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Chris Smith Joins Surterre Properties
Chris Smith Joins Surterre Properties
Investment property and costal luxury real estate specialist
Issued By: Chris Smith and Associates
Jul 10, 2008 13:44:12
Christopher Smith, Managing Member of Chris Smith and Associates
FOR IMMEDIATE RELEASE
PRLog (Press Release) – Jul 10, 2008 – Newport Beach, CA – Real estate agent Chris Smith has recently joined Surterre Properties®, Orange County’s leading luxury real estate firm.
Extensively experienced in the sale of both bank owned properties and luxury estates, Chris Smith is one of the industry’s most versatile real estate professionals. Having built a reputation as a Realtor® who is honest, hardworking, and efficient, Chris has always been a leader when it comes to closed sales, sales volume, and most importantly, client satisfaction. His loyal following of clientele, which spans from coastal Orange County all the way to the Inland Empire, is the best indication of the level of commitment and passion Chris puts into his highly successful business.
“At this time, real estate is undergoing a period of transition,” Chris remarked. “I’ve built my business amid a changing dynamic by offering clients exceptional service from every angle.”
Having launched at the onset of the real estate market’s transitional phase, Surterre Properties® quickly became the area’s most successful boutique firm. According to Chris, the company’s admirable tenacity and strong presence made a lasting impression on him. He believes that Surterre gives him the greatest opportunity to help his clients succeed under any circumstances.
“This company is the most forward-thinking, intelligent real estate brokerage in Southern California,” Chris stated. “Between its unique commitment to the environment, its in-house advertising studio, and its focus on what’s relevant in the local marketplace, Surterre Properties® blows the competition out of the water.”
A Newport Coast resident, Chris devotes a great deal of time to his community. He is actively involved with the Crystal Cove Alliance, a non-profit organization which provides funding, education, preservation and recreational activities at Crystal Cove State Park. He is also an active member of the Hoag Hospital Foundation's 552 Club, Miracles For Kids, Children's Hospital of Orange County and an associate member of the Association for Los Angeles Deputy Sheriff's. Chris was medically retired in 2006 as a Deputy Sheriff in Los Angeles County.
Contact Chris Smith at 800.390.4437 or chris@sellwithchris.com. For more information, visit www.sellwithchris.com.
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Chris Smith and Associates is a Newport Beach based real estate group. In partnership with Surterre Properties, we specialize primarily in residential real property transactions, marketing and sales of bank owned properties and costal luxury real estate.
Will Rate Cut, Stimulus Plan Revive Housing Market?
A hefty Federal Reserve rate cut and a stimulus plan that would expand the availability of The Federal Reserve's interest rate cut of three-quarters of a percentage point at an emergency meeting last week spawned a series of events that left mortgage rates at their lowest level in nearly four years.
Meanwhile, pent-up demand for high-priced homes could be met if, as outlined in a U.S. fiscal plan unveiled last week, the limit on conforming loans Fannie Mae and Freddie Mac can buy is raised as much as 75 percent for a year. The two companies are federally mandated to keep mortgage funds flowing. The two events could stabilize a beleaguered housing sector that has hacked away more than 1 percentage point from economic growth, professors and economists said. With housing on the mend, the mood of the consumer will improve, helping set the U.S. economy back on track. "The increase in the conforming loan limit should have a positive impact on the housing market, and overall I would say the package is large enough that it should have a notable impact on GDP growth," said Dean Maki, chief U.S. economist, Barclays Capital in New York. The downside is that these measures help the most credit-worthy borrowers and not those already in trouble. In fact, more financing from Fannie Mae and Freddie Mac will likely only stimulate sales of pricier homes.
The current $417,000 limit prevents borrowers with good credit in expensive areas from getting larger mortgages at a time when the jumbo market is all but shut down. The plan being touted by President Bush and the House of Representatives hikes the limit to $729,750 through 2008, and lifts the cap on loans insured by the Federal Housing Administration indefinitely to the same amount from $367,000. Raising the loan purchase size for government-sponsored mortgage funding companies, however, gives scant aid to borrowers with the credit problems that initially sparked the "What the economic stimulus package does, and the accompanying housing provisions do, is really lower the cost of credit to credit-worthy borrowers," said Nicolas Retsinas, director of the Joint Center for Housing Studies at Harvard University, and a Freddie Mac board member. "Today's problem is access to credit for credit-impaired borrowers and people falling behind on their mortgage payments. This does not release the chokehold to credit impaired borrowers," he said. "At best, this certainly should put the brakes on a further deterioration of the housing market."
