Monday, April 28, 2008

Second-Home Buyers Go Condo

Vacation Houses Lose Out In a Weak Market; Coping With Pool Rules

The second-home market is in a slump. But one type of vacation property is still showing signs of life: condos (see Ballantyne Condos & Matthews Condos)

A new National Association of Realtors study estimates that sales of vacation homes in 2007 fell 31%, to 740,000, from 2006. But sales of condos dipped only slightly -- down 2.8% -- while sales of detached homes dropped 38%. The upshot is that condos cornered a substantially larger share of the vacation-home market last year: 29%, up from 21% in 2006.

Condos, including South Charlotte Condos, are selling better than single-family vacation houses for a number of reasons. They don't require their owners to maintain lawns, trim shrubs, paint the exteriors or replace roofs -- increasingly important concerns to an aging population. Condo communities also tend to offer amenities such as pools and clubhouses. And condos usually are cheaper to buy, and easier to resell, than houses.

Yet the prices of vacation condos haven't held up. Median prices fell almost 10% to $180,000 last year from the year before, while prices of single-family second homes remained flat, says the Realtor group. Part of that decline reflects the general downturn in the housing market, but the price pressure on condos also comes from investors who bought units in resort markets during the real-estate boom and now are trying to get rid of them. While the price-cutting is bad news for existing condo owners, it can make the units seem like relative bargains to buyers compared to houses.

Tod Phelps and his wife, Shelly, are among the second-home buyers attracted to condos. The couple since 2001 have owned a three-bedroom house on Beech Mountain, N.C., a 2½-hour drive from their primary home in Greensboro, N.C. But Mr. Phelps, an information-technology executive, says he is tired of spending weekends cleaning gutters and painting doors, and paying at least $3,000 a year to have people mow the lawn, weed flowerbeds and plow the drive in winter. "I didn't expect it to be as much trouble as it was," he says. Now the couple plan to sell the house and replace it with a "ski-in, ski-out" condo in the same community.

Condos are also making inroads in vacation spots where they've rarely been seen before, including beach villages along Lake Michigan. Some of these are attracting a new type of buyer used to an urban environment. Mary Morrissey, a government policy consultant in Chicago, and her husband recently bought a $350,000, two-bedroom loft at the Vineyards, a converted winery in Harbert, Mich. It features such downtown design elements as concrete fireplaces and window seats, exposed ductwork and soaring ceilings. The unit is much more open, light and fun than the usual cramped cottages found in the area, Ms. Morrissey says, and the contemporary style was the main reason they were attracted to it. "We never even thought about buying a single-family home," she says.

And in some places, such as Hawaii, prices have risen so high in recent years that condos are the only viable choice for many buyers. Maui broker Georgina Hunter says $1 million buys a two-bedroom condo in a resort with golf, pool and fitness center, but isn't enough for a single-family home. Since acquisition costs are so high, many buyers look to rent out their places when they're not vacationing there. Here condos also have the edge: Local zoning allows most condos to be rented for a short period, while most houses must be rented for at least 180 days. "You just get more bang for your buck," Ms. Hunter says.

But condos aren't popular in every second-home area. In New York's Hamptons, people prefer detached houses because they offer a yard, extra rooms and privacy -- "exactly what New Yorkers often lack in their primary residences," says Rick Hoffman, East End Regional vice president for the Corcoran Group brokers.

Condo living also can require an attitude adjustment as owners contend with close-by neighbors and live under a condo association's rules. Wayne Zawila, an Orlando, Fla., futures trader, paid $619,000 a little over a year ago for a three-bedroom weekend getaway in Daytona Beach, Fla. He thought the fourth-floor condo would be more secure and easier to manage than the Galena, Ill., lakefront house he used to own, which he once drove to at 3 a.m. because he was worried the pipes had frozen. But though condo life can be more carefree, at least when it comes to security and exterior maintenance, it's not rules-free. Mr. Zawila sometimes chafes under communal regulations he's never had to deal with before, like the one that bans him from smoking cigars while lounging in the pool. "It drives me nuts," he says.

