The Home Crowd

This was featured on the front page of the San Jose Mercury News a couple of days ago. There’s a non-profit housing developer in San Jose which developed a 17 unit condo property blocks away from San Jose State Univ. aimed at the affordable housing crowd. Problem is, out of those 17 available ‘affordable’ units, only one has been sold in the eight months since ‘for sale’ signs went up. I’m not even sure if that’s counting the amount of time this project has been up for pre-sale.

Wait, what? The ‘affordable’ homes are supposed to be snatched up really quick, right? Well, yeah, in most markets they are, so long as they’re “Affordable”. These condos started out expensive, and have just received a price cut to “not as expensive”.

Two-bedroom condos at Villa Almendra once priced at $535,000 now are offered at $450,000. The units come with new appliances, two-car garages and granite countertops.

(From the San Jose Mercury News)

Now, of course, to qualify for affordable housing in santa clara county, the household (up to four) can’t earn an income of more than $84,900 annually. And with loan incentives, the mortgage payment can be brought down to a little over $2,300 a month. That is of course, before HOA fees, taxes, insurance, etc.

So, ‘Affordable’??? Not even close. However, many would be quick to point out that the San Jose/Silicon Valley area is one of the most expensive markets in the U.S. And right you are, if not THE most expensive metropolitan area in the country. From this I bring in the home cost-per-square-foot factor into the mix. Right now, the average cost-per-square-foot for the average home in this country is somewhere around $130 per square foot. In the major housing markets it has traditionally been more.

(From the Wall Street Journal)

And there it is! The writing on the Wall. San Jose checks in at $437 per square foot for a home, well above the $394 San Francisco and $286 New York,NY per-square-foot figures. Now you’d figure that an ‘affordable’ housing project would be considerably below that $437 magic number.

Well, according to the developer’s latest promotional material (http://www.nhssv.org/files/villa%20almandra.pdf), the average price per-square-foot was originally $412. With no sales, they dropped the price to $390 per-square-foot on average. From what the San Jose Mercury News article said, they’ve apparently dropped the price again. And on top of that, but has offered a free Prius to one of the next 8 buyers.

However, now the developer has opened up the sales to anyone, not just those who qualify into the ‘affordable’ category. So if you’ve got an available $2,300+ a month to live in a duplex/triplex condo, you’re in luck, because anyone who may have considered these properties previously, just stuck with commuting or found something actually affordable.

What should this project have been? A higher-density project instead of 6 separate duplex/triplex condo buildings sharing a double-loaded parking alley. Whose kids are realistically going to play on that 5 foot strip of front yard anyhow?

No word yet if the lone property owner is left holding the bag, covering the entire HOA responsibility for the whole project, paying landscapers for the upkeep.

Very often, in both my professional and personal life, I find myself crunching numbers.  For one, out of necessity, and second, out of curiousity.  Recently, I have found a great resource in Yahoo’s Finance section.  The mortgage calculator works just as how you’d expect, you drop in the figures, and the calculator pops out the appropriate information.

So thinking about buying that 350,000 dollar home?  Well crunch the numbers, add in taxes, home insurance, and get a clear figure in your head before making the big leap.

Yahoo Finance Mortgage Calculator

As you look over your results, you’ll notice your estimated mortgage payment, as well as a comprehensive payment schedule, and also what your home will cost you total (principal + interest).  Now, if you find that simple tool useful, there are many others on the Yahoo Finance page which help out with financial planning, College Saving, Taxes, Insurance, Loans and Retirement Planning.

But if you’re mainly interested in the real estate aspect of the calculator tools, then I also recommend moreso than the Mortgage Calculator, the  “How much home can I afford” calculator.  This calculates home affordability in a more “traditional mortgage’ sense.

Yahoo Finance’s Home Affordability Calculator

These tools, combined with real estate searches such as through various real estate sites and those in the similar vein such as Zillow, can save you some time pounding the proverbial pavement as you’re able to do your homework during the evenings and weekends.

The site however, is run by Yahoo, which therefore means I find it pretty reliable.  That is, unless microsoft succeeds in buying out yahoo.  In which case, your results and reliability may vary.

Ever sit at home and watch any of the many home remodeling shows on cable where the homeowner is looking to turn a quick profit after sprucing up a very bland home? If you haven’t, it goes like this:

• The Buyer buys a home in poor condition at a price below market value (hopefully?).
• So called ‘expert’ comes in and brings up the “Wow” factor, by telling the owner/flipper things like “This $800 of new sod can raise the property value by $3000!!!” or “This $10,000 kitchen remodel should bring you back 20K, nice and easy!!!”
• The Owner, thrilled by their impending windfall, dishes out the cash necessary, usually just right before finding a ton of wood rot in the bathroom, which they have no choice but to fix, and not fitting into the remodeling budget. But all the other improvements should bump up the value to cover the little expenses, right?
• And the show ends, usually with owner getting realistic quotes from ‘actual’ professionals, and settling for a good deal less than their asking price.

Personally, I like the shows that follow the pros around a bit better. They do simple cosmetic fixes, and repair where necessary.

