BUYER'S STRUGGLE WITH LOW INVENTORY IN TRAVERSE CITY REAL ESTATE MARKET

Original Story: upnorthlive.com

TRAVERSE CITY, Mi. (WPBN/WGTU) -- As the weather in northern Michigan is heating up for summer, so is the real estate market.

Homes are selling quickly after being put on the market. A Traverse City real estate lawyer is following this story closely.

"We do have low inventory right now which is great for sellers but can be frustrating for buyers," said Century 21 Northland realtor Meagan Luce.

It's a seller's market for real estate in Traverse City.

"The homes are selling within 97 percent of the list price, there is no 5 to 10 percent discount, you're wasting your time and it just shows that you're uniformed," said Versatile Mortgage owner Randy Brown.

More people than ever are trying to buy homes in Traverse City, but there is not enough inventory to keep up.

"I had just listed a home yesterday and we've already received an offer on it and are expecting a second offer this evening," said Luce.

For many buying, it's not their first home. A Traverse City real estate contracts lawyer represents clients in real estate transactions.

"I would say almost 70 percent of my business is second home buyers," said Luce. "All the time I'll go on listing appointments and I'll have my seller say to me, 'my buyer's coming from Chicago, my buyer's coming from New York, my buyer's coming from Texas' and a lot of our higher end second home buyers are cash buyers and they're actually coming from our region."

But the lack of inventory is hitting one group of buyers particularly hard.

"It's very difficult to find something under 200 thousand and so they're getting kind of priced out of the market because as the real estate prices keep going up, if wages don't track that then we do have a little bit of a bubble there," said Brown.

And says out of town buyers are contributing to this rising market.

"Prices are up and lot of that is influenced by people that are coming to Traverse City from other markets where they understand that Traverse City is still cheap compared to where they're coming from," said Brown.

Realtors say right now the average home in Grand Traverse County is on the market for just over 100 days, but if it's priced right it will go even quicker than that.

They also say this spring they will likely see bidding wars on homes and buyers will actually pay above the listing price.

Some Buyers Hindered By New Rules For Condominium Loans
Story from Boston.com

Condominiums are becoming more difficult to purchase and refinance as lenders increase fees and tighten regulations to offset what they say is the higher risk of lending to buyers of condos as compared with buyers of single-family homes.

The changes are part of an effort by mortgage giants Fannie Mae and Freddie Mac to limit risky lending in a segment of the housing market particularly hard hit by foreclosures in recent years.

In addition to paying higher fees to get a loan, prospective buyers now must make down payments of up to 20 percent because companies that traditionally insure lenders against borrowers who default are shying away from condos.

Peter Milewski, an official at MassHousing, the state's afford able housing bank, said condos are considered more problematic to lenders because a few foreclosures can affect property values for an entire complex. Also, he said, they carry monthly fees and special assessments that can create massive collective debts if individual unit owners fall behind on payments.

But Milewski and some other housing specialists believe the changes are too restrictive and may discourage qualified buyers from closing deals at a time when the housing market desperately needs to rebound. Even the state housing bank is challenged by the new regulations, he said.

"There has been a dramatic attempt to overcorrect based on what has happened historically," he said. "The pendulum has swung way past center."

Dena Capano of Salem is one of a growing number of qualified condo buyers forced to comply with the tighter borrowing requirements.

Capano, 24, said she was planning to buy a $129,000 loft in Salem in February when her lender demanded she increase the down payment from 18 percent to 20 percent or lose the loan. Capano said she came up with the extra money, but the deal still almost fell through because the condo association didn't meet another new requirement that it keep more money in reserve for repairs and other shared expenses.

"It was definitely more complicated than one would think," said Capano, an administrative assistant for the Lynn Museum and Historical Society.

Amy Tierce, a mortgage lender at Fairway Independent Mortgage in Needham, said the restrictions and fees, which are in force nationwide, unfairly penalize homeowners in the Boston area, where condo foreclosures have not been as prevalent as in other parts of the country. It's particularly unfair to first-time buyers, who often opt for condos, she said.

"In the Greater Boston area, when you've got less money to spend, a condo is your only choice unless you want to commute two hours," said Tierce. "Everybody has gotten nervous about condos."

