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For real estate, it’s a buyer’s market

A sign at the Sunset Ridge Estates alerts buyers of special incentives when buying a KLM home in Richmond, Ill, Friday, March 25, 2011. (AP Photo/David Banks)

In suburban Chicago, it’s paradise to be a homebuyer.

At the Millbrook Pointe development in quaint and pristine Wheeling, a $269,000, brick-and-stone townhouse comes with $25,000 in free upgrades, including wood-burning fireplaces, all-stainless steel kitchens and marbled bathrooms tricked out with double-bowl vanities and whirlpool soaker tubs.

Down the highway at the Patriot Place golf course villas in Bolingbrook, buyers are lavished with lawns sodded to perfection, absurdly low seller financing and a year of free insurance that will pay the mortgage if you lose your job.

At the Sunset Ridge estates, the amenity bonanza gets even more surreal: Buy a customizable colonial for as little as $170,000 and get a brand new, $17,000 Chevy Cruze. The 2011 model. For free.

Spring for home-sellers is like Christmas for retailers — peak season. Normally, that might mean a few giveaways. A better brand of siding here. An expanded choice of tile color there. But a new car? “Obviously, business has been soft,” says Kim Meier, president of KLM Homebuilders, the company offering the promotion.

The festival of upgrades on new homes — especially in the housing markets that were savaged by the subprime meltdown — is queasy confirmation of just how much the housing market remains the sickest part of the U.S. economy.

Existing home sales plunged nearly 10 percent in February to their lowest level in nine years. It was the largest drop since July. Forty percent of those sales were on distressed properties. And new home sales are on track to come in at just 250,000 this year, the fewest since the Kennedy administration, when there were 120 million fewer people in the United States.

“What is discouraging in many markets is that it appears as if some of the local builders are creating the volume,” says Wayne Yamano, vice president with John Burns Real Estate Consulting.

Across the country, real estate agents are reporting a rise in traffic at open houses. But they say buyers are reluctant because of the shellshock they suffered after the free-money machine blew up in everyone’s face. The foreclosure epidemic. The plague of employment insecurity. The fear that the U.S. is on a downward slide. They’re all playing into buyer commitment phobia, brokers say.

There’s also confusion over the conflicting signals. Prices are low, but unemployment is high. Mortgage rates are attractive, but lending standards are strict. Renting is newly chic. “Everybody is now self-loathing about how we’re greedy Americans and we shouldn’t want to own homes,” says Jonathan Miller, CEO of real estate consulting firm Miller Samuel.

The U.S. will certainly have a spring home buying season this year. But even if sales rise as usual, they won’t pull the zombie housing market out of its stupor. Nationwide, forecasters expect house prices to drop at least 5 percent more this year. And no one in housing land is murmuring about anything like price stabilization until 2012. At least. “We don’t expect a dramatic rebound,” says Paul Ashworth, managing partner at Capital Economics. “We expect stagnation for several more years.”

The housing problems certainly aren’t easing. Foreclosures are expected to peak this year. A third of homeowners owe more than their homes are worth. Normally the number of people with negative equity is 5 percent. And strategic defaults, where people simply walk away, are rising.

The buying that is happening isn’t coming from first-time homebuyers. A recent study by Capital Economics found that 60 percent of sales are to foreigners and investors, most of them paying cash. In fact, in international real estate circles, the U.S. is viewed as the “new emerging market,” says Thomas M. Shapiro, president of global real estate investment firm GTIS Partners.

Foreigners are attracted to U.S. real estate because their local currencies are so much stronger than the dollar. Investors are also attracted to the properties because rents are rising. “You don’t get much money from buying Treasurys as safe investments,” Ashworth says. “There is a search for yield that is making residential property look more attractive.”

Real estate is hyper-local. The places hit hardest by the foreclosure epidemic — California, Arizona, Nevada, Utah and Florida — are certainly skewing the statistics for the worse. In places like New York City, Washington, D.C., and San Francisco, the real estate market is strengthening and can almost seem exempt from the national malaise. That’s because the job market in those cities — dominated by finance, the federal government and the tech sector, respectively — remains robust compared with the rest of the nation.

“If you have a secure job and the economy around is growing, then it’s a great time to buy,” says Barbara Corcoran, a New York real estate investor and analyst. “That’s not true in too many places, but you can see improvement in certain pockets.”

