Going, going, gone: Auctions of foreclosed homes becoming very competitive

COLLIER COUNTY — Deal or no deal?

These days it’s a question more investors ask themselves at the courthouse in Collier County as they bid on foreclosed homes. There’s an auction on the sixth floor at 11 a.m. Monday through Thursday.

A year ago, the auctions didn’t create much of a stir in the county. A few investors might have attended here or there. But mostly it was bank representatives who were there to buy the homes back for the lender.

Even six months ago, the auctions didn’t draw much attention. But over the past few months that’s changed, with more investor groups and other spectators going and bidding in hopes of getting a good deal.

“There’s a lot of people there. There’s a lot of lookers,” said Marc Shapiro, a Naples attorney and real estate investor.

He’s made a second career out of buying foreclosures. He’s done it for years and remembers when there were maybe two or three others showing up at the courthouse for auctions.

Now, there can be 30 or even 50 people attending a day. “It’s a lot of work now,” said Shapiro.

Competition can be fierce.

A few weeks ago, Shapiro got outbid on a $1 million-plus home in the exclusive Palmer Estates enclave on the west side of Gordon Drive. The winning bid of $1,427,000 came from Indru T. Khubchandani, who he didn’t recognize as a regular at the auctions. The estate home, with four bedrooms and four and a half bathrooms, offers 4,300 square feet of living space near the Gulf of Mexico. It’s in a gated community with private beach access for residents.

Shapiro dropped out of the bidding at $1.2 million. “Apparently, that was a bargain for this place,” he said.

Collier County property records show the assessed value for the home at nearly $2.9 million.

“It’s rare that you have something that nice go to foreclosure,” Shapiro said.

Every day, there is a handful of regulars at the auctions. They’re in search of properties they can fix up and resell, or maybe rent and sell later.

The players are companies like MFC Investments LLC, Asset Services, United Equities & Real Estate Group and Greater Atlantic Investments LLC.

There’s more interest from investors at the auctions because buyers are back. They are jumping off the fence, especially at the low end of the market.

“Things are moving,” Shapiro said. “They are moving at lower prices.”

Home resales have been up every month this year in the Naples area. Meanwhile, median prices continue to fall, dragged down by foreclosures and short sales — sales made for less than the bank is owed to avoid foreclosure.

The median price for all resales fell to $174,000 in May, down from $314,000 in the same month a year ago, according to a report released Friday by the Naples Area Board of Realtors. The median price is the price at which half the homes sell for more and half for less.

The fastest selling homes in the market are priced at $300,000 and under.

Last Thursday’s foreclosure auction brought competing bids on a handful of homes. Most went back to the lender.

In a few cases, where the lender did not send a representative, sales were cancelled.

There were 18 sales made at the courthouse that day. A group of about 40 packed tightly into a hallway for the bidding. Most were men, dressed casually in jeans or shorts. They carried spreadsheets and notes on clipboards. They talked rapidly on cell phones.

A podium was rolled out and a recording was played to explain the rules before the auction got under way.

To buy at the auction, you need money. A 5 percent deposit is required up front to bid. The full amount of the bid must be paid in cash by the next morning.

The first sale on Thursday was cancelled. But it picked up from there. A second sale had investors in a bidding war against each other and the lender. United Equities came out as the winner for that property, offering to pay $80,500. It was a five bedroom, three bath home on a canal in Golden Gate.

Bids for the home started at $200.

They jumped by $4,000 or more in early bidding. After the price edged higher, bids rose by as little as $100 as investors tried to one up each other.

Glenn Vereen, president of United Equities, has been going to the auctions regularly since January. He fixes up the homes he buys and resells them, often to first-time buyers.

“It’s kind of a neat thing that’s happening down there,” he said. “It’s really a repositioning of real estate. There are a lot of people now who are finally able to afford something, unfortunately at the expense of a lot of people who lost their homes.”

He bought six properties at courthouse auctions in May. He’s purchased four this month, he said.

“We had a woman last week that we sold a house to who cried,” Vereen said. “She was so happy.”

Investors who religiously attend the auctions picked up three properties last Thursday. One of the buyers beat out the lender by 34 cents.

“I didn’t get one property,” said Mike Conte, owner of Greater Atlantic Investments, showing his frustration after the auction. “I was outbid by the bank every time. I don’t get one — zero.”

In many cases, the lender’s representative only bids $100 and gets the property back.

“When the bank bids $100 that is not really the price of the property,” Conte explained. “The bank will bid much higher. Most of the people are aware of that. So they don’t even bother.”

If there are competing bids, lenders will often bid up to the amount they are owed, or the judgment amount, even when it’s more than a home can be sold for in today’s market.

“I’ve done auctions for probably 15 years,” Conte said. “But the most interesting thing is if the banks were not allowed to bid on these properties, you would see this whole foreclosure epidemic get better.”

One buyer looking for a home for his family at Thursday’s auction got lucky.

David Bayer, who has lived in Collier County for 28 years, bid $168,000 for a home in Golden Gate Estates. He beat out the lender, who maxed out at $167,156.34.

Bayer has gone to auctions for about two months. He’s bid on about 20 other homes, but the price always got too far out of his reach so he was forced to drop out.

His new home has three bedrooms and two bathrooms. It sits on 3.5 acres and includes a pool.

“I couldn’t go pretty much over $170,000 for a home. Most of the ones I bid on went higher than that. So I was surprised this one didn’t,” said Bayer, 68, who owns Ristorante D’Angeli on Fifth Avenue South in downtown Naples.

He drove by the house before buying it and researched it on the Internet. But he didn’t see the inside until after he bought it.

The former owners are still in the home.

“They had never tried to sell it before the auction,” Bayer said. “I asked them why and they said they thought President Obama was going to have a program to save them. So they decided to wait.”

Bayer told the couple they could stay in the house a while longer, giving them time to find another place to live.

“It has worked out better for all of us,” he said. “If the bank had bought it, they would have gotten the sheriff to evict them.”

He said the house — off 31st Avenue SW — can use some fixing up, maybe even a new roof. But that doesn’t bother him.

“I’m a hard worker. I can clean that up and make it look good,” Bayer said.

Ross McIntosh, owner and founder of REO Accelerated Disposition Associates in Naples, who can be found regularly at courthouse auctions, warns that a lot of research needs to be done before bids are made.

He buys properties to fix up and resell, using his own money.

If you don’t know what you are doing you could end up paying too much for a home, or getting stuck with someone else’s back taxes and liens.

“There’s money to be made and there’s more money to be lost,” McIntosh said. “My own experience is that we’ve made plenty of mistakes. You always know more about the house after you own it then you did before you owned it.”

 

Auction Industry Thriving in Recession, Talent in Demand

One of Orange County, California’s highest-profile luxury resorts, the St. Regis Monarch Beach Resort, is scheduled to be auctioned off on July 7^th, according to the Orange County Business Journal. The report states an affiliate of New York-based Citigroup Inc. is moving to foreclose on the 400-room hotel which opened in 2001. The hotel is currently owned and run by Newport Beach-based Makar Properties LLC, in a partnership with a unit of San Francisco-based hedge fund Farallon Capital Management LLC. Amid the recession, the report adds, the St. Regis was unable to maintain high occupancy levels particularly due to cutbacks by corporate-sponsored visitors.

The St. Regis is just one example of how the overall auction industry is thriving amid a slowing economy. In fact, the National Auctioneers Association (NAA) recently announced that in 2008, approximately $268.4 billion in goods and services were sold at auction in the U.S.

Executive search firm, A.E. Feldman, reports that as the number of assets changing hands continues to increase dramatically, demand for talent is mounting. The firm’s President, Mitch Feldman, says that as the auction classifieds expand, opportunities are opening up for a wide range of professionals - from high level sales executives to CFOs.

The Auction Method of marketing is one of the oldest and fastest methods of converting hard assets into cash. The NAA says growth in 2008 was led by five sectors of the industry, including agricultural machinery and equipment, commercial and industrial machinery and equipment, charity auctions…and real estate.

Real Estate Auctions Growing

Last year alone, $58.6 billion in real estate was sold at auction according to the NAA. The group adds that residential real estate auctions are the fastest growing sector of the quarter-trillion dollar auction industry. Real estate auctions have already grown by 30% over the last 5 years in the U.S., according to NuWire Investor. The report adds that both the National Association of Realtors, and the National Auctioneering Association, say that 1 out of every 3 real estate transactions will be sold at auction by 2010/2011 – a 10% increase from 2009.

Meanwhile, foreclosure filings in the U.S. hit a record high in April as banks increased efforts to seize homes from delinquent borrowers, reports Bloomberg. The report states that a total of 342,038 properties received a default or auction notice or were seized last month, citing data from RealtyTrac Inc. One in 374 households got a filing, the highest monthly rate since the property data service began issuing such reports in 2005.

Bloomberg quotes Nicolas Retsinas, Director of Housing Studies at Harvard University, as saying, “What you’re seeing is the inevitable result of severe job losses. Until we stem the job losses, we can expect to see continuing foreclosures.” This trend has been a boon for the auction industry.

The NAA report states, “Real estate auction marketing has historically become the method of choice during times of economic stress. Some of the most well established niche based auction companies grew most successful when times were tough.” The report adds that right now, the group is already seeing the shift.

NuWire Investor pinpoints five more reasons why auctions are currently gaining so much popularity:

1. Auctions set the seller apart from other competitive sellers.
2. Everything is sold as-is, contingency free – reducing frustration.
3. Auctions create increased competition between & among buyers.
4. Auction transactions are accelerated - the savings in carrying costs alone can make a big impact on the bottom line for a seller.
5. Auctions do away with a list price. This may be perceived as beneficial in tough economic times when determining value is more difficult.