Because many affluent second-home buyers like the common ownership and upkeep of exterior elements but still want a detached house, some builders are combining them in "condo homes." That setup attracted Sue Anne Davidson-Kalkus, a retired antiques dealer in Rome, Ga., and her husband, Tony, a retired Army colonel, who were married last year. A few months ago they listed her four-bedroom vacation retreat on 10 acres on Lookout Mountain, Ga., for $1 million and started searching for an easy-care vacation condo in the $600,000 range in New England, nearer to Mr. Kalkus's grown children. But after owning a custom-built place, Mrs. Davidson-Kalkus found the apartment-style condos she looked at to be "very ordinary." So the couple has just inked a deal to buy a detached, two-bedroom condo home at Winnapaug Cottages, a 35-acre development in Westerly, R.I. Their $300-a-month homeowner's fee covers landscaping, garbage collection, snow removal and exterior maintenance. "This is the best of both worlds," she says.

By: June Fletcher
April 18, 2008; WSJ

Monday, April 21, 2008

Beige Book: Regional economy not all bad

Regional economic activity was sluggish but showed signs of life in late February and March, according to the Federal Reserve's Beige Book anecdotal report of economic conditions.

The report is for the Fed's Fifth District, which is based in Richmond, Va., and includes the Carolinas.

It says that many sectors of the economy, including housing and retail, remained down in the past few weeks. But other sectors showed more of a mixed picture - notably manufacturing, which the Fed says has been helped by exports fueled by the decline of the U.S. dollar.

Manufacturing activity "firmed a bit in March," the Fed said, as producers shipped more goods overseas. On the other hand, U.S. demand for products slipped, and raw materials have become more expensive - a problem for manufacturers who are finding trouble passing along price increases to cash-strapped buyers.

Another tentative bright spot: finance. "Feedback from residential lenders was more encouraging in recent weeks," the Fed said, as mortgage originations were up in some areas and interest rates in Raleigh avoided a slump. Most of those loans were made to borrowers with good credit, the Fed said, as standards tightened. Commercial lending, for its part, was "lukewarm," and activity was below average in Virginia and the Carolinas.

Agriculture also saw a boost thanks to a recent spat of rain that helped North Carolina farmers plant crops including potatoes and cabbage. Service providers reported "moderate revenue growth," with contacts at engineering and telecom companies citing increased sales.

On the other hand, retail sales dwindled, the Fed said. A Washington, D.C., contact said that shoppers were "only spending when they had to," and big-ticket items such as furniture and vehicles took a severe hit. High fuel costs also drove up prices.

The housing market "remained generally sluggish," the Fed said, "though there were pockets of improvement." Prices and construction activity both slunk.

Commercial real estate, on the other hand, saw "somewhat positive reports from the Carolinas" despite weak conditions elsewhere. Leasing was steady in Raleigh and Charlotte, the Fed said, though new construction has slowed.

Richmond was one of three Fed districts where activity was "mixed or steady," the central bank said in its nationwide Beige Book report. The other nine districts reported a slowdown in economic activity.

The Fifth District serves the District of Coumbia, Maryland, Virginia, the Carolinas and most of West Virginia.

Triangle Business Journal; April 17, 2008

Triangle home sales drop 28% but prices remain steady

Sales of existing Triangle homes were down 28 percent and prices were flat in March, according to the Triangle Multiple Listing Association.

MLS says there were 2,217 existing homes sold in the Triangle during the month. That's down from 3,059 in March 2007 and represents the ninth straight month with a year-over-year decline.

Prices were more resilient, avoiding the drops seen in the majority of the country, though they advanced less than 1 percent during the month. The average sale price of an existing Triangle home was $235,175 in March, up from $233,763 a year prior. RTP is located in Raleigh North Carolina, other great services located in Raleigh are Raleigh Web Design, Web Design Raleigh, SEO Raleigh, Web Development Raleigh and Raleigh Web Development.

Strength in home prices has helped the Triangle avoid the worst of the national housing downturn, though price increases have slowed in recent months as sellers have found it harder to get top dollar for their homes. Prices were up 3 percent on a yearly basis in both January and February before flattening in March.

In another sign that some sellers are having a hard time finding the right price on their homes, the Triangle's home inventory continued to increase in March. MLS had 19,033 listings in March, up from 18,620 in February and 15,564 in March 2007. The figure represents an 8 1/2-month supply, ahead of the six-month supply that economists consider a healthy balance between supply and demand.

Triangle Business Journal; April 15, 2008

Thursday, April 17, 2008

Many Worry About Mortgage Payments

WASHINGTON(AP) -- One in seven mortgage holders worry they may soon fail to make their monthly payments and even more fret that their home's value is shrinking, according to a poll showing widespread stress from the nation's housing crisis.

In an ominous snapshot of how the sagging real estate market and sour economy are intersecting, the Associated Press-AOL Money & Finance poll also found that 60 percent said they definitely won't a buy a home in the next two years.

