Time to sign off but here’s a cheerful parting observation

I showed a house to a couple today – they might buy it, they might not, but here’s the deal: I know what the builder will accept (and what he says he’ll accept is probably still higher than what he’ll get). Even assuming that he gets his price, there’s an identical house on the same street, built by the same builder, that went for 25% more 18 months ago. The second this new house sells and therefore sets the new value for this street, that earlier buyer is going to see every penny of his equity disappear. Even if he keeps his job and can stay current on his mortgage, it’s bound to get discouraging to be paying off a loan on an asset that’s worth less than the debt. Of course, car buyers got used to that proposition; I suppose home buyers will have to, too. Or perhaps they’ll rent, instead of buy.

Healthy banks rejecting TARP funds, restrictions

Makes sense to me. The question that’s running around in my mind ( lots of room to run around there, alas) is, why bail out these bad boys at all? They fail, they fail. If I understand the bailout proponents’ argument, there’s plenty of money out there ready to resume refinancing the world economy, but it’s being held out of the game because of uncertainty over the soundness of banks. So let the banks go bust. Wouldn’t the toxic portfolios then be reset to zero, just as Obama is apparently planning, and wouldn’t new investors then come in to take over the banks, knowing they’d no longer had any liability for their stupid loans? It would wipe out existing shareholders, but I’ve never understood capital to care who owns it – the stuff just shifts. I’m sure I’m being simplistic but if the choice is between shareholders paying the price for their companies’ bone headed moves and me and my kids doing so, I say wave goodbye to the shareholders.

Not every Greenwich homebuyer works for an investment bank

But a lot do and those that work for banks that are TARP recipients may be facing a bonus deficit for the next few years, according to the WSJ. There was a flurry of showing activity the past two weeks as bonus checks for 2008 were handed out. If those lookers fear that they won’t see a similar check for a long time, our spring market may be still born. That will open up a lot of properties to other people, but I doubt sellers will be thrilled. Still, I think I agree with this law professor:

“I’ve been a big free-market guy, but with the free market you get what you deserve, and the foxes have been guarding the henhouse,” said Jonathan Macey, a law professor at Yale University. The way that bonuses were doled out was “corrupted” because it “morphed into an expectation” instead of a reward for performance, he said. “That’s not credible anymore.”

No, it’s not. We’re about to experience a paradigm shift; always an interesting thing to live through.

Banks eliminating role for mortgage brokers

JP Morgan, for instance, will now accept loan applications only from its retail branches. This is the same firm that sold investors a triple-leveraged deal in Walt Noel’s operations and then pulled its own money out when it figured out the Ponzi going on but didn’t warn its clients. Its claim that it won’t deal with brokers because it can better serve its customers in house rigs just a bit hollow. Good mortgage brokers could shop 5-10 different lenders and come up with the lowest rate and their presence in the market place kept the banks competitive. If borrowers must now make separate applications at each bank, paying a separate fee at each, the only winner will be the fine people at institutions like JP Morgan. Fortunately, we know how honorable and trustworthy they’ve proved themselves to be, but do we know that about every lender?

Connecticut waterfront sales slow, but not in Greenwich

Tales of woe here from much of Connecticut’s coastline but note the comment from a Fairfield agent – direct waterfront sales have dried up because of their expense but 36% of all sales in town were in “beach neighborhoods” – close to, but not on the water. So people still want it, they just can’t afford it. That may change.

Greenwich waterfront is doing just fine, with the only waterfront land lingering being the ridiculously over-priced. Here’s Russ Pruner, saying just that. 

Yet Greenwich also happens to be another place where waterfront property is still moving — if it’s fairly priced, according to Russell Pruner, a partner at Shore and Country Properties.

One reason, he suggested, is that a beach berth in this status-conscious town is still considered the “triple-A bond” of Greenwich real estate.

Another is that there aren’t many of these properties available: as of a week ago, only 2.5 percent of the 560 homes on the market in Greenwich offered direct waterfront property. “If waterfront comes on, unless it’s grossly overpriced, it will sell fairly quickly,” Mr. Pruner said.

In the Riverside section of town, for example, a 4,000-square-foot house on Long Island Sound closed this month for $10 million after being on the market for just two months, a third of the current average. The home, which has a separate studio and two acres of land, had been listed for $12.9 million, but Mr. Pruner said $10 million was a more realistic value.

