Daily Archives: March 22, 2009

The depressive power of this blog reaches North Carolina, slams real estate prices there.

Don't buy a house!
Don’t buy a house!

The Bank of America can’t sell its executive’s home.

March 20 (Bloomberg) — Barbara Desoer, who runs the largest U.S. housing lender, can speak from experience about tumbling property prices: She couldn’t sell her own home.

Desoer, 56, put her 4,500-square-foot house in Charlotte, North Carolina, on the market Aug. 1 for $1.675 million. She had just been named head of Bank of America Corp.’s real-estate unit, Countrywide Financial Corp., in Calabasas, California.

The home, which she and her husband bought in 2000 for $1.15 million, sold in December for a price that wasn’t made public. The buyer: Bank of America, according to a proxy the lender filed March 18. Now the house is for sale again, at $1.295 million, $380,000 less than the original asking price, according to listing agent Allen Tate Realtors.

“The scary thing is the amount of inventory we have right now,” said Ed Baesel, a Charlotte real-estate broker with Cottingham Chalk Bissell Hayes. At the current pace of sales of $1 million-plus homes in Charlotte’s most expensive neighborhoods, it would take more than six years to sell the homes on the market, he said.

Million-dollar homes are finding few buyers as increasing job losses, slumping stock prices and declining property values cut demand for new and existing U.S. homes. Home prices fell 12.4 percent in the fourth quarter from a year earlier, the most ever for an index compiled by the National Association of Realtors. In the Charlotte area, home to Bank of America, home sales have posted double-digit percentage declines every month since June 2007, according to the Carolina Multiple Listing Services.

Bank of America isn’t the only company stuck with an executive’s house that didn’t sell. AT&T Inc. bought Chief Executive Officer Randall Stephenson’s San Antonio, Texas, home for $1.7 million after relocating him to Dallas, according to a regulatory filing on March 11. AT&T spokesman Michael Coe declined to comment yesterday when asked whether the house was still on the market.

AT&T sold the homes of two other relocated executives, Ralph de la Vega andJames Cicconi, at a discount, according to the filing. The company paid $3.05 million for Wireless President de la Vega’s house and sold it for $2.9 million. Executive Vice President Cicconi was paid $807,317 for his home, which was sold for $740,000.

Reached for comment, Miss Shelton 04, an Old Greenwich housewife, was bitter. “I blame Chris Fountain,” she insisted. “The friggin’ guy is the only real estate agent in the world who is bad mouthing the market so it’s obvious, isn’t it? I mean come on, if he weren’t doing that, North Carolina property values would be soaring right now. But these guys should do what I’m doing: stick their fingers in their ears, stick out their tongue and say nahna nahna na na! That will chase away all this bad karma Fountain’s been strewing and we’ll all get exactly the price we want and deserve.” Miss Shelton then terminated the interview, saying that she was overdue spreading pixie dust on her rooftop.

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This should delight liberals

Sweat shops shut down in Cambodia – thousands return to poverty.  Now we can produce $150 shirts in the good old USA and we’ll all be rich. Too bad about those Cambodians but freed from the exploitative labor they’ve been forced to endure, they can now contemplate life, be fishermen in the morning, farmers in the afternoon and poets at night, just as Marx promised. Until they starve to death.

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I’ve said it before – dump the bailout

Barney Frank wants to bring a shareholder’s suit against AIG to recover the bonuses. Not as bad an idea as the bill of attainder being rushed through Congress – Frank’s proposal at least honors the rule of law, but politicians of both parties have their sights on a far bigger target than poor old A.I.G.

Policy makers also should address “the whole question of executive compensation and the perverse incentives” that result from how it’s structured, Frank, a Massachusetts Democrat, said today on CBS’s “Face The Nation” program.

“One of the things we ought to be doing is suing as a shareholder, saying ‘look these are people who were paid bonuses that they weren’t entitled to,’” Frank said.

Senator Charles Grassley of Iowa, the top Republican on the Senate Finance Committee, said taxes are “Congress’s best leverage” for retrieving the money.

“We believe people ought to be compensated right,” Grassley said. “But there is a whole different ethic when you have the taxpayers bail you out.”

It’s not just banks lining up for these handouts, and Congress seems delighted to put everyone who asks on the dole. Why? Because while today it’s just executive pay that they will regulate for the recipients, tomorrow they can demand whatever strikes them as suitable and expedient. Energy conservation, minimum wage, mandatory unionization, health care, no health care, maternity leave, you name it, there is a pressure group demanding it and Congress wants to deliver. These bailout funds are just the beginning of total federal control over what’s left of our free enterprise system and it’s appalling that businesses seem so willing to sell their hangman the rope.