Are you working in the real estate auction industry? If you want to grow your career or address your firm’s talent needs, contact A.E. Feldman’s President, Mitch Feldman.

 

Conservative Approach to Home Pricing Makes It Harder to Refinance or Sell

By JAMES R. HAGERTY and RUTH SIMON     Wall Street Journal

 

Appraisals are becoming one of the biggest obstacles for Americans trying to sell their homes, refinance their mortgages or tap into home-equity credit lines.

 

During the housing boom, appraisers often complained of pressure from lenders to inflate home-value estimates to justify dubious mortgage lending. Now, some people in the mortgage business -- and some borrowers -- say the pendulum has swung too far the other way.

 

Patti Sanders, an aerospace engineer in Oakdale, Calif., knew prices were down sharply but said she was "flabbergasted" recently when her 3,100-square-foot Victorian home was appraised at $250,000, compared with $635,000 assayed two years earlier. The new estimate prompted a lender to reject her application for a refinancing that would have lowered her mortgage payments about $400 a month.

  

The Sanders home in Oakdale, Calif., which has been appraised for much less than the owner feels it is worth.

 

Lenders burned by huge losses from defaults now are pressing appraisers to be more conservative. And appraising itself is more difficult with home prices fluctuating rapidly and transactions few and far between in some markets; sale prices from a few months back may no longer reliably indicate the value of nearby homes.

 

"If history is no longer valid, then it is very difficult to get good and accurate values," said Mark Rattermann, an appraisal trainer in Indianapolis.

John Rooney, an appraiser in Phoenix, said about half the recent appraisals he has done for people seeking to refinance have been too low to allow it. Applying to other lenders is likely to cost borrowers $350 or more for another appraisal.

 

Valuation disputes are also throwing a monkey wrench into some sales. Chris Rubis, a real-estate agent in Fairfield County, Conn., said one client recently accepted an offer of about $750,000 on a four-bedroom, four-bathroom home. But the appraisal, which was done by someone outside the local area, came in last week at $700,000. That might require the buyer to come up with more cash for a down payment.

 

"It's opened a whole new door for negotiation," Mr. Rubis said.

 

Credit lines are also vulnerable. J.P. Morgan Chase & Co. recently froze one customer's home-equity line of credit because, the bank said, his Manhattan apartment -- a 2,650-square-foot three-bedroom, two-bedroom duplex with a terrace appraised at $1.475 million in 2005 -- was worth just $600,000. Chase told the borrower, who asked not to be identified, that the lower credit line would remain in effect until a new appraisal could demonstrate the value was much higher than $600,000.

 

The borrower then paid for a new appraisal that pegged the property at $1.8 million.

 

"To protect borrowers and the bank, we use an automated appraisal system on our portfolio," a Chase spokesman said. "The system has proven effective. However, we encourage customers who think that the valuation is too low to order an appraisal and we will reimburse them...if it supports their claim." Chase will restore this borrower's full credit line, he added.

 

In some cases, lenders are requiring that appraisals be based on sales closed within the past three months rather than the prior six-month norm, appraisers said. Some lenders are also asking for comparisons with at least one sale in the past 30 days.

 

Taking their cues from lenders, appraisers are avoiding any estimate that could be deemed excessive. "I don't want to stick my neck out," said Mr. Rooney, the Phoenix appraiser.

 

The situation became more complicated on May 1 when the appraisal industry adopted the Home Valuation Code of Conduct. These new rules apply to mortgages that will be owned or guaranteed by government-backed mortgage companies Fannie Mae and Freddie Mac, which recently have accounted for about two-thirds of all new home loans.

 

Fannie and Freddie agreed to the code last year after New York Attorney General Andrew Cuomo accused them of failing to ensure that appraisers were shielded from pressure to inflate their estimates.

The code bars loan officers, mortgage brokers or real-estate agents from any role in selecting appraisers. This has encouraged lenders to outsource the selection to appraisal-management companies, or AMCs, which take a sizable cut of the appraisal fee. As a result, appraisers are under pressure to "do it faster, do it cheaper," said Bill Garber, a spokesman for the Appraisal Institute, a trade group.

 

Debbie Huber, a Las Vegas appraiser for 20 years, said she has turned down requests from AMCs that offer to pay 50% to 70% of her standard fee and require that the work be completed in as little as 48 hours.

 

Some appraisers said AMCs settle for appraisers who have little experience or live far from the homes they evaluate. John Simms of Peoria, Ariz., said he often gets assignments more than 100 miles away in neighborhoods he doesn't know well.

 

The upshot, appraisers said, is less accuracy and certainty about a property's actual value.

 

The code also permits lenders to own stakes in AMCs. That means lenders can profit from a service they require borrowers to buy -- and that protects the lenders themselves.

 

Appraisal-management companies said they need a big cut of fees to cover their costs and ensure quality. Jeff Schurman, executive director of the Title/Appraisal Vendor Management Association, said AMCs typically take about 40% of the fees and appraisers get the rest. Mr. Schurman said he has seen no evidence that AMCs' practices lead to lower quality.

 

While the new code is likely to prevent some abuses, it also removes flexibility. For instance, loan officers or mortgage brokers used to be allowed to discuss specific home values with appraisers, who sometimes would advise against ordering an appraisal if it seemed unlikely to be high enough to warrant a loan. That would save borrowers money.

 

The new regime also results in higher costs in at least some cases. Mitch Ohlbaum, a Los Angeles mortgage broker, said one client was recently charged $500 for an appraisal that would have cost about $300 before the code took effect.

 

Another source of frustration: If a borrower is happy with an appraisal ordered by one lender but decides to seek better loan terms from another, a new appraisal will likely be needed. The Mortgage Bankers Association said it is looking at ways to make appraisals more "portable" from one lender to another. 

 

 

By JAMES R. HAGERTY

Falling home prices are starting to ignite bidding wars in a few parts of the U.S. as first-time buyers compete with investors for the same foreclosed properties.

In most of the nation, the supply of unsold homes continues to swamp demand. Home prices in many markets continue to fall, and foreclosures, which slowed in late 2008 as mortgage companies delayed taking action against delinquent borrowers, are picking up again.

But real-estate brokers say multiple offers on certain homes have recently become more common in parts of California and Arizona and the Washington, D.C., and Minneapolis-St. Paul metropolitan areas.

Where Housing Is Headed

See changes in the housing markets in 28 major metro areas.

Early Signs of a Turnaround?

Some home buyers are bidding against each other on foreclosures:

• The action is confined to certain markets, including parts of California, Arizona and the Washington, D.C., and Minneapolis-St. Paul metro areas.
• Many markets, including South Florida and New York City, remain glutted.
• The supply of bank-owned homes is expected to grow over the next few months.

Tamby Leonard of Santa Ana, Calif., southeast of Los Angeles, says she has been outbid four times since January when trying to buy a home for her family of five. The more appealing bank-owned homes in her price range, around $300,000, tend to be sold quickly to investors who can pay cash. The market for homes in the Santa Ana area in that price range is "blazing hot," says Ed Mixon of Altera Real Estate, Ms. Leonard's agent.

On Wednesday, the Federal Housing Finance Agency reported that home prices nationwide rose a seasonally adjusted 0.7% in February from January, led by gains on the West Coast. When compared with a year earlier, however, home prices were down 6.5%.

Bidding wars -- common during the housing boom -- had all but disappeared soon after the market peaked about three years ago. Even now, they remain the exception rather than the rule.

The Wall Street Journal's quarterly survey of 28 major metro areas shows that there is still a glut of homes available in most markets. But the glut has shrunk, and some areas are running into shortages of moderately priced homes in middle-class neighborhoods.

Many housing economists expect the market to bottom out gradually over the next couple of years, with some parts of the country stabilizing well before others. California and Washington, D.C., for instance, are likely to recover faster than South Florida, which has an immense glut of vacant condominiums, and the New York City area, which has been hurt by Wall Street's collapse, says Kenneth Rosen, chairman of the Fisher Center for Real Estate at the University of California, Berkeley.

Across the nation, there is still a tug of war between bullish and bearish forces. On the bullish side, falling prices and the lowest mortgage rates since the 1950s have made homes far more affordable, luring shoppers like Ms. Leonard, who has been renting for years. Adding to the attraction, the U.S. government is offering tax credits for certain people who buy homes before Dec. 1. The credit -- equal to 10% of the purchase price, up to a maximum of $8,000 -- is available to buyers who haven't owned any other primary residence in the U.S. during the three years before the date of purchase.

On the bearish side, rising unemployment has knocked many people out of the housing market and made those who still have jobs skittish. Even those with secure jobs who want to buy can't always get loans on attractive terms because of today's tightened credit standards.

 A foreclosure sign sits outside a home for sale in Phoenix.

In addition, the supply of bank-owned homes is expected to grow over the next few months because many mortgage companies have ended moratoriums during which they refrained from proceeding with foreclosures.

The moratoriums artificially reduced the supply of foreclosed homes listed for sale, says Chad Neel, in Westminster, Colo., which sells such properties for banks. Now "there's a flood about to come on the market," Mr. Neel says. Foreclosures are likely to weigh on the market for years as courts and mortgage companies struggle to catch up with huge backlogs of unresolved cases.

Foreclosures, though far above normal levels in most of the country, are heavily concentrated in a few states, including California, Arizona, Nevada, Florida and Michigan. In areas with large numbers of bank-owned homes, buyers are mainly concentrating on those properties. That leaves ordinary homes languishing as owners generally refuse to slash prices enough to compete with banks.

In the Sacramento, Calif., metro area, about two-thirds of all March sales were foreclosures, says Michael Lyon, chief executive of Lyon Real Estate. The supply of foreclosed homes currently listed for sale is enough to last only about a month at the recent sales pace, he calculates. But there are plenty of homes listed for sale that aren't bank-owned, enough to last more than eight months.

