Garrison expects the 17-room house to sell for about $2 million.

“We know what the houses are worth down the street or a block away, but we don’t know what the Obama factor is,” Garrison said. “To different buyers it would be a negative and to other buyers it would be a positive. We're looking for a buyer who will pay a premium for the house."

BIGGEST U.S. REAL ESTATE DEAL RISKING DEFAULT

In 2006, the world of real estate looked on in astonishment as Tishman Speyer Properties and BlackRock Realty paid an astronomical $5.4 billion for Stuyvesant Town and Peter Cooper Village, a group of 110 apartment buildings in New York City. The purchase from Met Life of this Manhattan property near the East River is still the priciest transaction in the history of real estate.

Currently, this adventure has been a rough ride for these high-dollar real estate moguls. The owners of this expensive property are reported to be at a “high risk” for default on $4.4 billion in loans on it. Realpoint, a credit-rating agency recently issued a report that estimates the current value of the property in question to be $2.13 billion, less than 40% of the purchase price. Rent collection has dropped significantly since the purchase and the partnership may be forced to pay hundreds of millions of dollars in rent rebates to tenants, who sued, claiming their rents had been raised illegally.

This plethora of problems is expected to cause the owners of the property to default by early next year.

“This asset is going to require a restructuring,” said Rob Speyer, co-CEO of Tishman Speyer. “Once the court case is resolved, we’ll speak to our debt holders, as well as our fellow equity investors.”

ASK MARTITIA

QUESTION: Section II of the HVCC states, “The lender shall ensure that the borrower is provided, free of charge, a copy of any appraisal report concerning the borrower’s subject property immediately upon completion.” Exactly what is meant, in this case, by “completion”?

MARTITIA: According to the HVCC, completion means once the lender has reviewed and accepted the appraisal, including any changes or corrections.”

Martitia Mortimer, Elliott’s executive vice president, answers appraisal questions on a regular basis in Elliott Real Estate News.

QUOTES

“Life does not cease to be funny when people die any more than it ceases to be serious when people laugh.”  ̶  George Bernard Shaw

“Ideas pull the trigger, but instinct loads the gun.”  ̶   Don Marquis

“The intelligent man finds almost everything ridiculous; the sensible man hardly anything.”
                                                                                                                 ̶   Johann von Goethe

“Laws are never as effective as habits.”  ̶   Adlai Stevenson

“To cease smoking is the easiest thing I ever did. I ought to know; I’ve done it a thousand times.”  ̶   Mark Twain

 

Newsletter Editor: kevin@elliottco.com
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