Adds Tara-Nicholle Nelson, director of consumer education at the online real estate search firm “It’s like a big spring clearance sale on real estate.”

Todd Leykamp, 29, works in TV production in Los Angeles. He and his girlfriend have been casing the open-house market for six months. They pay $1,200 a month for their Hollywood rental and can afford to double that payment if they buy a house. But he says they have yet to find The One. “There are just too many factors, and every time you find one you love, there are 10 more out there you haven’t found that you’ll love just as much,” Leykamp says.

Worse news for sellers is that buyers don’t think the housing market has hit bottom yet, according to A recent survey by Trulia and Harris Interactive found that nearly 70 percent of renters who aspire to being homeowners say they will wait at least two years before buying. And nearly 60 percent say a housing recovery won’t come until after 2012.

“Many are reluctant to purchase a home even if they have the means because of the uncertainties in the economy,” says Celia Chen, a housing market analyst at Moody’s Analytics.

It’s clear that many sellers are panicked. A quarter of sellers who listed their properties on on March 1 have already slashed their prices at least once.

Last summer, Bobby Barweki started looking for a foreclosure to buy. Barweki, 30, scraped together a 20 percent down payment by living with his parents after graduating from college in 2007. The foreclosures he looked at were all “trashed,” he says.

Then one day his dad sent him an email about the free-car deal at Sunset Ridge Estates.

Barweki, a store manager at Chicago recreation goods chain Novotny Sales, just closed on a $178,900 ranch. He has a 4.875 percent interest rate on a 30-year-loan. Instead of getting the new car, he opted for $17,000 worth of free upgrades, including a stone facade and hardwood floors. Barweki doesn’t have much faith in an economy where the definition of a recovery seems to be that things don’t get worse. He says all the new jobs are low-paying. And he doesn’t think the housing market has hit bottom. But for him, it was the right time. “Interest rates are low, I had the money, and I got a great deal,” Barweki says.

The U.S. has already suffered one “lost decade” in housing. Now some economists are worried that the country could be in for another. “It could be 10 to 15 years before you are going to get back to peak levels,” says chief economist Stan Humphries.


AP Real Estate Writers Alex Veiga in Los Angeles and Derek Kravitz in Washington, D.C., contributed to this report.

Copyright © 2011 The Associated Press


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2 thoughts on “For real estate, it’s a buyer’s market”

    • Actually there’s tax advantages to converting your former residence into a rental. Any repairs or upgrades are a tax writeoff in addition you can depreciate the asset.

      The secret is to spend the money and do a good background check on prospective renters at least the one’s that make the cut as the top three prospects Get the first and last month’s rent with a decent refundable security deposit. Also don’t check with their current landlord, but the one before the current one because if they are bad news, the current landlord will lie concerning their rentworthiness whereas earlier landlords have no vested interest in getting rid of them and will supply more reliable information.

      Get professional rental applications appropriate for the State of Ohio and have them fill it out in its entirety with instructions that those apps that aren’t filled out will not be considered.

      Run an add and simply go to the place to be rented, set up some chairs, a writing table along with pens and secure copies of the renter’s handbook if one if published for you jurisdiction so you know your rights as a landlord and theirs as a renter. Supply a copy to your approved renters.

      Also put a proviso in the rental agreement that the house will be subject to a landlord’s inspection every six months with a proper notice. This is to make sure your property is not being turned into a meth lab, a marijuana grow or some other illicit use. A meth lab is a disaster for the landlord because the property is rendered useless due to chemical contamination.

      Last tip, if the renter is late for a single month, start the eviction process immediately. To wait can go against you and they can then squat for up to six months or more not paying rent, damaging the property etc. In the West where I live, renters have far too many rights and you can get burnt badly by falling for a sad story concerning the rent. Make sure they understand summary eviction if they are late. You can give them a five day grace period, but levy a small penalty for doing so, say $25-$50.

      My wife and I’ve owned a couple of rentals and its just not our thing. For one we’re super neatniks and can’t stand to witness ‘our property’, the rentals show visible signs of neglect etc. You can’t bully your tenants, so it takes a special type of personality for successful landlording.

      Setting any negatives aside it can turn your current inability to sell your house into a cash flow that will lay off you having to pay double mortgages and at the same time let someone else slowly, but surely purchase the property for you. Make sure there’s no restrictions in the mortgage that prevents you from renting the asset.

      Carl Nemo **==

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