The reality of remodeling, however, is not as television friendly. Rarely do remodeling projects return more than 100% of the cost. What’s notable about the Cost vs. Value report (below) is that the returns on remodeling average 70-80%. Traditionally the best returns come from projects such as Kitchen and bathroom remodels, upgrading flooring, and cosmetic refinements such as exterior remodels and beautification. Then again, many of these projects are sales friendly. Ads for homes often have a short synopsis, and terms such as “granite countertops”, and “Hardwood flooring” make for quick selling points that pop out to potential buyers. If there’s a picture attached to an ad, then of course the exterior upgrades and carefully manicured landscaping will instantly draw interest.

But keep in mind, that’s only my opinion. What truly matters is numbers, research and statistics. Over the last few years, I’ve followed up with the Cost vs. Value report prepared in conjunction by Remodeling Magazine and Realtor magazine with the support of surveys completed by thousands of members of the National Association of Realtors, a market research firm, as well as an estimating software developer.

The most recent edition for 2007 has the figures given and comparisons to previous years, or the trends, so to speak.

Of projects that saw national cost recovery rates of more than 80 percent in 2007, only one — a minor kitchen remodel, with 83 percent of cost recovered — was a strictly interior job. The others were an upscale siding replacement using fiber cement materials (88.1 percent), a wood deck addition (85.4 percent), midrange vinyl siding replacement (83.2 percent), and upscale vinyl and midrange wood window replacements (81 percent and 81.2 percent, respectively).

On most projects, the value of remodeling trended down in 2007 compared with 2006. No project exceeded an 88 percent return. The likely culprits for the year-to-year drop: rising remodeling costs and slowing home appreciation brought on by the lackluster housing market in many areas.

The story was somewhat different in the Pacific region, however, where REALTORS® estimated cost recovery of more than 100 percent for six projects: a wood deck addition, a minor kitchen remodel, fiber-cement siding replacement, wood window replacement, and an upscale wood and vinyl window replacement.

What is there to learn from the Cost vs. Value report? Depends on what type of project your thinking of tackling. Maybe that home office works out great for you, and whichever line of work your in, so long as you’re sticking around for the foreseeable future. However if you build a home office with the intentions of Wow-ing a potential buyer, the numbers show that your remodeling dollars would be better spent elsewhere.

Remodeling Magazine’s Cost vs. Value 2007 report

Realtor Magazine’s Cost vs. Value 2007 article

Remodeling Magazine’s Cost vs. Value 2006 report

The Wall Street Journal recently posted an article discussing the practice of “Cash for Keys”, which quite simply, is paying off those living in foreclosed properties to leave, without incident or destruction. Apparently “Foreclosure Rage” is a frequent enough occurrence to cause banks and lenders to send out their associates to foreclosed properties they suspect the residents are still inhabiting and leave a offer of cash to vacate or to call and negotiate a better offer to leave.

How much better?

The owner, a 43-year-old man with two children who spoke on the condition that his name not be used, says he bought the property in 1993 for $140,000. Three years ago, he says he had the house appraised for $440,000 and took out a $207,000 home-equity loan to pay off credit-card bills and buy his wife a new van. His initial payments were an affordable $1,800 a month.

He fell behind, however, after he went through a divorce and his landscaping business faltered, just as his interest rate was rising. The man worked out a payment plan with the bank and borrowed heavily from his father, but, including penalties, his monthly payments rose to $4,000, he says. After two months, he says, he ran out of money, and the bank foreclosed.

He called Mr. Carver after receiving the cash-for-keys note, but was left cold by the bank’s initial $500 offer to leave the house soon, intact and broom-swept. “If I stay here it will cost them a lot more money,” both men remember the former owner saying.

The man says he was just pointing out that eviction is expensive for the bank and says he had no intention of damaging the house. But he had “pushed the right buttons” for Mr. Carver. “He didn’t actually come out and threaten the property in any way,” Mr. Carver says. “But I assumed that he probably wouldn’t be too happy if he got evicted and locked out.”

Mr. Carver consulted with the bank and upped the offer to $2,800.

So not only are those in foreclosed properties not forced out, but they get a cash bonus to possibly help get a jump start at finding an apartment and get their financial life back on track. The banks however, consider the ‘cash for keys’ practice commonplace and find it beneficial to pay out a small sum rather than to try to market a foreclosed property which has been trashed. Some angry foreclosure owners, it seems, have gotten back at the banks by trashing their homes. Pouring paint on the carpet, having their pets use the home as a giant litterbox, and holes in the walls are commonplace reports. And the banks just find it easier and definitely more profitable to sell a foreclosed home which is in good shape. They’re not even rehabbing/remodeling the trashed ones, they’re taking less to move a trashed foreclosed property rather than put out the time, effort and money which as we’ve learned, only returns 80% at best, usually, of the remodel cost.

Lesson: Take the money and run; Don’t pack up the appliances, smear goat’s blood on the walls and leave the middle of the night.