That was up from 53 percent who said so in an AP-AOL poll in September 2006. Only 11 percent are certain or very likely to buy soon, down from 15 percent two years ago.

In today's economic climate, even holding onto what they already have is a challenge and source of distress for significant numbers of homeowners. Nearly three in 10 said they are concerned their home's value will decline over the next two years, while 14 percent of mortgage holders expressed worry that they might miss payments in the next six months.

One nervous homeowner is Daniel Gallego, a warehouse worker in Stockton, Calif., who said in a followup interview that he may have to sell his house at a big loss.

"We may have to move in with my wife's parents or my parents," said Gallego, 30, who has two young children. "I could pay off some debt, then we could rent, and maybe buy another house in a few years."

He said the rising cost of gasoline and other expenses have made his adjustable rate mortgage unaffordable. Because he doesn't expect his home's value to recover soon, he said he may be better off moving now before his rates rise.

One in 10 have adjustable rate mortgages, half the number who said so two years ago. These mortgages generally start at a low interest rate and are later adjusted to market conditions - which has often meant steep, unaffordable boosts that have forced many to refinance or even lose their homes.

The growing reluctance to dip into the housing market seems to stem partly from worry that housing prices will continue falling - good if you're buying a house but bad if you have to sell one.

The number envisioning falling prices in their area has grown to one in four, while four in 10 think prices will rise, a decrease from two years ago. Expectations for rising prices are highest in the South, with Westerners likeliest to predict they will drop.

"This is a great time to buy, but not necessarily to sell," said Robert Jackson, who lives in a two-bedroom house in Ferguson, Mo., with his wife and four young children. He said he would love to purchase a larger home, but can't because even if he found a buyer, he would probably lose thousands on his house, which he bought less than two years ago.

"We're just going to have to slap a Band-Aid on it and stay here until the market gets a little bit better," said Jackson, 30.

Underscoring the public's unsettled feelings, the number saying local housing prices are about right has fallen to 35 percent. Half say homes are overpriced - especially in the Northeast - while those saying housing is underpriced have doubled to one in 10. Midwesterners were likelier than those in other regions to feel this way.

Some areas of the country buck regional trends. Laurie Jensen, a single mother of three, struggles to make payments on her home in Whitehall, Mont., by working as a seasonal road construction flagger and at times collecting unemployment. She said she'd like to move outside of town, but the area is popular and prices have surged.

"Things are pretty crazy," she said. "Places I don't consider that great are really expensive."

The public anxiety is in reaction to an economy that is veering toward recession and losing jobs even as the housing market sputters badly. Foreclosures have soared to record highs, mortgage rates have increased, sales of existing and new homes have fallen and home values have dropped.

Gus Faucher, director of macroeconomics for Moody's, a consulting firm, estimated that 9 million homeowners owe more on their home than its worth. He said his company believes home sales are at or near bottom and home values will continue to fall until early next year.

Even so, he said, many people bought their homes before the run-up in values that started around 2001 and remain in good shape.

"So the value of your house goes down temporarily," he said. Unless the homeowner must sell now or can't afford the payments, "that doesn't have that much of an impact."

The poll also found:
The biggest worriers are those expecting to buy soon. Of that group 43 percent frets that their home's value will drop in the next two years, compared with 25 percent of those not expecting to buy soon.

Fifty-nine percent think now is a good time to buy.

Half think this is a very tough time for first-time buyers, an increase from two years ago. Nearly two-thirds think it's harder for first-home buyers than it was five years ago.

The AP-AOL Money & Finance poll was conducted from March 24-April 3 by Abt SRBI Inc. It involved telephone interviews with 1,002 adults nationwide, for whom the margin of sampling error is plus or minus 3.1 percentage points.

Included were interviews with 769 homeowners, for whom the sampling margin of error is plus or minus 3.5 points. The margin of sampling error for other subgroups was larger.

Wednesday, April 2, 2008

Latest Trouble Spot for Banks: Souring Home-Equity Loans

Losses May Hit Lenders That Skirted Subprime; Surprise Delinquents

Here comes another headache for banks suffering from the mortgage downturn: Losses on home-equity loans are soaring, even at some lenders that avoided big blunders on subprime loans.

When times were good, banks raked in billions of dollars in profit from home-equity loans, which allow borrowers to tap the accumulated value in their property with either a loan for a specific amount or a line of credit. As long as home prices were rising, lenders had little to worry about.

