Entries from January 2007 ↓

If you're new here, you may want to subscribe to my RSS feed. Thanks for visiting!

The economy has grown at a rate of 3.5 percent for the 4th quarter in 2006, higher than economists projected. Many have said that the slowdown in construction would cause a significant recession in the country by this time. However,  the economic engine that is the United States has taken the real estate slowdown and moved right past it.

Housing investment slowed 4.2 percent in 2006 but that was not enough to slow the economy into recession. Those that are counting on a recession to put the housing industry into a full blown crisis may be a bit disappointed today. When the speculative bubble is absorbed it looks like the housing industry will be in pretty good shape moving forward.

The fresh snapshot of business activity, released by the Commerce Department Wednesday, underscored the resilience of the economy; it has managed to keep on moving despite the ill effects of the residential real-estate bust.The economy’s performance in the October-to-December quarter, which followed two quarters of rather listless activity, exceeded analysts’ forecasts for a 3 percent growth rate.

The economy opened 2006 on a strong note, growing at a 5.6 percent pace, the fastest spurt in 2 1/2 years. But it lost steam during the spring and late summer. It grew at a 2.6 percent pace in the second quarter and then a weaker 2 percent pace in the third quarter. The fourth-quarter’s rebound ended the year on a positive note.

For all of 2006, the gross domestic product (GDP) increased by 3.4 percent. That was an improvement from a 3.2 percent showing in 2005 and the strongest showing in two years. That’s even more impressive considering the economy was hit by the housing slump. Investment in home building for all of last year was slashed by 4.2 percent, the most in 15 years.

GDP measures the value of all goods and services produced within the United States and is the best barometer of the country’s economic standing. via Kiplinger.com

A real estate investment fraud ring was convicted in San Diego yesterday. The group, First Latino Group, defrauded investors of over 1 million dollars by promising to build low cost housing. These thieves targeted churches and religious groups with sales pitches filled with prayers and Bible passages. Then they would take down payments from the investors to build these low income homes in Vista.

There is a placed reserved in hell for folks like this.

Rolando Montez, 51, of Vista, who was described as the leader of First Latino Group, was found guilty of four criminal charges, including conspiracy to commit grand theft, conspiracy to obtain property by false pretenses and conspiracy to commit forgery.
AdvertisementTwo defendants, Franklin Ontiveros, 43, of Oceanside and Johnnie Mae Johnson, 57, of Vista, each were convicted of two conspiracy charges and acquitted of two others. A fourth defendant, North County resident Jacob Miller, 76, was convicted of one conspiracy charge.
San Diego Superior Court Judge Howard Shore allowed all four defendants to remain out of custody and set a sentencing hearing for April 20.
Montez faces the stiffest sentence and could be sent to prison for up to 12 years, prosecutors said.  via SignOnSanDiego.com

After the hurricanes of the past few years, the insurance companies have significantly increased the insurance costs for homeowners living in coastal regions of the southeastern United States. These insurance increases have had a factor in slowing down the housing boom along coastal Florida, Georgia, South and North Carolinas.

If you think about it, it makes good sense. Prices increased in these areas during the speculation boom, then the insurance companies took a big hit with the hurricanes in the south in 2004 and 2005 and either jacked up their rates significantly or got out of the market altogether. The example following this shows insurance rates for a home 2 miles from the ocean going from $500 to $3,900 in a year.

 That is like a nearly $300 jump in the monthly cost of ownership for a potential buyer. Or put another way, the increased insurance costs prices many out of the market, pushes many fixed income homeowners out of the market, and creates a change in dynamics that hurts the homeowners opportunity to sell.

Now I am not coming out against the insurance increases. It is a free market and the insurance companies are not there to throw money away, and if they price the market too high, competitors will come in and fill the void. But in this period there are many people getting squeezed and a slow market limits their options of getting out.  

The brokers spoke to a House subcommittee yesterday that is studying ways to bring rates down.
The brokers say higher insurance rates also could lead to higher hotel costs, keeping visitors away. They say it also could stop a promising trend of retirees with money moving to the coast.
One bill the subcommittee is studying would extend the state’s wind insurance pool from a narrow coastal strip to all of Horry County. A second bill would extend the insurance pool to all coastal counties.
The pool is a state-run service.
Ray Hester says insurance on his Garden City condominium two miles from the ocean increased from 500 dollars to 39-hundred dollars. via foxcarolina.com

The meltdown in the subprime market is coming to a head as Wachovia is shutting down its EquiBanc Mortgage subsidiary. The subprime lending division is facing tighter restrictions, a limited market for selling the debt, and new regulatory challenges forcing Wacovia to re-evaluate the buisiness.