Another potential roadblock to recovery is that the characteristics of mortgage bonds would change as the new larger loans are issued, leading traders to potentially exact a premium for added interest-rate risk. The two federally chartered companies keep funding for mortgages flowing by buying home loans, repackaging them into bonds and selling them to investors. Borrowers with large, jumbo loans are more likely to refinance since their savings are greater for each incremental drop in rates than for a smaller loan. Faster prepayments would reduce the market value of the bonds, especially when interest rates fall. Last week's historic 3/4-point Fed interest rate cut, the largest since 1984, helped yank average one-year adjustable mortgage rates to 4.99 percent, the lowest since October 2005, "The housing sector is interest rate sensitive, so anything that lowers the cost of borrowing is good for the housing market," said Harvard's Retsinas. Plunging stock markets and a flight to safe U.S. government debt, the peg for long-term home loan rates, sent average 30-year mortgages to 5.48 percent, the lowest since March So far, the lower rates have stimulated a mortgage refinancing boom but it's too soon to tell if purchases are climbing, several industry analysts and broker sources said. John Alexander, president of NYLX in Mount Arlington, New Jersey, which compiles data on mortgages, said $14 billion to almost $15 billion of home loans were priced each last Tuesday "The credit crunch and aversion to risk has created such a damper" for home purchases, Alexander said. The Fed's deep rate cut was a good step in restoring consumer confidence. The proposed loan limit increase, while "not a silver bullet, would be extremely positive for the purchase industry."
It appears we may have reached a bottom in housing. A few factors remain such as a reduction of inventory and continuing foreclosures. BUT... Nevertheless we are getting very close to seeing a continuing fall in pricing! Chris!
U.S. Homebuilder Index Set for Best Week Since Inception By Brian Louis Jan. 25 (Bloomberg) -- U.S. homebuilder shares are poised for their biggest weekly gain since 1995, as investors and analysts say the market for new homes may have hit bottom. Standard Pacific Corp. and Lennar Corp. led a Standard & Poor's measure of U.S. homebuilders up as much as 8.6 percent today, after rising 25 percent this week through yesterday. Homebuilding shares rose for the seventh consecutive trading day after analysts at Pali Research and Raymond James & Associates raised their ratings on some companies, amid expectations that U.S. government action, including the Federal Reserve's interest rate cut this week, will boost demand for housing. ``We will say right up front that, just like with the rest of the industry, the sun is not shining very brightly, but at least the worst of the storm has likely passed,'' Stephen East, an analyst at Pali Research, wrote today in his report on Lennar. Lennar, which reported the biggest quarterly loss in its history yesterday, gained as much as 21 percent after Pali raised its rating on the shares to ``neutral'' from ``sell'' as the Miami-based builder reduced inventory and generated cash flow. The builder index rose in the holiday-shortened week 25 percent through yesterday, topping the previous one-week record of 16 percent set in April 1999. U.S. stock markets were closed Monday for the Martin Luther King Jr. holiday. The Fed on Jan. 22 cut its target overnight lending rate to 3.5 percent from 4.25 percent. The reduction increased optimism mortgage rates will fall and help more people buy homes. Jumbo Limit U.S. lawmakers are poised to approve measures that may boost demand for housing. An accord reached in Washington would temporarily allow federally chartered mortgage-finance companies Fannie Mae and Freddie Mac to buy mortgages of up to $729,750, well above the $417,000 limit. Lennar rose $1.72, or 11 percent, to $17.93 at 9:59 a.m. in New York Stock Exchange composite trading. The builder, founded in 1954, reported yesterday a fiscal fourth-quarter net loss of $1.25 billion, or $7.92 a share, as revenue fell 49 percent to $2.18 billion. The company also recorded $1.86 billion in expenses as the deteriorating housing market forced it write down land and walk away from options on property. Irvine, California-based Standard Pacific, which sells houses in eight states, rose 38 cents, or 13 percent, to $3.38. To contact the reporter on this story: Brian Louis in Chicago at blouis1@bloomberg.net . Good morning! Thought this article may be of some interest...read it this morning in the New York Times. Chris
BUSINESS Feeling Misled on Home Price, Buyers Are Suing Their Agent Sandy Huffaker for The New York TimesMarty Ummel claims she was duped by her real estate agent. By DAVID STREITFELD
Chris Smith, Sales Associate Direct- 1-800-390-4437 x200 www.SellWithChris.com