But falling home values are leaving banks with little or nothing to collect on many home-equity loans in case of default. Some stretched borrowers are keeping up with their mortgage and credit cards -- but not their home-equity loan.

The problems are already causing trouble for J.P. Morgan Chase & Co. and Wells Fargo & Co., and are expected to hit other large banks when first-quarter earnings results are released next month. The pain is likely to deepen through the rest of 2008, sapping capital levels and resulting in tighter lending standards as banks try to reduce their risk.

"These losses are well beyond what we would have modeled...and continue to get worse," said Charles Scharf, head of J.P. Morgan's retail business.

At a meeting with analysts and investors last month, Mr. Scharf spent more than 30 minutes dissecting the second-largest U.S. bank's $95 billion home-equity portfolio. It wasn't pretty. J.P. Morgan expects home-equity-related losses of about $450 million in the first quarter, up from $248 million in last year's fourth quarter. By the end of 2008, home-equity losses could double from current levels, he said.

Because J.P. Morgan largely escaped the brunt of the subprime crisis, its ominous tone on home-equity loans has fueled anxious number-crunching.
David Hilder, a banking analyst at Bear Stearns, last week cut his 2008 and 2009 earnings estimates for National City Corp., SunTrust Banks Inc., Washington Mutual Inc. and Wells Fargo, citing rising home-equity losses. Each of those lenders has 12% to 19% of its total assets tied up in home-equity loans.

Fitch Ratings, a unit of Fimalac SA of Paris, predicts that "banks will significantly ratchet up loan-loss provisions against home-equity loans in 2008."

Projected losses from home-equity loans aren't anywhere close in size to the carnage caused by the declining value of mortgage-related securities. (Those losses now total more than $150 billion.) But the cascading delinquencies and charge-offs represent one more piece of the U.S. banking industry that is in big trouble after years of bumper-crop profits.

Originally used to finance home-improvement projects, borrowers increasingly turned to home-equity loans to pay off other debts, such as credit cards. Home-equity loans also became a popular way to fund vacations and expensive electronics -- or to buy a house with little or no money down without paying for private mortgage insurance.

Now, the steep decline in housing prices and weak economy are turning the home-equity business upside down. About 4.65% of fixed-rate home-equity loans were delinquent in the fourth quarter of 2007, up from 3.11% a year earlier, according to Equifax Inc. and Moody's

"We will continue to see banks increasing reserves for their home-equity portfolios and tightening their home-equity policies, changing their credit standards in response to price declines," said Doug Duncan, chief economist of the Mortgage Bankers Association.

While banks can foreclose on a first-lien mortgage, lenders often have little recourse when trying to collect a delinquent home-equity loan, especially if another bank holds the primary mortgage. Banks holding home-equity loans generally can only seize the collateral -- a house -- after the mortgage is paid off.

When another bank holds the mortgage and the mortgage payments are current, the home-equity lender is effectively powerless to collect the debt.

Unfortunately for home-equity lenders, many borrowers understand that pecking order, concluding there are few repercussions if they stop making payments on their home-equity loan. "Lenders are seeing people go delinquent on home equity who by all rights wouldn't be expected to go delinquent," said Dan Balkin of Wholesale Access, a Maryland research and consulting firm that specializes in the mortgage industry.

Other types of consumer loans also are souring, including credit cards and auto loans. But delinquent home-equity loans are rising faster, representing 12.5% of all delinquent loans in the fourth quarter at Bank of America Corp., the largest U.S. bank in stock-market value. That was up from 9.4% in last year's first quarter, according to research firm SNL Financial.

Leaning on outside mortgage brokers for home-equity business was "one of the biggest mistakes we've made," said Mr. Scharf. Those loans have performed worse than home-equity loans generated by J.P. Morgan.

J.P. Morgan, Wells Fargo and other banks are now backing away from brokers to focus on home-equity loans offered through their own retail branches, where customers already have a relationship with the bank. Citigroup Inc. has slashed the number of home-equity loans originated through brokers by 90%.

Meanwhile, financial institutions are refusing to provide home-equity loans to homeowners whose residences are already weighed down by big mortgages in states like California and Florida where home values are falling fast.

"This product was meant to help people do construction on their house, [and] do debt consolidation -- not to take out every last dollar of equity in their home to finance a different kind of lifestyle," Mr. Scharf said. J.P. Morgan is "rolling our changes back to represent that kind of product."

By: Robin Sidel; Ruth Simon contributed to this article.
Wall Street Journal; March 12, 2008