The Web site of Georgia-based EquiBanc states Wachovia decided to close the business after “an intensive strategic review of its mortgage business, which has altered the company’s approach to the origination of nonconforming loans.”

A Wachovia spokeswoman confirmed the reason for the closure.

EquiBanc was Wachovia’s sole business dedicated to subprime lending, the site said.

If you are an agent, how will the lockdown on the subprime market affect your ability to sell?

When there is a slump in the marketplace, the smart business people will move their assets and businesses in the direction where there is the greatest opportunity for making a profit. Allen Tate Realtors, a dominant player in the Charlotte region is now making its move into the Raleigh Durham marketplace.

This is instructive not because of the specific move, but to watch the smart companies act decisively to maintain their market strength in a slower market and gain a competitive edge over their competitors in their local market. If the move is a success for Allen Tate Realtors, they will be much stronger when the Charlotte market comes back.

They have also made a great move in getting the 2007 President of the Raleigh Regional Association of Realtors, Phyllis York Brookshire, to be the new head of the Raleigh office. Instead of trying to cobble together a team, they have added one of the strongest players in the market to lead their team, and that should help recruiting new agents to fill out their roster.

What are you doing when facing a tightening market? Hunker down and try to ride it out, or search out the new opportunities that people are too afraid to act upon?

There has been movement by some of the larger banks in the country to become active participants in all aspects of the real estate transaction. Since the depression banks have been limited to only interacting in the financial side of the transaction, not the brokerage side.

Obviously, the National Association of Realtors has opposed this, and Senators Hillary Clinton and Wayne Allard have introduced the Community Choice in Real Estate Act, S.413 to keep banks out of the real estate brokerage business.

What are your opinions on this separation or would it not bother you if banks got into the brokerage business?

The Community Choice in Real Estate Act, S.413, introduced Friday, Jan. 26, 2007, is co-sponsored by senators on both sides of the aisle: Jeff Bingaman (D-N.M.), Sherrod Brown (D-Ohio), Richard Burr (R-N.C.), Maria Cantwell (D-Wash.), John Ensign, (R-Nev.), Russ Feingold (D-Wis.), Tom Harkin (D-Iowa), Joe Lieberman (I-Conn.), Richard Shelby (R-Ala.), Bernie Sanders (I-Vt.) and Olympia Snowe (R-Maine).

In a letter circulated earlier in the week, Clinton and Allard explain that allowing banks into the real estate industry would “upend one of our nation’s most fundamental economic policies – the separation of banking and commerce — and put our economy at risk.” The letter also notes that “allowing banks into real estate hurts competition and consumers. It will result in bigger banks, higher costs and less consumer choice and service.”

NAR has communicated to Congress its longstanding support for keeping banks as impartial providers of credit and not permitting them to control all aspects of real estate transactions.  via the Huntington News.

Anne Pember avoided jail time after she plead guilty to conspiracy in the Cendant accounting scandal. Pember, senior vice president of accounting for Cendant, was an instrumental figure in the fraud that cost Cendant over 3 billion dollars. She received 2 years probation and 200 hours of community service. There was no mention of restitution.

Ms. Pember was controller at CUC International of Stamford, which merged with HFS Inc. of Parsippany, N.J., to create Cendant in December 1997. Ms. Pember became Cendant’s senior vice president for accounting.
Prosecutors say the scheme inflated the stock value of CUC International, Cendant’s predecessor, by $500 million.
The fraud cost the travel and real estate company and its investors more than $3 billion. The fraud was reported in 1998, causing Cendant’s market value to drop by $14 billion in one day.
Ms. Pember and other defendants have said CUC’s quarterly earnings were inflated in the two years leading up to the merger through improper accounting methods, including underfunding a reserve, accelerating recognition of revenues, deferring expenses, and drawing money from a merger account to boost revenues.
Cosmo Corigliano, CUC’s former chief financial officer, is scheduled to be sentenced Tuesday. He also has asked to be spared prison time, citing his extensive cooperation in the investigation.
Former Cendant Corp. Chairman Walter Forbes was sentenced to 12 years and seven months, while Vice Chairman E. Kirk Shelton received a 10-year sentence. Both men were ordered to pay $3.275 billion in restitution. via WSJ.com.