In West Sacramento, a buyer represented by Cherie Hunt of Prudential California Realty recently competed against two other bidders for a three-bedroom home built in 2001. Ms. Hunt's buyer won by agreeing to pay about $220,000, or nearly $10,000 above the asking price. But that's still way down from $405,000, the price at which the same home sold in 2005.

"I have 20 buyers looking desperately," says Ms. Hunt.

Frank Borges LLosa, owner of FranklyRealty.com, a real-estate brokerage in Arlington, Va., is advising clients that banks favor all-cash bids or offers from people who seem certain to qualify for financing. Sellers may well choose the offer least likely to fall through rather than the highest bid, he says. He and other brokers say banks appear to be deliberately setting asking prices low in some cases to provoke bidding battles.

"There are a lot of buyers who think they can lowball," says Connie Vaughn, an agent at ZipRealty in the Los Angeles area. But in some cases mortgage companies already have cut asking prices enough to generate multiple bids. One of her clients recently prevailed over more than 30 other bidders by offering about $86,000 -- or $20,000 above the asking price -- for a four-bedroom house in Adelanto, Calif., that had sold for $200,000 in 2004.

A mortgage company recently slashed the asking price on a two-family home in Norwich, Conn., to $73,900 from $144,900. That price cut prompted five offers that the company is now considering, says Linda Davis of Re/Max Realty Group, the listing agent. She says the price cut was unusually steep but adds, "At some point, [banks] just decide to let it go."

That's encouraging, says Ronald Peltier, chief executive of HomeServices of America Inc. in Minneapolis, which owns real-estate brokerages in 19 states. "We do need to flush out the distressed inventory," he says, before the rest of the market can stabilize.

One positive trend is affordability. A family earning the national median pretax income of $52,800 a year needs to spend 25% of that income to buy a median-priced home, down from 44% in mid-2006, according to John Burns, a real-estate consultant in Irvine, Calif. For the Los Angeles metro area, that ratio has dropped to 45% from 102%. In Phoenix, it is down to 19% from 46%.

Among the markets Mr. Burns expects to recover earliest are the metro areas of Washington, D.C.; San Antonio; Raleigh, N.C.; Denver; Sacramento; and San Diego.

 

Home Prices Sink Again, but Pace Is a Bit Slower

Drop of 18.6% for February Is Widespread, With Half of Markets Posting Steeper Declines Than in the Previous Month

By SUDEEP REDDY

Home prices fell sharply in February, but for the first time in 16 months the annual pace of deterioration slowed.

The Standard & Poor's/Case-Shiller index measuring home prices across 20 major cities declined 18.6% in February from a year earlier. That marked a slight improvement from January's 19% annual decline, but half of the cities posted deeper declines than in prior months. On a monthly basis, home prices fell 2.2% from January.

Meanwhile, the Conference Board's measure of consumer confidence surged to 39.2 in April, from 26.9 in March, based on consumers' expectations that the U.S. economy is nearing a bottom. But confidence remains at historically low levels and well below readings associated with strong economic growth.

The latest home-price figures offered an early sign of hope that some of the worst price declines are abating. A separate measure of home prices by the Federal Housing Finance Agency has posted monthly increases for two straight months, though economists doubt that is a sustainable trend. The Case-Shiller measure is expected to fall through much of the year, with smaller declines that would eventually turn into a flattening of home prices.

Prices "are no longer falling off a cliff," said Patrick Newport, an economist at IHS Global Insight. "Instead, they are rolling down a steep hill."

While all cities posted monthly declines, 16 of the 20 declined at a slower pace than they did in January. The Cleveland, Charlotte, N.C., New York and Washington markets showed larger monthly declines in February than they did in the prior month.

David Blitzer, chairman of the Standard & Poor's index committee, said he would need to see "substantial improvement" in data for the active spring home-buying months to gauge whether February's figures were a turning point.

"If this is really the beginning of something and not just a nice quirk, by the time we see the data for April, May and June we should really see it," he said. "If we don't see it, we should probably wait until next year."

Home prices declined 30.7% in the 20-city index from their mid-2006 peak through February, putting them around where they were in the third quarter of 2003.

What kind of return can you expect on a real estate investment today? Delores Conway, real estate economist, says while people shouldn't expect to double their investment, they can expect to see gains. Stacey Delo reports. (April 27)

Some economists expect prices to drop about 10% more before hitting bottom. But many markets saw so much construction during the housing boom that they are left with a glut of supply that is punishing prices. A few areas are running the risk of declining even below a level that would put them back in line with long-term trends.

"The bigger they climb, the harder they fall," Mr. Blitzer of S&P said.

Seven of the 20 metro areas included in the index posted home-price declines of more than 40% since they peaked.

Home prices in Phoenix have dropped 50.8% from their 2006 peak, putting them up just 12% since 2000. Las Vegas is down 48.4% from its peak, leaving prices there up 21% since the start of the decade. Miami has lost 45.1% since that market peaked, but prices remain 54% higher than their January 2000 level.

Each of those three markets posted home-price declines of about 30% or more in the past year. The Dallas market showed the best performance in February: a decline of 4.5% from a year earlier and 0.3% on a monthly basis. It has suffered the least since the housing boom ended, falling 11.1% from its June 2007 peak.

 

Auctions of brand-new, often luxurious condos in prime locations increase as developers desperate to unload them try to attract buyers.

By Peter Y. Hong
May 18, 2009

More than 170 people crowded the ballroom of a Long Beach hotel for what amounted to an upscale fire sale. The event was an auction. The products were 38 posh waterfront condominiums. And bidders like Mike Murphy came looking for bargains.

 

 

The Internet marketing worker snapped up a two-bedroom unit for $376,000, less than half the original price. In all, he and other eager buyers ponied up $14.9 million in less than 90 minutes.

Last Monday's event represented the latest evolution in distressed-property auctions: These last-resort sales are going high-end. In contrast to auctions of foreclosed homes, which are as ubiquitous as trashed houses in the suburban hinterlands, these sales involve brand-new, often luxurious condominium units in prime locations.

Across Southern California, projects conceived during the housing boom, but completed after the bust, are sitting largely vacant. Developers are desperate to unload these units, but they face some particular challenges. Banks often won't provide mortgages to buyers in buildings that are less than 50% occupied, reducing the pool of eligible purchasers. Converting the projects to rentals means even steeper losses because the cash flow often won't cover a developer's construction costs.

Condo developers are now hosting their own auctions to attract a critical mass of buyers fast. It's a practice that Irvine real estate consultant John Burns projects will become more widespread this year. "I don't think you have much choice," he said. "You either turn it into an apartment rental complex or find some other way to turn it into 50% occupied very quickly. An auction seems like a logical choice."

Real estate values continue to fall across much of Southern California, keeping many buyers on the fence for fear of paying too much. An auction gives them real-time assurance that the price is set by an open, competitive process, not the seller's whim, said David Parsky, director of West Coast investments for Citi Property Investors. That's a unit of Citigroup Inc. that is the controlling owner of West Ocean Two, the Long Beach building that auctioned its units last week.

"If people don't have to buy, they're not going to unless there's a reason," Parsky said. "If the market had more demand than supply, we wouldn't be doing this."

Other recent auctions include new condominium projects in downtown Los Angeles and South Pasadena. More are coming in places including Pacific Palisades and Playa del Rey.

At last week's sell-off in Long Beach, the lowest price paid was $228,000 for a one-bedroom unit on the second floor of the 22-story building. The developers had originally listed it for $512,800. The highest price paid, $718,000, was for a three-bedroom unit on the 19th floor originally priced at $1,415,600.

Whether these deep discounts were truly bargains depends on how much further the market has to fall. The median resale price for condominium units in Southern California was $230,000 in March, down 30% from the same month the previous year, according to the real estate research firm MDA DataQuick.

Some auction buyers did pay less than others who bought last year. In November, a two-bedroom, 1,040-square-foot unit in West Ocean Two sold for $545,000, public records show. Last week, similar-size units were auctioned for $430,000 and $419,000.

The auction was the second for the building. The first was held in August, after only 20 of the building's 114 units had been sold. That gathering resulted in 33 sales, prompting Parsky to hold last week's event.

Auction participant Murphy showed up at the Long Beach Hilton more than an hour early to get a crack at the bidding. A resident of Long Beach, he had been watching the market for an opportunity to move up from his 700-square-foot condo.

Murphy, 41, said he had been biding his time in his new home search, but the chance to get a bargain at auction sped up his plans.

"It forced me to get my ducks in a row and get a firm idea of where I want to go," he said.

Murphy said he wasn't overly concerned that the value of his new purchase might decline. No one can call the bottom with certainty, he figures, and he believes that he got a deal. Comparable units in the neighborhood are selling for almost $25,000 more than what he paid, Murphy said. Besides, the extra storage in his new garage will be perfect for his hockey equipment.

Converting foot-dragging looky-loos into buyers is the magic of the auction, developer Alon Zakoot said. He plans to unload the last seven condos in his 16-unit Pacific Palisades building at a public sale May 31.

Buyers these days can be downright surly, Zakoot said, because they consider every property to be overpriced.

 

Should Auctions Be Listed in the MLS?

By Melissa Dittmann Tracey

Housing markets with staggering inventory could quickly even themselves out if auctions were included in the MLS. That comes from Ben Anderson, chair of NAR’s Auction Presidential Advisory Group.

“Auctions can help us reduce the oversupply of inventory in America,” he told the crowd Thursday at a discussion of MLS issues and policies at NAR’s Midyear Meetings. “In an auction, you can sell a hundred homes in a subdivision in an hour and 50 minutes.”

Anderson, a real estate broker in Destin, Fla., is encouraging NAR to adopt an official policy and guidelines on how MLSs should handle auction properties.  NAR’s Multiple Listing Service Committee is forming a working group to explore all of the angles.