 

 

Republican Chuck Grassly prefers to confiscate it through taxation:

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How to explain the credit crisis to children or bloggers like me

Reader Tony C sent me this link to an 11 minute video on the credit crisis – what it is, how it developed.  The creator, Jonathan Jarvis, is a visual arts student ( I think – if I have that wrong, I apologize to Mr. Jarvis) and he does a bang-up job presenting a complex topic in a simple, compelling fashion. Got a precocious fourteen-year-old who wants to know what the heck is going on? This is what she needs to gain a basic understanding. Just an old philosophy student who skipped finances in college? Works well there, too. Well worth the 11 minutes.

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Cry me a river

Obama disappoints the editors of the New York Times.  I stopped heeding their advice when I was 12 but surely Obama wouldn’t ignore them – would he?

But we did not expect that Mr. Obama, who addressed these issues with such clarity during his campaign, would be sending such confused and mixed signals from the White House. Some of what the public has heard from the Obama administration on issues like state secrets and detainees sounds a bit too close for comfort to the Bush team’s benighted ideas.

UPDATE: Oh dear, now Chavez is calling our president an “ignoramus”.  I want my hope and change!

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Who is John Galt?

Congress is set on destroying our financial services industry. I realize that the response to many of my fellow citizens to that news is “good” – witness the best-selling success of “The World Without Us” but those of us who don’t share their romantic view of a primitive life without heat, light or adequate food may not be so sanguine. Already, bankers are deserting the ship. Obama’s latest (and Barney Frank’s renewed) threat to extend confiscatory taxes on all pubic corporations may finally accomplish what the USSR could not. And my countrymen will be cheering as it happens. Here’s a bit of the Financial Times article linked to:

Bankers on Wall Street and in Europe have struck back against moves by US lawmakers to slap punitive taxes on bonuses paid to high earners at bailed-out institutions.

Senior executives on both sides of the Atlantic on Friday warned of an exodus of talent from some of the biggest names in US finance, saying the “anti-American” measures smacked of “a McCarthy witch-hunt” that would send the country “back to the stone age”.

“Finance is one of America’s great industries, and they’re destroying it,” said one banker at a firm that has accepted public money. “This happened out of haste and anger over AIG, but we’re not like AIG.”

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What’s the prognosis?

I have been emailing back and forth with a reader who is moving to Greenwich and today he asked what he termed “a simple question”. It isn’t but here, edited to preserve his anonymity, is his question and my response. I’ be delighted to hear what you guys think. It’s the future we’re guessing at here so I, at least, won’t pretend to have any certainty. Those of you who do, please fire away. Otherwise, just guess, as I am doing.

Christopher, would value your perspective on this simple question. We have sold one home and have one to go before we have the money to get what we really want in a town like Greenwich. If our home was worth [XXX] out here at peak we might get [ XXX] now. We will lose money vs what we have in it 6 years ago when we built it. It would cost [xxx] to replace.  But there are 26 homes in our range in our county and not one has sold in the past year!

So it is down 22% from its peak …… My question is:  will real estate in GRE decline by a similar 22 percent so should I be indifferent and just take the loss here to move on?  Lose here to gain there? Sell low, buy low?   It is hard not to be emotional about losing money on your primary home especially since we were never super inflated out here, but my sense is that as long as GRE  will fall by a similar percentage it would actually be a much better investment in the long run than out here in [the Midwest]. From reading your blog I get the sense that prices will in fact have fallen by 20% in GRE. Thank you!

So here’s how I responded:

 [P]rices are certainly falling out here and, while I believe we are down to 2000 prices, which would be roughly a 40% drop in the high of 2007, few sellers agree with me so their prices remain at 2004 pricing at best (15-20% off peak). The only houses selling are those marked way, way down but they are so few and far between that it’s tough to make a strong statistical argument that all prices should be down that low. I believe those statistics will start showing up as sellers give up. There are plenty of buyers here, ready to move, but they won’t move until that happens. On the other hand, if I’m wrong, perhaps we’re at the bottom now. I don’t think so, but plenty of other agents think so, or say they do.