Government Faces Mortgage Crisis By AP | 23 Dec 2007 | 12:58 PM ET GOVERNMENT MORTGAGE HOUSING SUBPRIME CRISISAfter a slow and stumbling start, official Washington is scrambling to try to prevent the unfolding mortgage crisis from pushing the country into recession during an election year. There is a strong feeling, though, that the government will need to do more to avert a financial disaster.One former Treasury secretary advocates temporary tax cuts and emergency spending on the order of $50 billion to $75 billion. Such action could help the U.S. from slipping into what Lawrence Summers, who served under President Clinton, fears could become the worst downturn since the steep 1981-82 recession. Some Republicans are worried, too. From both Martin Feldstein, who was President Reagan's top economic adviser, and former Federal Reserve Chairman Alan Greenspan have come calls for deeper government intervention to deal with the threat. Before it is all over, the government may have to resort to measures last used in the savings and loan crisis of the 1990s. Back then, it was a new agency to take over failing thrifts sunk by bad loans. Today, it could mean a government agency to buy up billions of dollars of mortgage-backed securities that investors are shunning. The Bush administration thus far has opted for less dramatic measures. In fact, the administration came reluctantly to the biggest step taken to date -- the "teaser freezer" announced two weeks ago. A deal with the mortgage industry will freeze the low introductory "teaser" rates for five years on some subprime mortgages -- loans to people with spotty credit histories. The rates were to climb much higher, making the mortgages unaffordable for many people and putting their homes at risk of foreclosure. The hope is that this agreement will buy time for the housing market to rebound. That would make it easier for these homeowners to refinance to more affordable fixed-rate loans.But estimates are that only about 250,000 people will end up getting a rate freeze -- a fraction of the 3.5 million home loans that could go into default over the next 2 1/2 years. The administration also is working with Congress to increase the $417,000 cap on the size of loans that the big mortgage companies Fannie Mae and Freddie Mac can handle. This step could help in high-cost housing areas such as California. In addition, the administration is supporting legislation that would boost aid to lower-income homeowners by increasing the scope of mortgage insurance programs handled by the Federal Housing Administration. These efforts may help at the margins. They do not, however, address one of the biggest threats to the economy: a spreading credit crisis triggered by the soaring defaults on subprime mortgages. Big Test for BernankeSome of the biggest names in finance have suffered multibillion-dollar losses as a result, and critical segments of the credit markets have frozen up. Banks and investors fear making further loans or buying securities backed by debt because they do not know how many more loans might go into default. Ben Bernanke, facing his first major test as Fed chairman, is getting mixed reviews. The Fed was embarrassed when the credit crisis hit in August. That happened only two days after the central bank had decided to keep interest rates unchanged and declared that inflation was a bigger risk than weak economic growth. The Fed has cut interest rates by a full percentage point since that time. But only the September cut -- a bigger-than-expected one-half of a percentage point -- elicited cheers on Wall Street. The two quarter-point moves brought about market declines as investors worried the Fed did not recognize the severity of the problem. The trouble is that the credit crisis is occurring at the same time that a run-up in energy prices is increasing inflationary pressures. And that is the dilemma. If the Fed cuts interest rates to keep the economy out of a recession, it could sow the seeds for higher inflation and perhaps give the country the worst of both worlds, bringing back that 1970s bugaboo, "stagflation," in which growth is stagnant and inflation is getting worse. In a novel approach, the Fed is auctioning off money to the banks in an attempt to get them to open up their loan spigots. The first two auctions, for a total of $40 billion last week, went well. But the amount of the cash provided to the banks paled in comparison with the $500 billion from the European Central Bank. Many economists believe the Fed will have to cut its federal funds rate, the interest that banks charge each other, at least three more times and strengthen the wording of its statements. In that way, the markets would know the Fed will do whatever is needed to fight economic weakness in spite of its lingering worries about inflation. "The difference between a soft economy and a recession is confidence. If the Fed appears reticent to do what is needed, like they did at their last meeting, that does not help confidence," says Mark Zandi, chief economist at Moody's Economy.com. As for the administration and Congress, a tax cut possibly in the form of a rebate probably will be debated in the coming year. President Bush told reporters at the White