Some MLS areas already include auction properties in their databases, although they go about it in different ways.

James Harrison, president of MLSListings Inc. in Northern California, said auctions are allowed in his MLS but listings must meet certain requirements. For example, a valid listing agreement must exist, a list price must be entered (starting bid price or range), unconditional compensation must be offered, and some degree of an agency agreement must be in place for the duration of the listing. The property also must be clearly identified as an auction listing, and the type of auction (for example, reserved, absolute, or minimum bid) must be specified.

Geoff Gurney, from the MLS Emerald Coast Association of REALTORS® in Florida's panhandle, said his group has allowed auction properties since 2004. There’s no requirement that a price be listed, but details of the auction event must be provided. Some required fields are: Auction date and location, inspection/preview instructions, and type of auction. The Emerald Coast Association has more information on its Auction Marketing Council Web site.

“Auctions will never replace what we do as REALTORS® in a traditional sense,” Anderson said. “It’s just another method of selling real estate.”  He said the bottom line is that real estate professionals need to be aware of auction listings so they have the opportunity get involved in this segment of the market.

 

Protesters disrupt foreclosure auctions in Sacramento

By Jim Wasserman
jwasserman@sacbee.com

Published: Wednesday, Apr. 29, 2009 - 12:00 am | Page 1B

Protesters disrupted several foreclosure auctions Tuesday on the Sacramento County Courthouse steps, winning a temporary cancellation of one and sending an unidentified auctioneer to the hospital with chest pains.

Bidders on dozens of foreclosed Sacramento-area homes, all declining to provide their names, called the ACORN protest the first major disruption of an established auction schedule that plays out every weekday at the courthouse following 37,000 foreclosures in the capital region since January 2007.

About 75 statewide members of the Association of Community Organizations for Reform Now, in the capital for a lobbying day on housing bills, delayed at least three auctioneers from selling foreclosed homes starting in the low $100,000s and below.

A fourth auctioneer, Bryan Moulton of San Joaquin County-based Trustee Assistance Corp., sold four homes to bidders in several minutes, placing his paperwork on top of a trash can while surrounded by a chanting crowd. Moulton said he has seen similar actions when church congregations show up to protest the auction of a member's house.

"A yelling mob is not going to suspend foreclosures," he said after concluding his auction, "just like it's not going to suspend the rule of law. … If they wanted to take it off (the auction list), they should have paid the mortgage," he said.

By law, homes going on the auction block because of missed payments are advertised in legal publications before being auctioned "as is" to high bidders. Auctioneers, representing the trustees appointed by banks to handle the property, conduct the sales. If there are no bidders, the homes revert to the bank that made the mortgages, and typically are listed as bank repos by real estate agents.

An ACORN official said the activist group simply wants more time for struggling borrowers it claims were often targeted for dangerous loans. "Many of the sales that are happening now are around houses that could be saved by the (loan modification and refinance) plans starting to be implemented," said Amy Schur, California director of ACORN.

The group conducted the protest with bullhorns, whistles and loud chants of "save our homes" to make its case for a moratorium on foreclosures until plans unveiled last March by the Obama administration have a chance to work. California has a mandatory 90-day moratorium that begins in June for lenders that don't try hard to modify loans.

Organizers called the Sacramento action the newest in a series of protests by its "home defenders" that have been held in the Bay Area and Southern California. Tuesday, as the day's first auction was to begin at 9:30 a.m. on the courthouse steps, Los Angeles ACORN member Kathleen Thompson-Boons asked an unidentified auctioneer to stop the auction.

When the auctioneer resumed seeking bids from nine potential buyers, Thompson-Boons asked again, prompting the auctioneer to tell her, "If you're not going to bid, then go away." Seconds later, chanting protesters arrived on the steps, surrounding the surprised collection of auction officials and bidders. The chants, whistles and bullhorns created a commotion that made it difficult to hear and conduct the auction.

Then the auctioneer began to collapse and was later taken to a local hospital. Other auctioneers, who said they were associates of the man at LPS Financial Services of Sacramento, said he had a pacemaker. "I think it's a shame he had a medical condition and that happened," said ACORN spokeswoman Christina Livingston. "That was not our intention by any means."

Sacramento Fire Department officials said it is against policy to name individuals it transports to hospitals. The Sacramento County Sheriff's Department said a similar policy blocks it from releasing the auctioneer's name.

Members of ACORN continued their protest for nearly two hours, leaving with cheers after winning a concession to spare one particular house from being sold. The ACORN group identified the owners as Martha and Jesus Espejo of Sacramento. Thompson-Boons said the family fell behind on payments because of the loss of the father's job, and medical bills for two children who later died.

Schur said ACORN would resume negotiations with Bank of America Home Loans to seek a modification that would keep the family in its house. After winning the concession, ACORN members boarded a bus and left the courthouse. As the bus motored off, an expanded group of 20 bidders gathered around another auctioneer who was rapidly reading descriptions of more houses for sale.

The protest was ended. The auctions continued as scheduled.

 

Sheldon Good bankruptcy: Real estate firm blames ex-chairman for Chapter 11 filing

By Mary Ellen Podmolik | Tribune reporter

April 25, 2009

Commercial real estate brokerage and auctioneer Sheldon Good & Co. announced Friday that its nine operating entities had sought Chapter 11 bankruptcy protection and blamed the move on "improper actions" taken by its former chairman, Steven Good.

After Steven Good's Jan. 5 suicide, "debtors discovered that Mr. Good, without authority, had withdrawn substantial monies from the debtors' operating accounts, calling it compensation, which left the debtor without reserves in the most difficult economic climate we have experienced in 20 years," company President Alan Kravets said in an affidavit included in the bankruptcy filing. "The decrease in operating capital created by Steven Good's misappropriation of monies magnified the effects of the current economic downturn and an overall decline in the U.S. real estate market."

Kravets did not return phone calls for comment. The company's bankruptcy attorney, Heidi Sorvino, declined to specify the amount of money involved. The firm has secured $2 million in debtor-in-possession financing, Sorvino said. "They have a ton of business in the pipeline," she said. Under Chapter 11, a company is protected from creditors while it designs a plan to repay debt.

In its filing with the U.S. Bankruptcy Court for the Southern District of New York, the company listed assets of $250,000 and liabilities of $4 million. The documents also show a negative net cash flow of $215,664 over the next 30 days.

The two largest unsecured creditors listed were JPMorgan Chase Bank, with a loan of $650,000, and New York-based Miller Advertising Agency, with trade debt of $699,000.

Good, 52, was found Jan. 5 behind the wheel of his Jaguar in a Kane County forest preserve with a self-inflicted gunshot wound to the head. No note was found. A month before Good's suicide, he acknowledged the challenging conditions of the commercial real estate market.

The firm, known nationally for its auctions, was founded by Steven Good's father, Sheldon Good, in 1965.

 

Condominium glut may build new industry

Auctions to work off overbuilding are attracting new real estate businesses

By MICHELLE E. SHAW

The Atlanta Journal-Constitution

Atlanta’s condo glut has not only gained national attention, but it also may be creating a new local industry: new condo auctions. With more units than can be sold in a sluggish economy, developers are looking for quick ways to shed the excess inventory, real estate professionals and watchers say. That isn’t all bad if it brings empty units to life, said Jim Grissett, an adjunct professor at Emory’s Goizueta Business School.

“At the end of the day we’re going to end up with some fairly lively and vital neighborhoods as a result of this,” he said. “I’m not suggesting that is the way we want to accomplish that in the future, but it will contribute to the rebirth of living in intown Atlanta.” The national spotlight is on Atlanta’s condo market because of the substantial surplus of intown units. Atlanta developers got ahead of themselves in a way that hasn’t been seen since the early ’90s, Grissett said.

“We overbuilt in the number of units and we overinvested, meaning we built a lot of units high in the cost-per-square-foot category,” he said. “And there aren’t many ways to correct that very quickly.”

The auction format may be the only thing that will work right now, suggested Andrew Gardner, vice president of condo operations for Atlanta-based developer Lane Co.

“If someone negotiates a $200,000 unit down to $175,000, the next person is going to want it for $160,000 and the next person is going to want it cheaper than that,” he said. “If you are desperate for sales you’re going to have to make the deal. And look at what that becomes, a ladder you can’t climb back up.”

Gardner said a seller can only benefit from such a deep discount when selling in bulk — say, 30 or 40 units. Exclusively Auctions. did just that earlier this year when it auctioned off more than 70 units in 90 minutes in Austin TX.

Because Atlanta has so many unsold units, the auction action is drawing enterprising business people. This recession is more residential than the situation we had in the 1990s, But the remedy is the same: We’ve got to get rid of the excess inventory to recreate the demand, and auctions are a great way to do that.

Selling any piece of property is essentially an auction, said Grissett, the Emory adjunct professor. “When you list your house, that’s an auction of a sort, it’s just a one-on-one event. But what a mass auction does is changes the timing and emotion of a sale,” he said.

“It creates a focused marketing event, so you’re able to get 200-300 key players in the room in and something happens.” Many in the real estate community say this is just the first wave of new construction auctions.

But buyers looking for a deal may not need to wait for an auction to find one, he said. Prices of intown condos are often slashed before the builder even thinks about going to auction. To sell at a 30 percent discount, which seemed unthinkable a year ago, is not so unusual, he said. “They’re now thinking ‘If we can sell 40 of them in one day, it is worth it.’ “

 

WSJ: Bidding Wars Emerge on Foreclosures

Prices Are Generally Falling, But a Few Markets Have Shortages of Midpriced Homes
By JAMES R. HAGERTY

Falling home prices are starting to ignite bidding wars in a few parts of the U.S. as first-time buyers compete with investors for the same foreclosed properties.
In most of the nation, the supply of unsold homes continues to swamp demand. Home prices in many markets continue to fall, and foreclosures, which slowed in late 2008 as mortgage companies delayed taking action against delinquent borrowers, are picking up again.