My educated guess, based on anecdotal evidence from stories I know and hear, is that we have, sadly, a ton of unemployed financial people who have been struggling to hold on, convinced that they’ll land another job and resume the good life. If that doesn’t happen, and I don’t think it will, soon, these folks are going to have to face reality. And prices will drop.
The spec houses are beginning to drop – watch for a sale tomorrow of one new house – I’ll send you details when it’s reported. This was built by one the best, most successful spec and custom builders in town who always got his price, even in soft markets. He had this listed at almost $8 million and rumor has it that it’s going to close tomorrow at $5 million or, another rumor says, $6. Any sale at that level is good news, but 5 on 8, or even 6 for 8, for this builder, is pretty bad. Inferior spec houses are in so much trouble it’s just awful. Some of their builders are in violation of their loans and are paying 8% + to keep the banks off their back. That’s unsustainable. One of the biggest local lenders, has, it’s rumored received a “90 day letter” from the FDIC and now has just 60 days left to sell itself to a stronger bank or be closed down by the feds. Their portfolio of troubled loans is huge and depending on what a new owner does with them, we could see a flood of brand new, huge houses going for pennies. That will drive down prices of existing homes.
Etc. So yes, I think Greenwich prices are destined for a 40% drop, across the board, soon. I then think they’ll bump along for a few years at that level before eventually climbing again, slowly. Greenwich will always be, I hope, a premier destination for successful people who want to get out of the city to raise families – the schools are good, the streets are clean, our taxes are very low, we have a strong functioning government and the population is generally very well educated and successful. I don’t see that changing and if it doesn’t, real estate values here will rebound and will never drop below other, surrounding towns with fewer of those attributes. 
Greenwich, like Manhattan, was one of the last areas to feel all this financial collapse. But we’re really at the epicenter of it – our fortunes are directly tied to Wall Street and, just like Manhattan, the woes of that district are finally hitting home, hard. But I have faith in the intelligence and skill of that crowd – they’ll be back or, if not, a new wave of people just as smart and ambitious will replace them and when that happens, Greenwich will be the beneficiary. So I like our long term prospects. And it’s not a bad time to be a buyer. As you say, looking at both ends of the transaction, you’ll come out ahead. I know that’s hard to do. My pal Nancy and I were forced to walk away from our partially – restored 1835 farmhouse in Maine years ago when we returned to Greenwich. We’d spent all our spare time on that place, replacing windows, painting, rewiring, etc., and it hurt like hell to just give away two year’s of our labor for free. Yet we couldn’t afford to own two houses and we certainly didn’t need a house sitting empty 8 hours away, so we did the deal. It turned out well, but that still hasn’t completely erased the pain 25 years later. Again, looking at the total transaction, both ends, is the only rational way to go. But who says humans are entirely rational?

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Chris Dodd’s Irish Cottage

The Hartford Courant won’t let up. Good for them. I’ve always thought that this fling into international real estate might prove more harmful to our despicable senator than most of his other shady deals. And no one has yet to delve into his financing of the purchase. When they do, we may find out that the Chairman of the Banking Committee dipped into federal funds available, supposedly, only for homes located in the U.S. That’s the rumor anyway. Perhaps we’ll see.

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Here’s a novel idea: let market forces clean up the housing mess

Sales in California are moving again, according to the Wall Street Journal, thanks to prices dropping 50%. Congress is determined to keep people in houses they can’t afford by, well, making them more affordable: mortgage cram downs, low interest loans, foreclosure moratoriums, whathaveyou, it’s all a repetition of what created the problem in the first place. So we’re prolonging the shake-out, not curing it. I see it as a temporary solution to a permanent problem.

MOUNTAIN HOUSE, Calif. — California’s mortgage crisis hit this master-planned community particularly hard last year, and eventually 90% of mortgage holders here owed more than their homes were worth.

But residents are allowing themselves the first twinges of optimism amid the gloom. The 2,600 existing homes in this development 60 miles east of San Francisco are selling at nearly three times last year’s pace. One builder has sold about 30% more homes in 2009 than a year ago. And homeowners here are seeing the welcome return of another phenomenon: the bidding war.

When Catrina Koleva and her husband found their dream home listed here for $299,900 in February, they figured they would try to win the five-bedroom spread. Instead, they faced 12 other bidders and gave up. The winning bid was 30% over asking price, said Tabari Palmer, a representative of the listing agent. “I think people are seeing there are some pretty good values here,” Ms. Koleva said.

No one wants to call a bottom in Mountain House after what happened. Home prices have fallen more than 50% from their peak amid masses of foreclosures. (The home Ms. Koleva wanted last sold for $781,900 in January 2007.) But 48 homes have sold so far this year and another 59 are in escrow, compared with just 19 sales in the year-earlier period, said MetroList Services Inc., an industry-tracking firm.

It’s by no means smooth sailing from here, but California’s woes came early and, fortunately for the state, the solution also arrived before the Feds came to the rescue.

Few economists say California’s housing debacle is over, and things could even get much worse. The state’s unemployment rate of 10.5% in February is likely to rise, they say. So are foreclosures, which rose 5% in February from the month before, according to industry researcher RealtyTrac Inc. The median home price in California fell 57% to $254,350 in January from $594,530 in May 2007, and prices continue to drop in many places.

There is another potential time bomb: What happens when banks put on sale the thousands of homes they have repossessed, but kept off the market?

That is a nagging question in Mountain House, where about 280 homes have been taken off the market since the first of the year, many of them foreclosures. “We can’t reach a bottom in the housing market until all of the foreclosures get processed,” said Tom Beede, chief executive of MetroList.

But Mountain House has fallen so hard that even a slowing rate of descent gives residents a reason to see some light. 

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