Guy Cecala, publisher of Inside Mortgage Finance, an industry newsletter, said the condo-buying crunch is a nationwide phenomenon. "It's almost as if condos have been blacklisted," he said. "Financing options are much worse on condos, and it is very difficult to refinance now."

The National Association of Realtors is lobbying Fannie Mae and Freddie Mac, which are controlled by the federal government, to have the rules relaxed.

"A person with good credit and qualifying income ratios, why is that person being additionally harmed because that person wishes to buy a condo property?" said Lawrence Yun, chief economist for the trade group.

"If the buyers are hindered from entering the market, it will deter the housing market recovery."

Fannie Mae and Freddie Mac's guidelines, which vary slightly, affect much of the mortgage lending in the United States because the agencies end up buying or guaranteeing nearly 60 percent of all loans, according to federal data. Private lenders do not need to adhere to the new regulations, but those interested in later selling mortgages to the two federal agencies must abide by them.

One of the Fannie Mae and Freddie Mac lending changes is a surcharge equal to three quarters of a percent of the amount being borrowed. The agencies say the surcharge - which took effect April 1 - translates into about an eighth of a percentage point increase in an interest rate, although it could be higher depending on the borrower's credit rating and other financial details. To avoid the extra cost, anyone buying or refinancing a condo must provide a down payment of 25 percent, or demonstrate that they have equity of at least 25 percent in the property.

Brad German, a spokesman for Freddie Mac, said the point fee is meant to address the added risk of financing condos.

"The market has deteriorated, and the condominium market has become much riskier," German said. "We have adjusted our fees accordingly."

Both agencies also now will only loan to people buying into new developments where 70 percent of the units are already sold - or under contract - to owners who will live there, not those buying properties as investments. Until recently, only 51 percent of units had to be owner occupied. The agencies say the intent is to make sure projects are financially sound. But the change has left some otherwise qualified buyers unable to close loans and caused developers to consider turning condos into rental units.

Fannie Mae officials said they will waive the owner occupancy requirement if they determine a project has a strong chance of success - and has done so more than 200 times nationwide since March.

But developers say the occupancy minimum, combined with stricter lending regulations, is driving away business and keeping them from completing projects.

At the Residences at Atlantis Marina, a new luxury condo complex on the waterfront in Winthrop, several buyers poised to close on new homes earlier this year found they could not get financing because of the new requirements.

Developer Alex Steinbergh said his real estate company, Somerville-based RCG, is trying to find ways to help people move in to the 44-unit development. For instance, he is working with a lender who is willing to waive the new requirements by keeping the mortgages in its own portfolio rather than selling them to Fannie Mae or Freddie Mac. RCG also allowed a couple to lease their condo until they can get a loan.

"We have all of these people who are hanging there," said Steinbergh. "It's a big problem for developers."

Adding to headaches, homeowners who can't come up with a 20 percent down payment have traditionally been required to pay for private mortgage insurance, which protects lenders against loan defaults. But many private mortgage insurers now refuse to cover condos or are asking for down payments of 10 or 15 percent before they will issue a policy.

The changes have pushed some prospective buyers to consider single-family houses rather than deal with the complications of condo financing, said Mark O'Hagan, owner of the real estate company MCO and Associates Inc., in Harvard.

"Welcome to a brave new world," O'Hagan said of the tougher lending stipulations. "It makes it that much more difficult for sales of condominiums."

Where Is The Bottom For Real Estate?
These 10 Places in America Have Fast Falling Home Prices That Have Yet to Hit Bottom
Story from Forbes

Two weeks ago, Joyti Goundar, an agent at Redfin, a residential real estate brokerage, entered a bid of $420,000 for a three-bedroom, 1,625-square-foot La Crescenta home outside of L.A., listed at $299,000. When she lost the bid, she wasn't surprised. In July of 2008, Goundar bid $559,000 for a two-bedroom Arcadia house, also outside L.A., listed by Wells Fargo for $459,900. That one received 105 bids, driving the price up to $628,000, according to Los Angeles County records.

"Sellers want to generate a bidding war, and it's working," she says.

