Deja Vu!

I was thinking over the weekend about how real estate seems to have a cycle every 20 years more or less. In 1972, when I was but 9 years old, I remember my family was building a home off Crystal Lake Road in Lutz. The Builder was Burton Builders, one of Tampa’s finest and largest of the day. About 1/3 of the way through, the real estate bust of the day caused Burton Builders to go under. I don’t remember how the house got finished, but it did. And Burton Builders was no more. A victim of the declining real estate market. (I do remember that my mother purchased the property from the late Juanita Dennis, a North Tampa icon. It was a four acre parcel and I remember the purchase price for the land was $10,000.

Then, in or around 1990, just about the time I was breaking into real estate, I remember the land across the street from the 4 acres I talk about in the first paragraph was an orange grove in the 1970’s. I used to play in those groves. Now, it was a beautiful new, gated community of about 200 homes. Some of Tampa’s best builders were building in there. Deja Vu! Apollo Homes, one builder I remember had to devolve, along with most, but not all who were building in there. The market slowdown and the Savings & Loan scandal (anyone remember that?) killed real estate! There were about 12 homes in Crystal Lakes Manors that were incomplete, the builders just walked away leaving about 1/3 of the community unfinished! . By 1993-1994, the son of the original developer of this community, Richard Shimberg, picked up the remaining 50+ lots and built out the community and did an excellent job. A few of the builders from this era are still here today! Shimberg Homes is one of the finest builders in Florida, Grey Homes, an original builder from the 1980’s is still around (Vinny Testaverde just purchased one of his homes across the street from our office on Lake Keystone) and Dura Homes. He was a drywall contractor in the 1980’s and early 90’s. Today, in my opinion, he builds the absolute highest quality home I have ever seen. All born from the Crystal Lakes community in one way or another.

Speed shift to 2008. Deja Vu! Look at 1972 and 1989 (17 years in between) and compare to 1989 to 2007 (18 years). 72-89-07 were all years of “bust” in real estate. My $10,000 four acre lot today right were it is in Lutz would sell today, no doubt for close to a million dollars and would be the home of 8-9 houses instead of the one that sits on it today (mom, you should have just held on to the land). The $180,000 homes that Shimberg built in Crystal Lakes Manors are worth today, in this market, after the bust about $450,000 to $480,000. Remember, the savings and loan crisis of the late 80’s and early 90’s will most likely mirror the impact of the sub-prime market of a few years ago. Those who buy real estate in down markets always seem to be the ones making all the money!

Now, who is ready to buy some real estate? Deja Vu!

Advertisements

In Defense of Real Estate

Keep in mind, that from 2000 to 2006, the market value of houses in Tampa Bay was up 138%. A $400,000 house purchased in 2000 was worth $952,000 in 2006. Now that the market has declined 20% since 2007, that poor homeowner is ONLY up $361,600 without factoring in the huge tax writeoff he or she has been able to leverage out the past eight (8) years.

Despite flaws, real estate still represents a solid investment in the future. For those wanting to learn how to “flip” in this market, do everyone a favor and have a seat on the porch.

SOS and the NAR

Today, the NAR (National Association of Realtors) said that home sales in February were surprisingly brisk and that inventories were in decline. Since I operate in the real world, I suspect that “trend” will turn out to be temporary. I guess they are rightfully trying to spin anything they can into a positive in this market. Per my other posts in website, the issue at hand is CREDIT. Until everyone (lenders) lighten up on the credit crunch, home inventories will continue to rise. I know it sounds crazy, but look what happened when they lightened up on standards before! BOOM! I’m not saying give loans to the guy without a job via “stated income” like they did before, but somebody needs to give loans to wanting buyers. If not, there will be a TON of inventory with nobody living in those properties and nobody able to borrow money to live in them. The lenders made this crisis, they need to come up with a fair solution and take their beatings that are inevitable. Too much of the U.S. economy rests on the real estate and stock markets. Real estate and stocks are to the U.S. economy what oil is to Saudi Arabia. We are in a recession and something needs to be done to alleviate the stress of the U.S. economy ……… tied to real estate.

“EASY MONEY” Loans

Lenders are shooting themself in the foot again. Industry wide, they are creating a problem that they seem oblivious to. The fact that the “tightening of the belt” on lending standards will not help this real estate crisis.

The lenders will continue to acquire properties via foreclosures from bad loans they put out. Rather than help those property owners already in those houses out and adjusting the current loan in place, the one currently doomed for foreclosure into a good, possibly profitable (under the circumstances) loan…… they foreclose. Then, they expect A DIFFERENT lender to loan money on this same house and take it from their inventory. Problem is, that the “other” mortgage company is in the same boat. NOBODY CAN BORROW MONEY! The amount of houses on the market in 2008 will grow in 2009. Who is going to buy them?