House on Thursday that "we're constantly analyzing options available to us." He insisted that the economy's underlying fundamentals remained strong. Summers, however, in a speech last week, urged bolder action. "For the last year, the economic consensus, and the policy actions that have flowed from it, has been consistently behind the curve," he said. Buying Up Bad LoansGaining some currency is the idea of a government agency modeled after the Resolution Trust Corp. of the S&L days that would buy up mortgage-backed securities as a way of dealing with bad loans. About $100 billion in such loans have surfaced and an additional $200 billion are likely, according to market estimates. If the government spent $150 billion to $200 billion to purchase mortgage-backed securities, the thinking goes, it would prevent a fire-sale that would drive prices of these securities even lower. When the housing market stabilizes, the price of the government-held securities would begin to rise, allowing the government to sell them back to investors. Whatever approach the government decides to take, economists said it will take time for the current problems to resolve themselves. They expect this housing downturn, which followed a five-year boom, to last through most of next year even under a best-case scenario in which the country avoids a full-blown recession. "We have the fundamental problem that we built too many houses and we charged too high a price for them," says David Wyss, chief economist at Standard & Poor's in New York. "We have to stop building houses for a while and the prices have to come down. We are trying to make sure that process doesn't derail the rest of the economy.
Yesterday morning I was checking my stock portfolio and doing my usual gazing of the financial news, I stumbled across this article which I read in it's entirety. This is possibly one of the best articles on the current real estate market that I've seen thus far. Have a look and let me know what you think! Have a great day and keep pushing forward!
Chris
Real estate: Buy, sell, or hold? That's the question homeowners are asking in the midst of the worst real estate slump in decades. Our exclusive calculations can help you figure out what your house will be worth in coming years.
(Fortune Magazine) -- You can't blame America's homeowners for feeling hopelessly confused. From suburban porches and city terraces, they're gawking at a housing world gone mad. Just 18 months ago, folks on a tony Linden Lane or a leafy Boxwood Court were astounded to see the colonial their neighbors bought for $600,000 in 2000 sell for $1.5 million after multiple bids. Now they're just as bewildered to watch the same model across the street go begging for months at $1.1 million without a single offer. The millions of Americans who believed yesterday's happy talk about housing are now paying the price, from couples who stretched to buy second homes, to true believers who drove the Florida condo craze, to executives who can't take that great new job in Charlotte without suffering a huge loss on the house purchased at the bubble's peak in Sacramento.
   25 real estate markets poised to fallOne way to know where housing prices are headed is to look at their relationship to rents. As Fortune's data show, big declines are needed to bring prices and rents back in line. View photos Now that the gilded forecasts have proved spectacularly wrong, homeowners don't know what to think about real estate's future. The dizzying rise sure didn't make sense. And the sudden slump doesn't seem any more logical. How can you make reasonable financial plans for the future if you have no idea what your house is worth? Take a deep breath. We can't tell you what your house would fetch tomorrow. But we can help you through the fog of whipsawing prices and vacillating views to develop a clear picture of what your house will most likely be worth in five years or so. Over long periods housing, like stocks and bonds, follows a set of economic fundamentals. No matter how far prices get unhinged in a speculative craze - and we've just witnessed a blowout - those basic forces eventually regain their grip. 25 real estate markets poised to fall Many factors determine the value of a house. A family would consider the quality of local schools, the number of bedrooms, the size of the yard. Economists assessing a region look at interest rates, employment, and population growth. But over time the most reliable guide to home values is rents. In most markets people won't lay out much more in monthly costs to own a house or condo than they would to rent a similar property unless they expect a huge profit when they sell. Indeed, speculators chasing quick profits did a lot to inflate the recent bubble. But once the fervor fades, prices must fall to restore their normal, long-term relationship with rents. Rents exercise a kind of inevitable gravitational pull on prices. The ratio of prices to rents "behaves much like price/earnings ratios for stocks," says Yale economist Robert Shiller. "Like P/Es, price-to-rent ratios are