But real-estate brokers say multiple offers on certain homes have recently become more common in parts of California and Arizona and the Washington, D.C., and Minneapolis-St. Paul metropolitan areas.

Tamby Leonard of Santa Ana, Calif., southeast of Los Angeles, says she has been outbid four times since January when trying to buy a home for her family of five. The more appealing bank-owned homes in her price range, around $300,000, tend to be sold quickly to investors who can pay cash. The market for homes in the Santa Ana area in that price range is "blazing hot," says Ed Mixon of Altera Real Estate, Ms. Leonard's agent.

A foreclosure sign sits outside a home for sale in Phoenix.

On Wednesday, the Federal Housing Finance Agency reported that home prices nationwide rose a seasonally adjusted 0.7% in February from January, led by gains on the West Coast. When compared with a year earlier, however, home prices were down 6.5%.

Bidding wars -- common during the housing boom -- had all but disappeared soon after the market peaked about three years ago. Even now, they remain the exception rather than the rule.

The Wall Street Journal's quarterly survey of 28 major metro areas shows that there is still a glut of homes available in most markets. But the glut has shrunk, and some areas are running into shortages of moderately priced homes in middle-class neighborhoods.
Many housing economists expect the market to bottom out gradually over the next couple of years, with some parts of the country stabilizing well before others. California and Washington, D.C., for instance, are likely to recover faster than South Florida, which has an immense glut of vacant condominiums, and the New York City area, which has been hurt by Wall Street's collapse, says Kenneth Rosen, chairman of the Fisher Center for Real Estate at the University of California, Berkeley.

Across the nation, there is still a tug of war between bullish and bearish forces. On the bullish side, falling prices and the lowest mortgage rates since the 1950s have made homes far more affordable, luring shoppers like Ms. Leonard, who has been renting for years. Adding to the attraction, the U.S. government is offering tax credits for certain people who buy homes before Dec. 1. The credit -- equal to 10% of the purchase price, up to a maximum of $8,000 -- is available to buyers who haven't owned any other primary residence in the U.S. during the three years before the date of purchase.

On the bearish side, rising unemployment has knocked many people out of the housing market and made those who still have jobs skittish. Even those with secure jobs who want to buy can't always get loans on attractive terms because of today's tightened credit standards.

In addition, the supply of bank-owned homes is expected to grow over the next few months because many mortgage companies have ended moratoriums during which they refrained from proceeding with foreclosures.

The moratoriums artificially reduced the supply of foreclosed homes listed for sale, says Chad Neel, president of LPS Asset Management Solutions Inc. in Westminster, Colo., which sells such properties for banks. Now "there's a flood about to come on the market," Mr. Neel says. Foreclosures are likely to weigh on the market for years as courts and mortgage companies struggle to catch up with huge backlogs of unresolved cases.

Foreclosures, though far above normal levels in most of the country, are heavily concentrated in a few states, including California, Arizona, Nevada, Florida and Michigan. In areas with large numbers of bank-owned homes, buyers are mainly concentrating on those properties. That leaves ordinary homes languishing as owners generally refuse to slash prices enough to compete with banks.

In the Sacramento, Calif., metro area, about two-thirds of all March sales were foreclosures, says Michael Lyon, chief executive of Lyon Real Estate. The supply of foreclosed homes currently listed for sale is enough to last only about a month at the recent sales pace, he calculates. But there are plenty of homes listed for sale that aren't bank-owned, enough to last more than eight months.

In West Sacramento, a buyer represented by Cherie Hunt of Prudential California Realty recently competed against two other bidders for a three-bedroom home built in 2001. Ms. Hunt's buyer won by agreeing to pay about $220,000, or nearly $10,000 above the asking price. But that's still way down from $405,000, the price at which the same home sold in 2005.

"I have 20 buyers looking desperately," says Ms. Hunt.

Frank Borges LLosa, owner of FranklyRealty.com, a real-estate brokerage in Arlington, Va., is advising clients that banks favor all-cash bids or offers from people who seem certain to qualify for financing. Sellers may well choose the offer least likely to fall through rather than the highest bid, he says. He and other brokers say banks appear to be deliberately setting asking prices low in some cases to provoke bidding battles.

"There are a lot of buyers who think they can lowball," says Connie Vaughn, an agent at ZipRealty in the Los Angeles area. But in some cases mortgage companies already have cut asking prices enough to generate multiple bids. One of her clients recently prevailed over more than 30 other bidders by offering about $86,000 -- or $20,000 above the asking price -- for a four-bedroom house in Adelanto, Calif., that had sold for $200,000 in 2004.

A mortgage company recently slashed the asking price on a two-family home in Norwich, Conn., to $73,900 from $144,900. That price cut prompted five offers that the company is now considering, says Linda Davis of Re/Max Realty Group, the listing agent. She says the price cut was unusually steep but adds, "At some point, [banks] just decide to let it go."

That's encouraging, says Ronald Peltier, chief executive of HomeServices of America Inc. in Minneapolis, which owns real-estate brokerages in 19 states. "We do need to flush out the distressed inventory," he says, before the rest of the market can stabilize.

One positive trend is affordability. A family earning the national median pretax income of $52,800 a year needs to spend 25% of that income to buy a median-priced home, down from 44% in mid-2006, according to John Burns, a real-estate consultant in Irvine, Calif. For the Los Angeles metro area, that ratio has dropped to 45% from 102%. In Phoenix, it is down to 19% from 46%.

Among the markets Mr. Burns expects to recover earliest are the metro areas of Washington, D.C.; San Antonio; Raleigh, N.C.; Denver; Sacramento; and San Diego.

 

Gain Seen in Pending Home Sales, Housing Affordability Sets New Record - National Association of Realtors

Pending home sales have edged up, hinting at a possible pickup of sales activity in coming months, according to the National Association of Realtors®. The Pending Home Sales Index, a forward-looking indicator based on contracts signed in February, rose 2.1 percent to 82.1 from a reading of 80.4 in January, but is 1.4 percent below February 2008 when it was 83.3. Lawrence Yun, NAR chief economist, said the market is continuing to underperform. “Pending home sales have a way to go for there to be a meaningful increase, but recent increases in shopping activity are hopeful indicators that we’ll see additional sales gains,” he said. “More buyers are getting into the market to take advantage of stimulus incentives and much improved housing affordability conditions, but it will take a few months before we could see this turn up in measurable sales contract activity.”

 

It may be spring on the calendar but housing prices are locked into perpetual winter.

Home Prices in Selected Cities

The Standard & Poor’s Case-Shiller Home Price Index, a widely watched measure of 20 metropolitan areas, fell 19 percent in January from a year earlier. That was a record drop, slightly edging out the previous month.

Prices in the worst-hit metropolitan areas have now fallen nearly by half. None of the cities showed month-to-month improvements. Thirteen showed record annual rates of decline. “There’s no daylight that I can see in this report,” said David Blitzer, chairman of S.& P.’s index committee.

He cited the numbers for Phoenix as “gruesome.” Prices there fell 5.5 percent in one month, and are now down 48.5 percent from their June 2006 peak.

Las Vegas, Miami, San Francisco and San Diego are not far behind. All have fallen more than 40 percent. The best performing city in the index is Dallas, down a mere 10.8 percent from its peak. Unlike the rest of the Sun Belt and the coasts, Dallas never had a boom, so it did not have as far to fall.

Here is what passes for good news in the latest report: in a handful of cities, including Minneapolis, New York and Charlotte, N.C., the rate of decline in January slowed a little from the rate of decline in December.

The index is now at 146.40, its lowest point since September 2003. The peak was 206.52 in July 2006. The prices are calibrated to a January 2000 level of 100.

Joshua Shapiro, chief United States economist for MFR Inc., said in a research note that “it is unlikely that we are anywhere near a bottom in nationwide home prices.” He estimated the index was perhaps two-thirds of the way through its ultimate total decline.

That would take big-city prices back to where they were in late 2001 or early 2002 and would probably encourage another round of owners to surrender their underwater homes to lenders.

The monthly Case-Shiller report, widely considered one of the most authoritative gauges of home prices, focuses on major cities, which happen to be the places where the boom was most frenzied. Even in those communities, realty agents argue that the report does not give a full picture of a market that can vary by neighborhood and price level.

Changes in housing prices traditionally lag behind changes in sales volume, and volume has been showing an uptick lately in some places. Much of the sales activity in the Sun Belt is coming from foreclosure sales by banks, not traditional sales by homeowners. Prices in these areas will not begin to recover until the foreclosures end.

Jim Klinge, a prominent San Diego agent, said the collapse in prices had greatly increased sales volume. “There’s a group of buyers that need housing more than they need to pay attention to the doom-and-gloom headlines we see every single day,” he said.

One of them is Larry Salzman, a lawyer turned Internet entrepreneur who is seeking to buy a townhouse in El Cajon, Calif., after renting for several years. He is paying $240,000, which will shrink his monthly housing costs by a few hundred dollars.

Mr. Salzman would have liked a bigger, nicer place, but higher-end houses have not declined as much as cheaper ones. Mr. Klinge said his client was not unique. Above $500,000, the market is still dead. “All the higher-end sellers are holding out for top prices, thinking things are going to get better sooner or later,” the agent said.

For a brief time during the last few weeks, it seemed that moment might be sooner. The National Association of Realtors said sales of previously owned homes rose 5.1 percent in February, while the Census Bureau said sales of new one-family homes in the month increased 4.7 percent above the revised January rate. The Realtors association also said that the median home price in February was $165,400, slightly better than January’s $164,800.