On the other hand, a new six-bedroom home with eight baths with tidal waterfront in the Belle Haven section of Greenwich, has not sold after 17 months on the market. In Mr. Pruner’s estimation, the current price of $16.7 million, though down from the original $17.9 million, is still “astronomical” given that the back of the 2.3-acre property is roughly 100 yards from Interstate 95.

“That,” he predicted, “is going to be sitting for a while.”

Russ is spot on, and, though he wasn’t asked, he could have mentioned some Byram shore properties that suffer from the same price defect. Here’s the odd thing about the “new” Belle Haven spec house he refers to: every agent who toured it at its open house some years ago knew it was way, way overpriced. It’s sat unsold forever because it’s overpriced. I assume the builder’s agent has told him what everyone else knows, so why the stubbornness? Unless we’ve finally located Mad Monkey’s lair, why hasn’t this guy accepted reality? My  pal Frank Farricker, who is smart in every area except his politics, speculated in print to the New York Times months ago that, if the market ever comes back, this house will be so dated and, with its huge size, so out of fashion that someone will end up bulldozing it and stating over. I don’t know if things will get that bad (it would improve the neighborhood if they did) but can this builder possibly think that the entire collective opinion of agents and buyers is wrong? We agents can be wrong and often are – buyers never are.

Well okay, maybe London’s housing market will take a hit, but not Fisher Island (FL, not NY) – it’s different

Different or not, 25% of the properties on Fisher Island are for sale, and few are selling.

But even here, a haven for wealthy families since the late 1980s, the economic storms are bearing down. About a quarter of the island’s 695 condos are up for sale, roughly double the number on the market in recent years, and few are finding buyers. Sellers are cutting prices, brokers say, and one unit is in foreclosure, a surprise to some residents of a place where home prices range from $335,000 to $30 million.

“Nobody has unlimited net worth,” says Ted Pincus, a retired public relations executive who owns a five-bedroom home here. “Fisher Island has been hit like everybody else.”

Wealth is no immunization against this downturn. Across the country, the sinking economy is affecting even the most luxurious communities and causing anxiety among residents. On Nantucket, the value of homes sold last year was $445 million, down almost 50 percent from 2005.

In Southhampton village on Long Island, the real estate market dropped by a third last year, to $346 million. And the Yellowstone Club, a retreat for the superrich in Big Sky, Mont., filed for bankruptcy last year.

“The wealthiest people are cutting back, too,” says James D. Hardesty, of Hardesty Capital Management. “They are scared. This has been a very tough market for a lot of people, and of course they have lost money.”

 

Until last year, some residents of the island thought it had special features that would help shield it from economic hurricanes. It’s only 20 minutes from Miami International Airport, and it attracts a wide range of buyers. About 70 percent of residents come from outside the United States. Moreover, its appeal extends beyond retirees, or families looking for a second home; many residents live on the island year-round.

 

When the economy was soaring, few worried about the high cost of living here. But the downturn has created tension, and many residents are trying to rein in spending.

That’s tough to do when you live in a place where the board of the country club recently approved a plan to spend $60 million in upgrades. That has caused some tenants, like Mr. Goodwin, whose annual expenses run to $80,000 for a 720-square-foot home, to put his property up for sale.

“It was a grandiose program that went directly into the eye of the storm,” he says. “I used to be rich and by American standards, I still am. But now it is a time for people like me to hunker down.”

 

Ok, Farricker - you be Frank, I'll be earnest: the market sucks!

 

While bankers starve, local Demmerkrats feast

Local politicians displayed a blithe ignorance of the troubles of their neighbors this past week while gorging on stuffed swan, swallow tails and entire roast oxen at La Scala. “Who’s Walt Noel?”, Frank Farricker mumbled around a mouthful of turkey drumstick. When told that Walter and his wife Monica had been evicted from their Round Hill cottage and were now living in an unheated hut across the street Frank pretended a moment of concern. “Is he one of the caddies up at my club? Well, geeze, that’s too bad, but I thought that type went south for the winter. What is he, senile or sumptin?” He then returned to a discussion on raising taxes on the rich with Goldman Sachs alumnus Jim Hines. “S’go away,” he told this reporter. “We got work to do.”