mean-reverting." In other words, while prices soar from time to time, sending the ratio to exceptional heights, sooner or later the relationship is bound to return to its historical average. So what are rents saying about home values today? To answer that question, Fortune worked with Moody's Economy.com to estimate adjustments needed to get prices and rents back in balance. We'll go into detail below, but the headline is gloomy: According to our calculations, prices in most markets will fall by double digits over the next five years. Here's how we reached that disturbing conclusion. We started with the median price of existing homes in 54 metropolitan areas, using numbers from the National Association of Realtors. We then compared those prices with the annual rent on similar properties - houses, condos, and apartments with the same number of square feet as the median-priced house in each market - using figures prepared by Property & Portfolio Research, a commercial real estate research firm. That gave us a price/rent ratio for each area. Economy.com then compared the current P/R ratio with its average over the past 15 years and calculated how much it would have to decline to return to its historical norm. The average drop for all the markets we surveyed is 28%. But that's not the whole story. The adjustment doesn't come exclusively from a fall in prices - rising rents also help close the gap. To complete the picture, Economy.com assembled a forecast of rental growth in each market; the average rise in our 54 markets is a total of 12% over the next five years. So to reach the average correction of 28%, prices need to drop only about 16%. Of course, that's still a big bite. And in many areas the outlook is far worse. In the major Florida cities, Orlando, Miami, and Tampa, prices need to fall 28% to 34%. It's a similar story in inland California markets such as Sacramento (-26%) and the East Bay (-31%). In East Bay boom towns like Walnut Creek, a four-bedroom house that might have fetched $1.56 million in the spring may go for less than $1.1 million in five years. In a handful of cities, our formula suggests that prices will actually rise. Home values should increase slightly in Dallas, Indianapolis, Cleveland, and a few other locales the bubble missed. In Detroit houses are so cheap - the median is around $100,000 - that even a shift in the economy from disastrous to mediocre is all that's needed to lift both rents and prices. You can see the results for 54 areas around the country in this table. We also show the impact of the projected adjustment on a typical high-end house - one that sells for double the local median price - and indicate what that price will likely be five years from now. We specify how much of the adjustment in each area will come from rent increases, and how much from price declines. Our forecast assumes moderate economic growth and job creation, and fairly stable interest rates. An unexpected boom or severe recession, of course, would change the picture. One more note about our methodology. The home prices we used are taken from June data. At that point prices in many areas had already declined from their peaks. Since then, of course, we've had the subprime crisis and credit crunch, which have put further pressure on prices. So in many cities and towns, they have already started on the painful path back to rational levels. To understand why the big price declines are inevitable, it's important to appreciate the giant chasm that opened between prices and rents, and how fast it happened. All through the 1990s the multiple of prices to rents nationwide remained between 14 and 15. Then prices exploded for reasons that are now highly familiar. The most important was easy money. The 40-year-low interest rates that prevailed from 2003 to 2005, especially the irresistible teaser rates on adjustable loans, brought a flood of investors into the market. Lax lending standards allowed subprime borrowers, people with poor credit histories and erratic employment records, to suddenly afford to buy houses, further stoking demand. By 2005 the Fed was aggressively raising rates to slake the coals. But the banks and Wall Street kept the party raging until late 2006 by concocting exotic mortgages that held down monthly payments for the first year or two and enabled buyers to keep paying outrageous prices. Then rising defaults forced lenders to scale back on loans to the high-risk borrowers driving the market. In July the subprime meltdown dealt the market a stiff blow by erasing the bargain rates that started the entire boom. While prices rocketed, rents barely budged. From 2000 to 2006 they rose a total of about 10%, not even keeping pace with inflation. For a while, part - but only part - of the rise in prices relative to rents made sense. The drop in rates genuinely made houses far more affordable for millions of buyers. Between 2000 and early 2005 average mortgage rates, adjusted for inflation, declined from 5.5% to less than 4%. But the tailwind from low rates is now over. The turning point came with the