Unfortunately, those “EASY MONEY” loans that caused this mess and it will take a variation of an “EASY MONEY” loan to get things turned around. If not, the only ones profiting from the real estate bust will be investors, the same ones who made profit from the boom and bailed BEFORE the bust. Right now there are millions in danger of foreclosure. I’ll bet at least 1/3 would stay in the home they are in if the mortgage lender would #1) forgive the payments that the property owner is behind and remove those negative marks from the credit bureau, #2) adjust adjustable rate nightmares into manageable fixed rate loans and #3) adjust the loan amount owed to current values, thus eliminating negative equity. They can protect the loan with a pre-payment penalty if the owner does not stay in the home a minimum of 5 years. This will give lenders the possibility at least to not lose money in the long-run. IF values return, those property owners would have to pay a portion of the profit to the lender of offset their losses. They have a bad loan now, why not try and alleviate the inventory issue that is causing havoc on our industry.

All lenders need their own version of FHA or VA type loans to help move the inventory. Everybody wants to take risks (mortgage industry taking marginal buyers and giving them 100% loans), but when their profit sham goes away, they look to the Federal Government to bail them out. To me, the fastest way out of this mess will be for the US Government to step aside, let the chips fall where they may. BELIEVE ME, the lenders and lien holders on all of this available inventory would come up with solutions FAST if they know that was the case. They know this will never happen so they sit on their hands and wait for the government to bail them out.

American “Sheep”

One thing that still amazes me is how everyone follows one another in America. It does not matter what the subject, I will use politics and real estate in this example. In 2005-2006, everyone was on that “flip” bandwagon. The lines for release of new home communities would start weeks in advance from those wanting to buy pre-construction, only to re-sell them later at a huge profit. Same thing at Trump Towers here in Tampa. The builder inflated prices based on the legendary “Trump” name. The problem is, Mr. Trump sold naming rights to the project only and was not the actual “builder.” If you live in Tampa, you are aware of what happened or is happening with the project. If you don’t live in Florida, you probably heard the “thud” from where you live. SOLD OUT so they said, just a week or two after they released units. Now, buyers are in limbo and they may not see the full deposit returned if anything at all.

This happened all over real estate hotbeds around the country. I won’t go into the history because we all know what happened. Now, all of those “real estate guru’s” are back to their old jobs at Burger King and 7-11. There is a massive supply and demand problem! So who is buying those properties? Foreign nationals, millionaire investors and tomorrow’s millionaires. Mainstream America once again, is allowing somebody else to cash in on our opportunity!

Same with politics. Mr. Obama is trying to win the popularity contest. Americans are following him off the same cliff. It looks good, it sounds good. The bubble will burst just the same. When there is no substance, there is a hollow shell. Senator Obama, a freshman Senator is out to change the system! Well America, the last “outsider” that was elected that was going to change the world? Jimmy Carter. I guess the theme of this Blog is, buy real estate and vote for somebody older than 12 for president.

Take Advantage

Say you purchased your home 5-10 years ago. How can you benefit from all of the real estate rise and fall. As of today, interest rates are VERY LOW! Why is everyone not refinancing those 30 year notes into 15 year notes! The amount of interest you pay between a 15 year and a 30 year is a HUGE amount! On a $200,000 mortgage, you will pay only $500 more a month on average. OR, you can pay an extra $234,000 in payments on that extra 15 years! The $500 extra per month on the 15 year note is $90,000. The difference is $144,000. Do yourself a favor, meet with a reputable mortgage lender and do the math. See if it makes sense to you. Rates may never be this low again! The real estate bust could be a huge benefit to your family. What do they say about making lemonade?

Property Taxes in Florida

Today in the Tampa Tribune, I read a new proposal by the State that would increase the sales tax by .01 in 2009 and would decrease property taxes by 25%. This new tax would replace the school portion of the property tax. I still say this is not enough. Again, it helps all homeowners, but the property owners, more specifically, the homestead property owners need real relief. Amendment 1 did little to help those that needed relief the most, those who purchased a house in 2004, 2005 and 2006. A better option would be an increase in sales tax by .02 and reduce property taxes by 50%. Get the insurance industry in line and reduce insurance rates in Florida and we are looking at a heathy recovery in Florida. I still wonder what our politicians did with all of the unexpected and unbudgeted hundreds of millions of dollars that came in off of the reassessment of property taxes on sales from 2004-2006. SPENT! Like drunken sailors at a bachelor party, our politicians are good a spending! How about that little thing called a budget! As in stay in it and stop spending the overages. Use the overage for a hurricane relief fund, show it to the insurance companies and cut a deal that would give Floridians some REAL relief!