Since the Case-Shiller numbers cover an earlier period, “it is possible that the market hit bottom in January and is starting to improve,” an IHS Global Insight analyst, Patrick Newport, wrote in a report.

Possible but not likely, he decided, concluding that the bottom would not come until next year.

 

 Frugality Is N0 Passing Fad

David Walter Banks for The New York Times

Jennifer Riley of Atlanta is using coupons at restaurants. ATLANTA — It is a sign of the times when Sacha Taylor, a fixture on the charity circuit in this gala-happy city, digs out a 10-year-old dress to wear to a recent society party. Or when Jennifer Riley, a corporate lawyer, starts patronizing restaurants that take coupons.

Or when Ethel Knox, the wife of a pediatrician, cleans out her home and her storage unit, gives away an old car to a needy friend and cancels the family Christmas. “I just feel so decadent with all the stuff I’ve got,” she explained.

In just the seven months since the stock market began to plummet, the recession has aimed its death ray not just at the credit market, the Dow and Detroit, but at the very ethos of conspicuous consumption. Even those with a regular income are reassessing their spending habits, perhaps for the long term. They are shopping their closets, downscaling their vacations and holding off on trading in their cars. If the race to have the latest fashions and gadgets was like an endless, ever-faster video game, then someone has pushed the reset button.

“I think this economy was a good way to cure my compulsive shopping habit,” Maxine Frankel, 59, a high school teacher from Skokie, Ill., said as she longingly stroked a diaphanous black shawl at a shop in the nearby Chicago suburb of Glenview. “It’s kind of funny, but I feel much more satisfied with the things money can’t buy, like the well-being of my family. I’m just not seeking happiness from material things anymore.”

To many, the adjustment feels less like a temporary, emergency response than a permanent recalibration, one they view in terms of ethics rather than expediency.

“It’s kind of like we all went overboard,” said Ms. Taylor, 33. “And we’re trying to get back to where we should have been.”

Not everyone thinks the new restraint will last. Ms. Riley, 37, who lives in Atlanta, said she doubted it would extend beyond the recession.

“I do think that maybe now it’s a little bit chic or something to save money, or to be pinching pennies,” she said.

Just as she stopped carpooling when gas prices went down, Ms. Riley said, she predicted that people would start buying again when the economy rebounded. “That’s just my own, maybe, cynical belief,” she said.

Still, economists point out that the Great Depression created a generation of cautious savers. The longer the downturn this time, they say, the more likely it is to change financial habits permanently.

Holly Moreno, 30, a part-time Web site manager in the Dallas suburb of Rowlett, Tex., whose husband is a business analyst, said she had been taking their 2-year-old son to indoor playgrounds at the mall and free story-times at the library instead of paying to get into the children’s museum, their favorite wintertime haunt.

“Even though we’re secure with our jobs, you’ve still got to plan for just-in-case,” Ms. Moreno said, “especially because we have a kid.”

As many economists have noted, cutting spending is the worst thing people with means can do for the economy right now. But that argument seems to have little traction, especially because even those with steady paychecks and no fear of losing their job have seen their net worth decline and their retirement savings evaporate.

“I don’t think there’s been any other period in modern history where appeals to people to spend the economy back into health have worked,” said Ethan S. Harris, a co-chief of United States economics research at Barclays Capital. “The only time I’ve ever seen where that kind of urging people to spend worked was after 9/11, and I did think at the time that there was some patriotic buying going on.”

After the attacks of Sept. 11, though, President George W. Bush urged Americans to go shopping. President Obama has taken a different tack, issuing a budget whose very title, “A New Era of Responsibility,” strives for an austere tone. On Inauguration Day, the first daughters, Sasha and Malia, dressed not in designer labels but clothing from J. Crew. On television, the insurance giant Allstate is running a sepia-toned “back to basics” advertising campaign, and in Target’s “new day” commercials, the “new pedicure” is administered by a spouse and the “new vacation glow” comes from a spray bottle.

“Though the recession was always talked about in economic terms, we felt really strongly that, in fact, it was a crisis of culture,” said Tracy Johnson, research director for the Context-Based Research Group, a market research firm in Baltimore that views the recession as a rite-of-passage that will reorder consumer priorities.

 

Berkshire has worst year, Buffett still optimistic 

By JOSH FUNK, AP Business Writer Josh Funk, Ap Business Writer – Sat Feb 28,

AP – In this May 21, 2008 file photo, U.S. billionaire investor Warren Buffett speaks during a news conference …

Buffett remains optimistic about the prospects for his company and the nation even though Berkshire Hathaway Inc. turned in its worst performance in 2008 and the widely-followed investor says the economy will likely remain a mess beyond this year.

Buffett used his annual letter Saturday to reassure shareholders that the Omaha-based insurance and investment company has the financial strength needed to withstand the current turmoil and improve after the worst showing of Buffett's 44 years as chairman and CEO.

Buffett wrote he's certain "the economy will be in shambles throughout 2009 — and, for that matter, probably well beyond — but that conclusion does not tell us whether the stock market will rise or fall."

In between the news of Berkshire's sharply lower profit and a thorough explanation of its largely unrealized $7.5 billion investment and derivative losses, Buffett offered a hopeful view of the nation's future.

He said America has faced bigger economic challenges in the past, including two World Wars and the Great Depression.

"Though the path has not been smooth, our economic system has worked extraordinarily well over time," Buffett wrote. "It has unleashed human potential as no other system has, and it will continue to do so. America's best days lie ahead."

Buffett's letter appeared to mollify the concerns of many who follow the company, but it's not yet clear whether that will help Berkshire's Class A stock extend its rebound from the new five-year low it set last Monday at $73,500. On Friday, it closed up $250 at $78,600. "If anything, I feel better than I did before I read it," Morningstar analyst Bill Bergman said. Berkshire's results could have easily been worse, he said.

But Buffett estimates Berkshire's book value — assets minus liabilities — declined 9.6 percent to $70,530 per share in 2008 — the biggest drop since he took control of the company in 1965. Berkshire's book value declined only one other time under Buffett, and that was a 6.2 percent drop in 2001 when insurance losses related to the Sept. 11 terrorist attacks hurt results.

Berkshire's Class A shares remain the most expensive U.S. stock, but they fell nearly 32 percent in 2008 and have declined 48 percent since setting a high of $151,650 in December 2007. That high came after an exceptionally profitable quarter that was helped by a $2 billion investment gain.

The S&P 500 fell 37 percent in 2008.

Within Berkshire, Buffett said the company's retail businesses, including furniture and jewelry stores, and those tied to residential construction, such as Shaw carpet and Acme Brick, were hit hard last year. Net income for those businesses slipped 3 percent to $2.28 billion, and Buffett said they will likely continue to perform below their potential in 2009.

But he said Berkshire's utility and insurance businesses, which includes Geico, both delivered outstanding results in 2008 that helped balance out the other businesses.

The Des Moines, Iowa-based utility division, MidAmerican Energy Holdings, contributed $1.7 billion to Berkshire's net income in 2008 thanks to more than $1 billion in proceeds from MidAmerican's failed takeover of Constellation Energy. That's up from the $1.1 billion utility profit that Berkshire recorded in 2007.

The insurance division, which also includes reinsurance giant General Re, contributed $1.8 billion in earnings from underwriting — a drop of 17 percent from 2007. Buffett praised Geico CEO Tony Nicely's efficiency and his ability to increase Geico's market share to 7.7 percent of the auto insurance market last year.

"As we view Geico's current opportunities, Tony and I feel like two hungry mosquitoes in a nudist camp. Juicy targets are everywhere," Buffett wrote.

Overall, Berkshire's 2008 profit of $4.99 billion, or $3,224 per Class A share, was down 62 percent from $13.21 billion, or $8,548 per share, in 2007.

Berkshire's fourth-quarter numbers were even worse. Buffett's company reported net income of $117 million, or $76 per share, down 96 percent from $2.95 billion, or $1,904 per share, a year earlier.

Buffett devoted nearly five pages of his letter to shareholders to explaining the role derivatives played in the company's investment losses last year.

The derivatives Berkshire offers operate similar to insurance policies. Some of them cover whether certain stock market indexes — the S&P 500, the FTSE 100 in the United Kingdom, the Euro Stoxx 50 in Europe and the Nikkei 225 in Japan — will be lower 15 or 20 years in the future. Others cover credit losses at groups of 100 companies, and some cover credit risks of individual companies.

Buffett said he initiated all of Berkshire's 251 different derivative contracts because he believes they were mispriced in Berkshire's favor.  Analyst Justin Fuller, who works with Midway Capital Research & Management in Chicago, said he thinks the details Buffett offered about Berkshire's derivatives will help.

Fuller said two key things make Berkshire's derivatives different from the complex financial bets of the same name that other companies have used. Berkshire requires most payment upfront, so there's little risk the other party to the derivative will fail to pay. And Berkshire won't take part in derivatives that require the company to post substantial collateral when the value of the contract falls.

"I think laying those out as plainly and simply as he did with examples should calm investors' fears about derivatives," said Fuller. Berkshire has received $8.1 billion in payments for derivatives which can be invested until the contracts expire years from now.

But Berkshire has to estimate the value of its derivatives every quarter. Buffett said he supports that mark-to-market accounting, but the Black-Scholes formula used to estimate that value tends to overstate Berkshire's liability on long-term contracts.

"Even so, we will continue to use Black-Scholes when we are estimating our financial-statement liability for long-term equity puts. The formula represents conventional wisdom and any substitute that I might offer would engender extreme skepticism," Buffett wrote.

Buffett said he made at least one major investing mistake last year by buying a large amount of ConocoPhillips stock when oil and gas prices were near their peak. Berkshire increased its stake in ConocoPhillips from 17.5 million shares in 2007 to 84.9 million shares at the end of 2008. Buffett said he didn't anticipate last year's dramatic fall in energy prices, so his decision cost Berkshire shareholders several billion dollars.