Buyer’s Revenge: Trash the House after the foreclosure (Wall Street Journal)

Recently, in Miami and Las Vegas, the news broke on BankUnited’s blacklist of condominium properties. BankUnited as well as other lenders have adjusted their guidelines and will not write loans for properties named on the BankUnited list published by the South Florida Business Journal as well as other projects and geographic areas. Now, lenders in this market are not able to establish a value-to-loan value on these condo projects, and have established their guidelines based upon these factors -

Declining market value was the biggest culprit, followed by high investor concentration — as much as 70 percent in one case. BankUnited also cited numerous foreclosures, delinquent homeowners association dues, structural-based litigation and the bank’s existing exposure in the buildings.

(from the South Florida Business Journal) – The Blacklist can be found at the article here.

photo credit: alexdecarvalho

So if you’re in the market in South Florida, you just find another lender right? Well, in december, Vertice ( Wachovia’s wholesale lending unit) stopped writing mortgages for ALL South Florida Condos. If you can find a lender who is, let me know, because I want to know what they’re doing right (and hopefully not disastrously wrong).

As of the first quarter of 2008, South Florida is the most foreclosure-prone market in the U.S., but Las Vegas isn’t far behind and is facing their own hardships as well.

Almost 70 luxury high-rise projects were planned in Southern Nevada last year, totaling 45,616 units, reports Restrepo Consulting Group, a local real estate research firm. However, only 10 of those projects have broken ground; and, 27.5 percent have been suspended or canceled. Many were victims of the souring housing market.

(From the Las Vegas Business Press) – Article here.

So, more casualties to the housing bust. The Seller looking to get out from under a property before risking foreclosure and the Buyer who finds a bargain condo that they could afford even with a traditional mortgage. The Seller is not going to find the same pool of potential buyers as they would have previously, thus leaving them to likely settle for an offer they find less than desirable. The buyer, who may already havegood credit and had been pre-approved by a lender, will find themselves blocked from an opportunity.

Who benefits from this? The buyers with the cash on hand. It seems that very few lenders are going back any prospective buyers, so those with the cash ready may find themselves with some great deals for their home/investment.

I came across Zillow a couple of years ago via a link to a page on their site, showcasing the actual locations of the TV homes we all grew up watching. The Brady Bunch house is there, as is the Bewitched house and the 90210 house (which was miles away from Beverly Hills near Pasadena actually), and also Archie Bunker’s House. But does anyone even know which of those houses was his? I remember quite vividly many row houses, shakily filmed from a moving car.

Immediately upon viewing this list, I remembered a good friend of mine and how she was a huge fan of the series “Charmed”. Personally, I was a huge fan of Alyssa Milano. Difference was, the house from Charmed was not actually in San Francisco as the show would lead you to believe, but actually nearby, a few blocks north of Downtown L.A., literally blocks away from Dodger Stadium. So we did a day trip and I managed to get a great ‘touristy’ pic of her in front of the house. It was a fun little trip and a great exercise in using a valuable web-based resource for real estate. (Not sure how well she’s coming along with getting me that pic with Alyssa Milano though)

Link to “Charmed” house page here.

If you’d like to see the list of famous homes Zillow has found, here’s the link – Zillow Famous Homes

But let’s say for instance, that you’re looking to sell your home, you could look it up on Zillow and get a ‘ballpark’ estimate of your home’s worth. I say ‘ballpark’ because based on what I’ve seen, I don’t feel the estimates are accurate, especially not in the current housing market (as of April, 2008). How would I know, you say? By keeping a close eye on what those close to me are buying and selling. Know someone who’s buying/selling? Look it up on Zillow and see just how closely their estimates match up to actual sale/purchase price.

For example, in February a friend was purchasing a home. It was a fixer-upper/distressed property in a neighborhood that at best could be described as “in need of redevelopment”. After touring the home, and seeing the condition it was in, I didn’t feel Zillow’s estimate was close, but that was probably just figured out by some equation of area value, square footage, number of beds/baths. I also didn’t feel it took into consideration the current housing market. It was overinflated, and considering the dire condition of the home, and the housing downturn, I imagined the price my friend paid was 14% less than Zillow’s estimate. Said friend had bought for less than that even, 16 % less than the Zillow estimate. That, two months ago, I found somewhat understandable, knowing that this site likely had no clue about the home’s condition. But after checking again on the same property this week, Zillow has raised the value 17% higher than the original estimate from two months ago.

So, if you’re curious about what your home is worth, or if you’re curious about a prospective home, give Zillow a shot. It’s free, there’s no annoying registration required, just type in the address of the property. Zillow has partnered over the last 2 years with thousands of real estate brokers and agents, and recently, has partnered up with Sears to expand resources. I expect Zillow will grow and eventually get a better grasp at actual value than artificial value. They’ll have to, or in this market, they’ll be so far off when it comes to numbers that it won’t be a reliable service.

Now, if you’re serious about what your home is worth, check out the site, then hire a professional appraisor.

In the meantime, I’m gonna try to figure out what I’m gonna have to offer to buy Tony Soprano’s house.

Link to house from The Soprano’s – here.