Saturday, November 28, 2009

Week in Review

Wow! Three publications in a three day week! It's always great to give a little more commentary since a news interview might last 30-45 minutes and consist of several emails, but all you see in print is 1 or 2 sentences....

Priced to sell: South Florida housing market shows signs of life - Business - by Monica Hatcher

"The market for so-called jumbo loans, or those worth more than $423,750 in South Florida, dried up more than two years ago, said mortgage broker Grant Stern."

Absolutely, the return of the Miami housing market is helping spur sales, along with the Federal tax credit for first time buyers. What's really aiding in the process too is low interest rates combined with prices that are affordable. The median home is selling for around 3 times the median household income. This is a welcome improvement from the 6 times income pricing of just a few years ago...

However, the mid-market homes in the $400-1,000k price range are lagging on the market, well beyond marketing times for homes priced under $300,000. Part of this has to do with the income curve required to purchase more expensive homes - there are fewer people with the earning power to acquire larger homes in fancier locales.

But deeper down, the mid to high end market is truly paralyzed by the lack of financing opportunities when loan amounts grow north of $417,000 - which is the Fannie Mae national conforming limit. Fannie Mae is authorized to issue loans up to 125% of the median home price in 2007 - which means that in the Miami district, the maximum "Agency" loan is $423,750 - hardly a great improvement.

The secondary market to sell these "Jumbo" or "Non-Conforming" loans crashed horribly in the summer of 2007 along with the private secondary markets for "Alt-A" home loans and more exotic loan products. Without a market to sell these loans, banks who issue them are forced to keep the loans - possibly to maturity - and have become very circumspect about issuing credit to high net worth people. I know this may come as a shock, but the risk profile for "Jumbo" loans is actually very similar to Sub-Prime lending - because these loans are larger and therefore carry higher risk!!!

“They’re not buying as investors, they’re buying as homeowners,” said Grant Stern of Morningside Mortgage Corporation in Bay Harbor Islands, Fla., near Miami Beach. “Nobody expects a 50 percent gain. Flat is the new up.”

Right now housing prices are flat, but with the bout of deflation we are fighting - this actually means that home prices are rising in real terms; ie. if you're earning 1% interest, but prices have fallen 2% during the course of a year, you have a 3% improvement in your spending power.

Grant Stern, president of Miami-based Morningside Mortgage Corp., said there is a lot of interest in the area of Edgewater, which is north of the Adrienne Arsht Performing Arts Center. Renters, in particular, are looking to buy in nearby buildings because of the near market-bottom prices. Another reason for the interest is that some of the buildings have gotten FHA approval for loans.

He said future buyers have to be realistic about what they are getting when they buy in Edgewater Lofts.

“It’s not going to get exciting for you,” said Stern, about the unit’s prospective buyers and unit demand, which would normally drive pricing upward. “ Chances are that the minute it gets exciting, someone is going to come in and obstruct your view.”

This is a game that is going to go on for many years in the post-boom downtown environment. When it comes to views, there's un-obstruct-able and there's other. There are plans for projects throughout the Biscayne and Brickell corridor which have been approved and are simply waiting for the economic cycle to rise towards the skies!

Personally, I have a client who recently completed a land assembly in a Central Business District area - and got a Major Use Special Permit (MUSP) at a cost of nearly $500,000. They are long term players - and know that it will be 7-15 years before they can develop the 1,000 unit project they envision!

The Platinum Condo, is a developer client whose building is mentioned in the article - built a 22 story condo and got FHA approved with the help of Morningside Mortgage. They have a 2nd tower planned and permitted on the east side of their current project. However, they ensured that both towers would have outstanding views by planning the projects simultaneously. It's rare to see that kind of coordinated development in Miami - as it takes years to create major land assemblies. The Platinum developers spent nearly 2 decades.

Planning and zoning information is public domain. However, a good real estate brokerage should have extensive information available not only on current projects, but as well on the projects that are planned which may affect the view of a unit which any buyer is seeking to purchase.

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