credit crunch this summer, when rates on jumbo loans jumped almost one percentage point. Today average real rates for all mortgages, fixed and adjustable, stand at 4.7% (adjusted for inflation), which is roughly in line with the long-term average. "For a time, higher than normal ratios of prices to rents were justified because of low real mortgage rates," says Mark Zandi, chief economist at Moody's Economy.com. "Today that justification is gone." The cheap and easy money is gone, but the inflated prices it created are still here. No other factor was as important in driving the price-to-rent ratio to its current, unsustainable heights. From 2000 to 2007 the nationwide P/R jumped from 15 to 24, an increase of 60%. The figure went from 12 to 21 in Tampa, 11 to 26 in Washington, D.C., and 28 to 51 in California's East Bay, an area that includes Oakland and the area east of the city. Naturally, every market is subject to different dynamics, governed by factors as diverse as local restrictions on building, job growth, and cultural pedigree. But in general cities fall into one of two broad categories when it comes to housing. The first we'll call the "classics," the urban centers that economist Christopher Mayer of Columbia lauds as "superstar cities." They're marquee names like New York, San Francisco, Los Angeles, and Chicago. To be sure, their housing prices have risen sharply. But they've benefited from excellent rental growth in the past, and the trend will continue, buoyed by their cultural cachet, job creation, and appeal to overseas buyers. As a result, steadily advancing rents will mitigate the price declines needed to make housing broadly attractive once again - keeping in mind that people are willing to devote a lot more of their income to shelter in New York City than in Pittsburgh or Cincinnati. In these classic cities prices will still fall. But in most cases the drops will be relatively modest, a projected 14% in New York, 10% in San Francisco, 5% in Boston, and 4% in Chicago. The decline will also be slow and orderly, chiefly because it's extremely difficult to build new housing in these areas. Sellers will lower prices only grudgingly, keeping the supply of bargains to a minimum. Manhattan, for example, largely escaped the invasion of speculators. No less than three-quarters of its owner-occupied housing stock consists of cooperative apartments governed by strict boards that ban investors. Nor can buyers choose from a vast array of fresh construction. About 4,000 newly built co-ops and condos have been hitting the Big Apple market annually, says Jonathan Miller of research firm Radar Logic. By contrast, more than 60,000 new homes and condos swamped the Phoenix area last year, according to RL Brown Housing Reports. See price trends in 54 major metropolitan areas Three other classic cities won't fare nearly so well. In Washington, Los Angeles, and Miami prices rose far more than in San Francisco or Chicago, making housing unaffordable for a vast coterie of potential buyers. In Los Angeles it costs less than half as much to rent a house or condo than to own one, according to a study by real estate analyst Lou Taylor of Deutsche Bank. Annual housing expenses, after factoring in all tax savings, now absorb 34% of the average family's income in Los Angeles, twice the figure in 2000. Miami is notorious for its skyline of unsold condos. What's less appreciated is that a large number of them - 60,000 units either completed or under construction in the Miami area - will be transformed into rental units. "That will prove a big drag in rental growth in the future," says Lewis Goodkin, an analyst who works with developers and lenders. Result: Price declines will bear the brunt of the correction in Miami. Along with the classics, there is a second group of cities that we'll call the "boom towns." Among them are well-known disaster areas such as Las Vegas and Phoenix, and inland portions of California, notably the East Bay, the Sacramento region, and the Inland Empire, the sprawling suburbs east of Los Angeles, as well as Florida cities like Orlando and Tampa. The overbuilt zone is characterized by rapid population growth, mile upon mile of new subdivisions and communities, and ample land for expansion. In the past the common wisdom held that despite all the open land, California was practically immune to overbuilding. The idea was that it was far too expensive and time consuming to transform vast swaths of raw acreage into building lots. The lesson of the bubble is that when prices climb high enough, builders - if it's humanly possible - will find a way to flood the market with new homes until the glut proves its own undoing. It's in the boom towns that the correction will be both fastest and deepest. One reason is that the Southwest and California, along with Florida, posted the steepest rises in price. At the peak almost 40% of the buyers in places such as Sacramento, the East Bay, and Phoenix were either investors or families armed with subprime mortgages. "When the investors disappeared, so did about 20% of