Buffett says he also spent $244 million on stock in two Irish banks that appeared cheap. But since then, he's had to write down the value of those purchases to $27 million. But Buffett also had several investing successes in 2008.  Berkshire committed $14.5 billion to fixed income investments in Goldman Sachs Group Inc. and General Electric Co. Those investments carry high interest rates and give Berkshire the option to acquire stock in those companies.

To fund those investments, Buffett said he had to sell some of Berkshire's holdings in Johnson & Johnson, Procter & Gamble Co. and ConocoPhillips even though he would have rather kept that stock.  "However, I have pledged — to you, the rating agencies and myself — to always run Berkshire with more than ample cash. We never want to count on the kindness of strangers in order to meet tomorrow's obligations," Buffett said.

In that regard, Berkshire should be OK because the company finished 2008 with $24.3 billion cash on hand. That's down significantly from the $37.7 billion the company held at the end of 2007, reflecting the investments Buffett made during the year.  Berkshire owns a diverse mix of more than 60 companies, including insurance, furniture, carpet, jewelry, restaurants and utility businesses. And it has major investments in such companies as Wells Fargo & Co. and Coca-Cola Co.

 

And Do I Hear $2 Million? No? $1 Million? Sold!

NEW YORK TIMES
By TERI KARUSH ROGERS

Published: February 25, 2009

As housing prices around the country began to tumble about three years ago, the New York market kept rising, and only in the last year did it begin to show some weakness.

Marlene Karas for The New York Times

Jon Gollinger’s firm may soon auction New York condos.

 

But now sales in the city have slowed so significantly that worried developers are planning to auction off some luxury condos in the spring for around half of what they were asking just a year ago. Developers who are awash in unsold inventory see auctions as a tactic to jolt a paralyzed public to life.

A two-bedroom on the Upper East Side, for example, could be marked down to $1.1 million from $2.2 million. Real estate professionals say Wall Street’s continued prosperity through much of 2008 shielded New York from the forces that were pushing the rest of the nation’s housing market down.

But today, with the credit crisis and the Wall Street meltdown, fewer people are able to buy homes. With the economic crisis spreading worldwide, there also seem to be fewer wealthy foreigners buying Manhattan condos.

Real estate auctions, rarely used in New York, have the potential to both move property and indicate to reluctant buyers what the true market prices are. Given the current sales drought, even a handful of auctions could reset prices for new condominiums citywide, said Jonathan J. Miller, the president of Miller Samuel, a Manhattan research and appraisal company. He said he expects the auctioned properties to sell for 40 to 45 percent below the asking prices of the first quarter of 2008, when the market peaked.

Today, almost every signpost is bleak for new developments. Buyers who signed contracts long before condo projects were completed are expected to walk away in droves this coming quarter. In many cases, these buyers will be abandoning deposits of $100,000 or more that pale in comparison to the slide in market values. Many buyers may have lost jobs, or may be worried about their jobs, while others will be unable to get financing.

There are 8,000 new condos on the market in New York City, and 22,000 more are scheduled to go on the market by the end of next year. “You’ve got all this inventory that’s been based on this young financial buyer and international buyers,” Mr. Gollinger said, but those buyers have been hard hit by Wall Street’s collapse.

Most developers declined to discuss the subject. But one lender, who asked not to be identified because his plans are not final, said he intends to hire Accelerated to auction a large group of units in April. “We have quite a large investment in a new condo building in a good location downtown,” he said, but sales have been “very, very slow.”

With just under 50 units, the building is currently priced around $1,000 per square foot. Minimum bids will probably be set at around $600 per square foot, the lender said.

Henry Justin, a developer who has 48 units left to sell in a 73-unit Midtown building, said sales hit a wall in December. “All the deals I’m doing are all-cash, mostly from foreign buyers, because only people with a private banking relationship can get any money out of a bank right now,” he said. Mr. Justin doubts that lower prices will sell many units because so many buyers cannot obtain mortgages.

Auctions of unsold New York City condos in a wider range of quality and locations are also anticipated in May. This week, a company announced a deal to auction all 17 units of a completely unsold new condominium building in Weehawken, N.J.

Auctioneers say inquiries from developers rose in early January. “The general impression I get is that this period of denial — the market-will-get-better mentality — is coming to a close,” said Mr. Miller, the appraiser, who will likely be working with Accelerated to determine the market value of units put up for auction. “The reality that everyone is coming to grips with is that demand levels will remain lower until liquidity is returned to the mortgage markets.”

Auctions have succeeded in loosening other battered markets, like South Florida. In two held there last fall by Accelerated, 30 to 40 units in partly sold developments went for about half their peak prices. The developers say sales have picked up since then, at prices slightly below those received at auction.

Auctions have not been used in New York in any significant way since the early 1990s, when an oversupply of rental-to-co-op conversions collided with a recession and double-digit interest rates.  While many developers resist auctions, investors are pushing for quicker sales. “Auctions will hit New York City because of pressure from the underlying lender,” said John Di Fiore, the senior vice president at Real Estate Capital Partners, which runs a fund that invested in two Manhattan condo developments.

The reduced asking prices could bring condos in line with prices seen just a few years ago. The average sales price of a two-bedroom Upper East Side condo was just above $1 million in 2002. It rose to $1.5 million in 2004, and to $2.2 million at its peak in 2008.

 

On the House: Time to kick-start the buying

By Al Heavens

Inquirer Real Estate Columnist

Spring selling season is upon us. Before you start laughing, crying, or threatening my life, let me finish. Someone has to kick-start this real estate market, and if it has to be me, so be it.

I spent almost a week in January wandering through Phoenix, Las Vegas, and Southern California, and I saw firsthand how bad things can get, and how much worse they might become. I can say without fear of contradiction that the situation is much better here.

Although sales are down about 30 percent since 2006, prices in this region are only about 10 percent lower. Some streets, neighborhoods, and towns are doing better than others, so you'll need to do some work to see whether yours can accommodate another house for sale.

One day out West, I stood in the middle of a new-home development southwest of Phoenix, smack-dab between two houses going to foreclosure auction the next day. Those two houses - and the hundreds around them - cost $145,000 when they were new five years ago. The price zoomed up to $270,000 in 2005, down to $240,000 in 2006, down to $205,000 in 2008. Now, the going price is $107,000.

Investors bought the two houses, which are back on the market at $87,500 and $104,000.

So, yes, things here could be much, much worse.

A few years back, I urged people not to add to the huge inventory of homes for sale. One savvy real estate agent replied that no one can predict with any certainty that the house one person hopes to sell won't be just what a buyer is looking for that very day.

Why it is that some houses sell quickly and others don't really doesn't baffle me, because real estate is 90 percent emotion, 10 percent science.

An agent can show up at your place with a spiffy, polished PowerPoint presentation on what houses like yours are selling for in - thanks to skittish lenders - ever closer geographic proximity, and that's no guarantee that yours will sell quickly and at your price.

Jim Tepper has had his house on the market for almost 11 months, though he did take it off between October and January. The house is in the city's Art Museum area, and, he said, every Realtor "is telling me it is the nicest house on the market at its price [$515,000]."

The activity in the last six weeks has been incredible, Tepper said. "I allegedly have four couples 'on the fence.' My Realtor is amazed no one has made an offer." Tepper's point: "There is no urgency to buy, and someone needs to create that."

His suggestion: What if the city temporarily dropped the transfer tax for the buyer? If this were done for two months, he said, he thinks on-the-fence buyers would jump in.

I have a better idea: Why don't sellers offer to pay the buyers' half of the transfer tax, if the conditions of the buyers' financing allows such assists? The last thing Philadelphia needs is less tax revenue, even a couple of thousand dollars.

Still, I think Tepper's suggestion is a good one. I welcome others.

 

WASHINGTON, February 12, 2009

Most metropolitan area median home prices, impacted by distressed sales, trended down in the fourth quarter from a year earlier. At the same time, existing-home sales rose in only six states from the fourth quarter of 2007, according to the latest survey by the National Association of Realtors^®.

In the fourth quarter, 134 out of 153 metropolitan statistical areas ¹ showed declines in median existing single-family home prices from the same period in 2007, pulled down by active sales at the lower end that were driven by foreclosures. One area was unchanged and 18 metros reported price gains. NAR’s track of metro area home prices dates back to 1979.

Distressed sales – foreclosures and short sales – accounted for 45 percent of transactions in the fourth quarter, dragging down the national median existing single-family price to $180,100, which is 12.4 percent below the fourth quarter of 2007 when conditions were more balanced; the median is where half sold for more and half sold for less.

NAR President Charles McMillan, a broker with Coldwell Banker Residential Brokerage in Dallas-Fort Worth, said homes and neighborhoods minimally impacted by foreclosures have moderate prices changes. “Distressed home sales have risen from about 38 percent of transactions in the third quarter, meaning people are responding to discounted prices and are slowly absorbing the excess inventory. Buyers clearly see value in today’s pricing,” he said.

“It has never been more important than now to work with local professionals to properly gauge local neighborhood conditions because foreclosures are heavily skewing the broader home price figures to be much lower. Big discounts are not occurring in neighborhoods with few foreclosures. A Realtor^® who is knowledgeable about local conditions can counsel consumers in making sound long-term housing decisions,” McMillan said.

Total state existing-home sales, including single-family and condo, were at a seasonally adjusted annual rate² of 4.70 million units in the fourth quarter, down 6.4 percent from 5.02 million units in the third quarter, and are 5.9 percent below the 5.00 million-unit pace in the fourth quarter of 2007.

Lawrence Yun, NAR chief economist, said the market is clearly depressed from job losses and consumer concerns about the economy. “Assuming housing provisions in the economic stimulus package are quickly enacted and provide enough encouragement for home buyers, we could see a quick lift in home sales for the critical spring home-buying season,” he said.