Last week I reported a story out of the Ottawa Citizen that housing in the country had risen over 25 years by 11 percent annually. A couple of readers pointed out the error in the math, Buford Twain and Stephen Bond, and we saw the mistake as well, albeit after we posted it to the site. Well, the national papers in Canada are printing a retraction that housing only appreciated 5.3 percent, and so are we.

We were wrong, they were wrong, hopefully this will set the record straight. Sorry for missing this one, folks, but I hope to do better in the future.

“Conventional wisdom used to be that real estate was a relatively safe, long-term investment that typically appreciates at a rate of five per cent annually. These statistics clearly tell a different tale,” declared Re/Max executive vice-president Michael Polzler.
Actually, they don’t.
Re/Max made a basic arithmetical error by computing a simple average, without taking account of the compounding effect that annual increases have as they are added on top of one another.
After media inquiries, Re/Max issued a clarification: “Nationally, the compounded annual rate of return is 5.3 per cent” - which confirms the conventional wisdom.
The biggest local annual compound growth rate that Re/Max tracked, in Barrie, Ont., was 6.4 per cent, while the smallest was in Regina at 3.6 per cent - which after property taxes and maintenance costs rounds to something close to zero, not counting mortgage interest and inflation. via the Canadian Press

Danny DiVito and Rhea Perlman, one of the great successful Hollywood marriages, are selling their Beverly Hills home for 32 million dollars according the Los Angeles Times. The couple also have a smaller home, 3,300 square feet, so selling the large Beverly Hills mansion is not going to crimp their style too much.

The actor, who stars in the FX comedy series “It’s Always Sunny in Philadelphia,” and his wife, a former star of “Cheers,” have listed their Beverly Hills home of nearly 20 years at close to $32 million. The couple mark their 25th wedding anniversary today.

No reason was given for selling the house, which is in the same neighborhood as the home sold last year by Brad Pitt and Jennifer Aniston for about $23 million.

Both houses were designed by Wallace Neff. The one that sold is a French Normandy. The DeVito-Perlman home is Country French. Both date to the ’30s but were recently refurbished.

The house for sale has five bedrooms and seven bathrooms in 14,500-plus square feet.

There are two pools on the property, which is just shy of 2 acres.

Other features are a movie-theater-quality projection room, a sound studio, a guesthouse, two offices, a gym, a library and a wine cellar. via the Los Angeles Times.

In the past, the term McMansion referred to huge suburban homes that were built at a low cost because the builder was typically able to buy inexpensive land and put large homes on them. The derogatory term McMansion stuck alluding to the mass produced estate homes in a subdivision. The term has now morphed into a home that is much larger and potentially ostentatious than the surrounding neighborhood.

And this is how urban areas are being infiltrated with McMansions. Families that prefer the larger homes are now trying to avoid the longer commutes and buying up smaller intown homes and either converting them or demolishing the homes to build much larger properties than is typical in these communities. In the past this was called gentrification, but those opposed to development in these neighborhoods have latched onto the term McMansion as it has greater appeal to the media.

Now the trend is creeping from pricey, historical enclaves like Kenilworth and Denver’s Washington Park into middle-class bastions like Denver’s Platt Park and University Hills — aging tracts of 1,000-square-foot bungalows built from the ’20s through the ’50s. Some families weary of long commutes from the newer suburbs are turning back inward and remaking older neighborhoods to suit modern tastes.
While the teardown trend has slowed somewhat nationally because of the housing slump, bulldozers continue to roll in Denver: Home demolition permits numbered 198 in 2004, 352 in 2005, and were on track this year — 111 in the first five months of 2006.
The National Trust for Historic Preservation said teardowns threaten the character of 300 communities in 33 states, and that more than 75,000 homes are torn down and replaced with larger homes each year.
Ed Tombari, a land planner with the National Association of Home Builders, said critics of teardowns have it backward.
“We perceive teardown housing as part of the overall smart-growth strategy to direct development to the inner cities and to areas that already have infrastructure and public transportation,” Tombari said. via MSNBC.com.