the demand in California and other hot markets," says Robert Toll, CEO of homebuilder Toll Brothers (Charts, Fortune 500). Now investors are throwing their unoccupied homes and condos on the market. To make matters worse, developers kept putting up houses at a breakneck pace well into 2006. "We were all building to investor demand that had disappeared," admits Toll. As a result the housing industry faces an enormous overhang of unsold, unoccupied homes - a total of 2.6 million nationwide. In a normal market the number would be about 1.6 million, and most of those would be homes that the owners recently left because of moves for a new job or retirement. And they would be expected to sell quickly without deep price cuts. Today, though, many of the new vacant homes for sale are in the hands of builders, older homes that speculators are trying to dump, and foreclosed properties that banks are desperate to shed. In California builders alone have 40,000 vacant houses and condos for sale. "We've never seen an inventory overhang that big in California," says Mike Castleman, CEO of Metro-study, a firm that monitors builders' projects nationwide. "The builders are paying full freight on those houses in interest costs to the bank and taxes. They've got to move that inventory for whatever price they get." In San Bernardino County, about 60 miles east of Los Angeles in the Inland Empire, Kent Phillips, president of Storm Western Development, is selling houses for $330,000 that last year went for $400,000. "It's dreadful," says Phillips. "Last year we were selling four houses a month. Now it's one a month. The end came just like turning off a water spigot." Despite the steep discounts, Phillips is still holding six houses that haven't sold in a 16-home development he completed in January. But Phillips sees an opening to revive the stricken business: plunging construction costs. He says that prices of finished lots, equipped with roads and utilities, have fallen from around $135,000 to $75,000. The cost of construction has gone down around 35%, from $85 to $54 per square foot. "Developers can now sell their houses for at least 20% less than a year ago and still make decent margins," says Phillips. It's a similar story in California's Central Valley. Paul Roman, vice president of operations for the Empire Cos., a land development and construction firm, is building a new community in the rural town of Tehachapi. His edge: prices ranging from $230,000 to $280,000 for three-bedroom stucco homes, between $80,000 and $100,000 lower than the prices for similar houses at the peak. "The play is making the project affordable," says Roman. "A year ago, if you asked about cost, the subcontractors would hang up on you. Now they're willing to do the job at cost just to keep their employees busy." The combination of steep discounts to move inventory and a stream of new communities built at a much lower cost will keep prices far below their peak levels in the boom towns. And they'll keep falling until builders work off the massive inventories. The tumbling prices of new homes, in turn, will put enormous pressure on the far bigger existing-home market, already under stress from two desperate groups of sellers, investors and banks. Hence, the adjustment needed to bring the ratio of prices to rents into alignment will happen far faster than in most housing downturns. "In the most vulnerable places in California and Florida, it's highly possible that most of the correction will happen by the end of 2008," says Zandi. There's one more factor that will prevent housing prices from recovering as quickly as they might have: the gargantuan rise in property taxes. In many affluent urban and suburban markets, property taxes have doubled since 2000. That's because they're based largely on the assessed value of homes for tax purposes, and those assessments are based on market value. As housing prices doubled in places like Westchester County, N.Y., and Fairfax County, Va., property taxes soared. "My taxes went from around $2,800 a year to $5,600," says John Irons, a Fairfax resident who works as a commercial real estate broker at Long & Foster Realtors. "If you raise taxes on a commercial building, its value falls. The same is true for housing." In California tax increases are capped until an owner sells the house. Then the new buyer is faced with a whopping bill. "Taxes on a $1.8 million house in my neighborhood are $23,000," says Phillips, "and that isn't even a fancy house." Nationwide the numbers are big. Property taxes on houses and condos total roughly $200 billion a year - about half as much as mortgage interest payments - and they have been rising by 8% a year, more than double the rate of inflation. It's a good bet property taxes won't go up nearly as fast in the future. But they're unlikely to go down either. So homeowners face a burden they didn't have when the boom started. And one that won't end when it goes away. Reporter associates Doris Burke, Telis Demos, Julie Schlosser, Christopher Tkaczyk and Jia Lynn Yang contributed to this article.