“If that occurs, we could see home prices begin to stabilize in many metro areas later this year as supply and demand begin to return to balance, which would greatly benefit the overall economy,” Yun said.

According to Freddie Mac, the national average commitment rate on a 30-year conventional fixed-rate mortgage fell to 5.86 percent in the fourth quarter from 6.32 percent in the third quarter; the rate was 6.23 percent in the fourth quarter of 2007.

The largest sales gain in the fourth quarter from a year earlier was in Nevada, up 133.7 percent, followed by California which rose 84.7 percent, Arizona, up 42.6 percent, and Florida with a 12.5 percent increase.

“Once again, we see a pattern of strong sales gains, particularly in lower price homes, in areas with price declines resulting from foreclosures,” Yun said. “For example, in California and Florida, where distressed sales accounted for roughly two-third of all sales, the median price fell by much more as lower priced home sales far outpaced higher priced sales.”

Areas with the steepest declines in single-family home prices, more than 30 percent below the fourth quarter of 2007, include Las Vegas-Paradise, seven metro areas in California, Phoenix-Mesa-Scottsdale, and three metros in Florida. “Clearly these areas are attracting bargain hunters,” Yun added.

The largest single-family home price increase in the fourth quarter was in the Beaumont-Port Arthur area of Texas, where the median price of $132,600 rose 16.7 percent from a year ago. Next was the Bloomington-Normal, Ill., area at $159,300, up 9.6 percent from the fourth quarter of 2007, followed by Dover, Del, where the median price increased 6.5 percent to $212,500.

Median fourth-quarter metro area single-family home prices ranged from an affordable $43,900 in the Saginaw-Saginaw Township North area of Michigan to $610,000 in Honolulu. The second most expensive area was the San Jose-Sunnyvale-Santa Clara area of California, at $525,000, followed by San Francisco-Oakland-Fremont at $487,100.

Other affordable markets include the Youngstown-Warren-Boardman area of Ohio and Pennsylvania at $61,700 and Toledo, Ohio, at $75,600.

In the condo sector, metro area condominium and cooperative prices – covering changes in 56 metro areas – showed the national median existing-condo price was $186,000 in the fourth quarter, down 15.8 percent from the fourth quarter of 2007. Eight metros showed annual increases in the median condo price and 48 areas had declines.

The strongest condo price increases were in the Dallas-Fort Worth-Arlington area at $149,500, up 14.1 percent, followed by Toledo, where the median condo price of $153,900 rose 11.4 percent from the fourth quarter of 2007, and the Philadelphia-Camden-Wilmington area at $210,200, up 10.2 percent.

Metro area median existing-condo prices in the fourth quarter ranged from $88,500 in the Palm Bay-Melbourne-Titusville area of Florida to $391,900 in San Francisco-Oakland-Fremont. The second most expensive condo market reported was Honolulu at $315,600, followed by the New York-Wayne-White Plains area of New York and New Jersey at $292,600.

Other affordable condo markets include Las Vegas-Paradise at $91,200 in the fourth quarter, and the Sacramento-Arden-Arcade-Roseville area at $94,700.

Regionally, existing-home sales in the Northeast fell 11.9 percent in the fourth quarter to a pace of 760,000 units and are 13.9 percent below a year ago.

The median existing single-family home price in the Northeast declined 4.7 percent to $248,800 in the fourth quarter from the same period in 2007. The best gain in the region was in Pittsfield, Mass., where the median price of $206,000 rose 1.7 percent from the fourth quarter of 2007, followed by Reading, Penn., at $155,100, up 1.0 percent, and Buffalo-Niagara Falls, N.Y., where the price rose 0.8 percent to $106,200.

In the Midwest, existing-home sales dropped 9.3 percent in the fourth quarter to a pace of 1.04 million and are 12.4 percent below a year ago.

The median existing single-family home price in the Midwest fell 10.6 percent to $139,500 in the fourth quarter from the same period in 2007. After Bloomington-Normal, the next strongest metro price increase in the region was in Bismarck, N.D., where the median price of $164,300 was 6.0 percent higher than a year ago, followed by Decatur, Ill., at $79,300, up 5.9 percent, and the Wichita, Kan., area, at $118,200, up 3.9 percent.

In the South, existing-home sales declined 7.3 percent in the fourth quarter to an annual rate of 1.73 million and are 13.4 percent lower than the same period in 2007.

The median existing single-family home price in the South was $158,300 in the fourth quarter, down 7.5 percent from a year earlier. After Beaumont-Port Arthur and Dover, the strongest price increase in the region was in El Paso, Texas, with a 5.3 percent gain to $140,700, followed by Jackson, Miss., at $126,600, up 4.7 percent.

Existing-home sales in the West rose 2.6 percent in the fourth quarter to an annual rate of 1.17 million and are 26.5 percent above a year ago.

The median existing single-family home price in the West was $243,200 in the fourth quarter, which is 25.1 percent below the fourth quarter of 2007. With a strong prevalence of distressed homes selling at discounted prices in the West, there were no reported metro areas in the region showing median price gains from a year earlier.

 

Agents try auctions to move property

By Michael Wright

Jan 27, 09 11:20 AM

One of the homes, this one in Sag Harbor, that
Mr. Morabito expects will go up for auction next month.

Rampant building during the heady days at the start of this century and the recent collapse of the mortgage and finance industries has left a glut of inventory in the East End real estate sales market and brought a sudden decline in the number of house hunters.

Some who built in the hope of a quick sale, and others who suddenly find themselves in need of unloading a large asset, are facing a potentially desperate situation.

Do desperate times call for desperate measures?

Perhaps. But as sales have fallen off over the past year, many real estate agents have sung a familiar tune: There are eager buyers, with deep pockets, in the East End real estate market—if the price is right.

Many experienced real estate agents have complained in recent months that the sellers they are brokering for are stuck in the past, when home values climbed 20 percent a year. Those days are clearly over, at least for the time being, and selling a house now means finding the price that buyers will bite at.

Identifying that “right” price can be difficult though.

Two local brokers think that the trick might just be a matter of letting buyers, or bidders, set the going rate. Start at an absolute minimum and see how high the bidding goes.

“I did seven deals in December all because I convinced the sellers to bring their prices down to a level that I knew they would sell at,” says Enzo Morabito, one of two  brokers who are organizing a house auction—not of houses in foreclosure, just ones that need to get sold soon.

Rather than merely trying to convince all their clients that they need to lower their prices, Mr. Morabito is out looking specifically for those motivated sellers who don’t need convincing—they just need buyers.

Mr. Morabito and Mr. Horcasitas think that putting properties that must sell on the auction block, selling to the highest bidder, will naturally bring that “right” price for a given property.

The pair is compiling a small collection of properties owned by people who need to sell sooner, rather than later and will put them up for auction sometime in February. “There’s inventory out there that people can’t sell at the 2006, 2007 prices that we think there will be buyers for at some price,” Mr. Morabito said. “If they have a $3 million loan they payments may be $14,000 to $20,000 a month. That’s $300,000 a year. Time is really of the essence in some cases.

“I’ve told people if they can wait two years, don’t sell, but if they can’t they need to do something,” he said. “We’re doing something.”

Thus far, the two brokers have five listings for the auction—to be held in February—all houses that were at one point on the market for between $2 million and $5 million, Mr. Morabito said. The homeowners have agreed to sell for whatever price is brought at auction.

“If they’re not willing to go to what we know we can get, we’re not going to take it,” Mr. Morabito said. “The attempt here is to get rid of inventory and get whoever owns it out of the hole. If they owe the bank $2 [million] and we can sell it for $2.5 million, they have some equity in there.”

Mr. Morabito recalls the days of “fire sale” auctions in the 1980s, which gave him his start in the East End real estate business, when builders were losing their shirts on houses suddenly worth a fraction of what they cost to build. He says he hopes the current market will not get to that point, but that many builders are looking to at least break even.

Three of the houses on the auction block were built on speculation. Mr. Horcasitas and Mr. Morabito declined to identify any of the would-be sellers, but did agree to ask the sellers if they would comment anonymously. None accepted the offer.

As part of the effort to make the auctions work for their sellers with a lot on the line, the brokers say they have even negotiated potential short sales with creditors if the auctions don’t bring more than is owed on the property. Mr. Horcasitas said that the banks have expressed strong willingness to negotiate if it means recouping a substantial majority of a large loan immediately rather than risking the potential need for foreclosure.

“It’s a positive thing for them to have it off their books,” Mr. Horcasitas said. “If a builder owes $2.5 million and we can get them $2 million and save them having to foreclose or wait months and months to get their money, if they get it—the fear being that things may be even lower in six months—they’re usually pretty eager to take the $2 million.”

 

The Upside of Down

Since so many are still focused on gloom and doom for the coming year I thought that I would let you in on some good information that we are finding out there. According to an article published in Florida Trend home-sale numbers are heating up in Florida.

The article states that existing-home sales nationwide showed surprising strength in December, as the thaw in sales heated up in Florida. Resales of single-family homes in the Sunshine State surged 27% last month compared with December 2007 -- the fourth straight year-over-year increase for monthly existing-home sales, the Florida Association of Realtors said Monday in its year-end report. Resales of condominiums statewide rose 12% from a year ago.

In addition, the Wall Street Journal stated this week "There's a silver lining for buyers in the form of "unprecedented discounts on any and all residential product along the South Florida coast," Mr. Zalewski said. Luxury units with granite countertops and Jacuzzi baths are fetching pennies on the dollar. In Miami-Dade's upscale Brickell Avenue neighborhood, a two-bedroom apartment that sold for $700,000 in 2006 is now going for $110,000. Similar deals are available on single family homes."