So does this mean Southern California prices have reached bottom?

Not by a long shot. Even with the bidding wars, prices aren't nearly as high as they were at the peak of the real estate boom. Values plummeted 31% in the L.A. metro area in 2008, according to the National Association of Realtors.

And values still have a long way to go. Based on historical balances of employment, housing sales, income, lending availability, foreclosures and vacancy rates, all dating back to 1982, home prices in the Los Angeles metro area still have 29% further to fall, according to Moody's ( MCO - news - people )Economy.com.

The best real estate deals, it seems, are yet to come.

Behind the Numbers

To figure out which housing markets have yet to reach bottom, we looked at the 50 largest metropolitan statistical areas in the U.S., as defined by the Office of Management and Budget and, using calculations from Moody's, analyzed each area's spending power, unemployment, housing and credit availability going back 27 years.

Over that time, each area's home prices have fluctuated differently according to these factors. Moody's calculations determine how much each area's home prices would have to change to bring that particular housing market back to a state of balance. The further from equilibrium, the further the market has to go. Projections were made on the basis of the current rate of price decline, absorption rate, employment and salary deterioration, and how long it would take each metro to wash out to a historical point of balance.

All of this adds up to bad news in one of the states hardest hit by the real estate bust, Florida--particularly Miami, Orlando and Jacksonville. Home prices are down 32%, 27% and 9%, respectively, in year-over-year terms, and are expected to decline a further 53%, 48% and 39% in each area, according to our calculations. Each has decade highs in unemployment, not to mention still out-of-balance price-to-home-price ratios.

In Miami, home prices are $234,200 at the median, and that's still six times the median income of $39,350, making it one of the nation's least affordable markets. Unaffordable housing markets are hit particularly hard when unemployment spikes, especially over multiyear periods. In Miami's case, unemployment has gone up steadily since 2007.

"These price decreases tend to add up in metro areas that have had continuous increases in the unemployment rate over the past two to three years," says Andres Carbacho-Burgos, an economist at Economy.com.

And unemployment has a nasty way of compounding with other factors.

"Rising unemployment is accompanied by a whole host of other occurrences--rising defaults and foreclosures, reduced mortgage originations, falling incomes, reduced industry investment and construction, increasing outmigration, and lower long-term income prospects," says Carbacho-Burgos.

In other words, as jobless rates go up a little, home prices sink a lot.

All Markets in this Together

It's not just broader metro areas, with their vacant outer suburbs, overbuilt beachfront and overly hopeful new developments that are taking hits. In New York, Manhattan has been showing signs of cracking for months, in the form of rising inventory and slowing sales.

Yet it wasn't until the first quarter of 2009 that it became apparent how much of a hit that market would take.

Manhattan median prices were down 21% in year-over-year terms, from $852,500 to $675,000, according to Miller Samuel, a Manhattan-based appraisal firm. While Moody's expects the broader metro to decline another 23%, and Manhattan will no doubt contribute to that, the price drops have at least piqued interest among those still employed, a lone bright spot.

While a slower housing price decline won't bring jobs back to AIG ( AIG - news - people )--or resurrect Lehman Bros. from the dead--and save housing prices, it at least wards off some fears of a return to the frightening bankrupt New York of the early 1980s.

"By the end of the first quarter there was a noticeable uptick in contract activity and attendance at open houses," says Jonathan Miller, president of Miller Samuel. "While this is partially attributable to seasonality, it is also a sign of first-time qualified buyers seeking to take advantage of improved affordability."

Though, as is the case in Los Angeles and most other parts of the country, that increased interest has yet to result in price reversals to sustainable levels. As long as unemployment continues to rise, don't expect that we've seen the worst of it.

Office Space Is Emptying Out

Businesses Vacate at Fastest Pace in Years, Pressuring Landlords and Their Lenders

Businesses are dumping office space at the fastest pace since the months after the Sept. 11 attacks, increasing the financial stress on commercial-real-estate owners and their lenders, many of them already ailing financial institutions.

Nationwide, rents on office properties -- including landlord concessions and discounts -- were flat in the third quarter, the worst result for office-property owners since late 2004 -- when commercial real estate began to emerge from a prolonged slump, according to Reis Inc., a New York real-estate research firm.