Fed Forecasts Spur Traders to Ignore Warnings, Bet on Rate Cuts By Scott Lanman Nov. 21 (Bloomberg) -- The Federal Reserve's first set of quarterly economic forecasts fueled speculation that it will cut interest rates again, contrary to warnings by policy makers in the past two weeks. The degree of ``uncertainty'' about the growth outlook is greater than that for inflation, officials said in a supplement to minutes of their October meeting released yesterday. While officials expressed confidence price increases will ease, they viewed markets as ``still fragile and were concerned that an adverse shock'' would worsen economic risks. The wariness about a continued credit collapse pushed odds of a rate cut next month up to 92 percent, according to federal funds futures, from as low as 70 percent. Investors differ with Chairman Ben S. Bernanke and other officials, who have said this month that the dangers of a slower expansion and faster inflation were ``roughly'' balanced. ``Risks aren't balanced,'' said Michael Feroli, a former Fed board staff member who is now an economist at JPMorgan Chase & Co. in New York. ``Recent developments in financial markets increase the likelihood that they will ease.'' As part of its new release on the three-year economic estimates of Fed governors and district-bank presidents, the central bank discussed risks to the outlook. ``Most participants judged that the uncertainty attending'' their growth forecasts ``was above typical levels seen in the past,'' the Fed said. Growth Forecast Officials predicted growth will slow to as low as 1.8 percent in 2008, according to the middle range of projections. That would be the weakest since the 2001 recession. The Fed's historical estimates indicate that the actual expansion is likely to be within 1.3 percentage points above or below the estimate. In June, policy makers anticipated 2.5 percent to 2.75 percent growth next year. Officials left their projection for inflation, excluding food and energy costs, little changed at a 1.7 percent to 1.9 percent pace for the next two years. ``The focus in the minutes is on the downside risks to growth,'' which contrasts with an ``optimistic inflation forecast,'' said Robert Eisenbeis, the former head of research at the Federal Reserve Bank of Atlanta. ``They clearly will respond if needed.'' The Federal Open Market Committee lowered its benchmark rate by a quarter point on Oct. 31, to 4.5 percent, after reducing borrowing costs a half point in September. Since the meeting, banks have warned of billions of dollars of losses on debt tied to subprime mortgages. Stocks have also retreated, while the number of private economists predicting a recession has risen, according to the National Association for Business Economics. `Dent' Confidence While the ``most likely'' scenario is consumer spending and business investment rise at a ``moderate'' pace, Fed officials recognized a market shock ``could further dent investor confidence and significantly increase the downside risks,'' the minutes said. Such a disruption could come from ``a sharp deterioration in credit quality or disclosure of unusually large and unanticipated losses,'' the Fed said. In their speeches and public remarks, policy makers have said they expect growth to accelerate by the middle of 2008 and warned that surging energy and commodity prices, and a falling dollar, may push up inflation. `Rough Patch' Economic reports confirming a ``rough patch'' in the economy ``would not, by themselves, suggest to me that the current stance of monetary policy is inappropriate,'' Fed Governor Randall Kroszner said Nov. 16. Further rate cuts may increase the risk inflation will accelerate, he signaled. Federal Reserve Bank of St. Louis President William Poole said in a Nov. 15 interview with Dow Jones that ``there can only be chaos'' if the Fed follows traders' expectations in setting policy. ``When you think about the effects of monetary policy, you are going to be thinking about several quarters ahead,'' said Douglas Elmendorf, a former assistant director of the Fed's research and statistics division who is now a senior fellow at the Brookings Institution in Washington. ``The FOMC is very focused on maintaining and building their credibility on keeping inflation low.'' Yesterday's forecasts are the product of a 1 1/2-year review commissioned by Bernanke to improve how the Fed communicates its policy objectives. He said in a Nov. 14 speech that the new reports will help show ``how our policy decisions respond to incoming information and will enhance our accountability.'' Less Optimistic Fed policy makers are less optimistic about the 2008 expansion rate than private economists. The median Fed estimate of about 2.25 percent is less than the 2.4 percent consensus prediction of the Blue Chip survey of forecasters. Four of 17 Fed governors and presidents expect growth of 1.8 percent or less. Fed officials will have more opportunities to send investors a message before the Dec. 11 meeting. Next week, at least four regional-bank presidents speak, including Philadelphia's Charles Plosser and William Poole of St. Louis. Bernanke speaks Nov. 29 at an event in Charlotte, North Carolina. ``There is a very slow movement toward understanding the severity of financial market problems and the impact on the economy,'' said Kurt Karl, chief U.S. economist at Swiss Reinsurance Co. in New York. ``The question is, what is the Fed waiting for?'' |
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