Rent stagnation and increasing vacancies put "strain on borrowers to make payments on mortgages," said Sam Chandan, Reis's chief economist. "It hasn't shown up yet in terms of delinquency rates, but this is clearly an issue we need to be very attentive to," he said. Almost every type of financial institution, from community banks to Wall Street, lends to office-building owners.

The office market in suburban areas and smaller cities has been declining throughout the year. But now, with a recession looking inevitable, the pain is spreading to most large metropolitan areas. Previously immune cities such as San Francisco and Boston saw vacancy-rate increases in the third quarter. San Francisco's vacancy rate rose 0.6 percentage point to 9.9% in the quarter. Boston's rate rose 0.8 percentage point to 11.7%.

Of the 79 markets Reis tracks, vacancy rates increased in 66. Rents declined or were flat in 40.

For the third quarter in a row, businesses vacated more space than they took nationwide, a phenomenon known as negative absorption. About 18 million square feet of space were emptied, the most since the first quarter of 2002, when 23 million square feet were vacated. With the addition of 11.5 million square feet of new space, the nation's office vacancy rate rose 0.5 percentage point to 13.6%, the biggest increase since the months following 9/11.

Commercial real estate so far has fared much better than residential. Cash flows of most properties have stayed healthy and delinquency rates on commercial mortgages have remained low. Unlike the real-estate collapse of the early 1990s, the market also hasn't suffered from overdevelopment.

But the office sector has been suffering declining values from the shortage of financing. Now the problems are beginning to be compounded by declining rent, rising vacancies and mounting expenses for attracting and retaining tenants. This will add to the strain on financial institutions that already have been stuck with tens of billions of dollars of commercial-real-estate debt and securities. Many of them may choose to sell this troubled debt to the government if Congress passes the proposed bailout legislation.

Because real estate moves slowly, the financial turmoil of the past few weeks hasn't yet showed up in the numbers. Mr. Chandan predicted the bank failures and consolidations will be reflected in office space later this year and in 2009.

Even so, the once-strong New York City market is showing signs of cracking. Its vacancy rate rose 0.4 percentage point to 6.1%, still the lowest in the nation. But property owners are already sensing the downturn.

Douglas Durst, a major New York City office-building developer who owns more than 8.5 million square feet of office space, said tenants are pulling back from leasing deals. For example, one of his tenants just backed out of a plan to move from 25,000 square feet in one of his Third Avenue buildings into 40,000 square feet in another. "Anybody who can delay, will," he said.

In another financial-services-heavy city, Charlotte, N.C. Charlotte's main real-estate profitcomes from its Charlotte Condos. Many real-estate players are holding their breath to see how Wachovia Corp.'s acquisition by Citigroup Inc. will affect office usage there. "It's still up in the air. We're in the eye of the storm," said Mike Kemmet, a vice president of real-estate brokerage Colliers Pinkard. Wachovia had been slated to move into a 48-story office tower, now under construction. Citigroup hasn't detailed its integration plans. The vacancy rate in Charlotte rose 0.4 percentage point to 11.9%.

The worst-hit office markets continue to be the ones bearing the brunt of the housing crisis. Businesses tied to the housing industry, such as home builders, engineers and mortgage lenders, have evaporated, leaving behind acres of empty cubicles.

The San Bernardino-Riverside, Calif., area saw its office-vacancy rate increase 2.6 percentage points in the third quarter and is up 6.8 percentage points in the past 12 months to 18.4%. Rents there declined 1.9% to an average of $18.88 a square foot last quarter.

Another hard-hit market is Tampa-St. Petersburg, Fla. Its vacancy rate grew 1.7 percentage points last quarter to 15%. Rents fell 1.8%. Alan Feldshue, managing director of office services at Colliers Arnold, a real-estate brokerage in Clearwater, Fla., said tenants are holding off on leases, wary in general of the economy. Companies that are willing to expand, are getting showered with so-called landlord incentives, such as several months of free rent and renovation and moving allowances. "If you are tenant out there, it's a great time," he said.

By: Alex Frangos
Wall Street Journal; October 3, 2008