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O.C. home affordability triples

February 11, 2011 Leave a comment
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Orange County Affordability Graph 2/10/2011

The percentage of households able to afford an Orange County starter home has tripled since the housing market peaked, the California Association of Realtors reported.

By the Realtors’ math, 60% of Orange County households could afford to buy the typical “entry-level” house in Orange County in the fourth quarter of 2010.

By comparison, just 21% could afford that house in the spring of 2006, the low point for housing affordability in O.C.

Last quarter’s level was also the highest level of home affordability in Orange County in figures dating back to 2003.

Using the Realtors’ methodology, a household would need to earn about $63,000 a year to afford the typical “entry-level” house in Orange County.

That’s down from around $118,000 in the spring of 2006.

That’s based on an entry-level home price of just under $409,000, with monthly house payments at $2,100.

The Realtors’ affordability index measures the percentage of local households able to afford a starter home — valued at 85% of the area’s median house price. The index assumes that buyers are making a 10% down payment and getting an adjustable-rate loan. The association considers its measure “the most-fundamental measure of housing well-being for first-time buyers.”

The Realtors’ report comes a day after the Wall Street Journal reported that housing affordability returned to pre-bubble levels in a growing number of U.S. markets over the past year.

According to Moody’s Analytics, the U.S. ratio of home prices to annual household income reached a peak of 2.3 in late 2005, but had fallen to 1.6 by September, matching the lowest level in the 35 years, the WSJ reported.

While the Realtor index is only a rough estimate of how many residents can actually afford starter homes, it does track the overall trend caused by falling prices and lower interest rates.

In addition, rising interest rates in recent weeks likely have reduced the current number of households able to afford a home. The average interest rate of 30-year home loan rose above 5% in the past week, according to Freddie Mac’s weekly survey.

Statewide, the report shows:

  • 69% of California housesholds could afford the entry-level house in the fourth quarter, matching the record-high set in the first quarter of 2009.
  • 75% of California households could afford the entry-level condo.
  • That compares to a national affordability rate of 80%.
  • The minimum annual income needed to afford the California starter home (costing just over $256,000) was $39,600.
  • Affordability either matched or set record highs in all regions of the state last quarter.
  • Affordability in the state last quarter ranged from a low of 42% in San Francisco to a high of 86% in Merced County.

Thank you,   Jeff Collins,   OC Register

Dave & David Warner

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Irvine…..For Developer, California Dream Is a Reality

January 4, 2011 3 comments

In the latest sign that financing is starting to trickle back into California’s property market, a group of investors is pumping cash into a huge, but stalled, $1.4 billion master-planned community being developed on the site of a former military base.

Under terms of the investment, Boston-based State Street Bank & Trust Co., a unit of State Street Corp., and a group of investors that includes several private-equity funds and pension funds will provide $400 million in cash and credit to the project, called Heritage Fields at El Toro. The project, in Irvine, Calif., is being developed by Five Point Communities Inc., a company that is majority-owned by home builder Lennar Corp.

The transaction represents a significant step forward for Five Point, which like other developers has struggled to find financing for horizontal development, or the work that goes into building roads, sewers and other infrastructure that needs to be laid before homes and commercial buildings can be built.

By the end of 2010,  the company had invested more than $1.3 billion in the project, and needed at least $400 million to get the development moving again. Emile Haddad, Five Point’s chief executive and controlling partner, said construction of the first homes should begin in 2012.

The transaction also shows how nontraditional sources of capital are starting to migrate into California’s housing market, one of the few markets in the country that is showing pockets of strength. Hedge funds, in particular, have emerged as a go-to source for the financing of land ventures.

The Orange County Register/Zuma PressThe former El Toro naval base is being redeveloped into a master-planned community in Irvine, Calif.

“If you look at the folks in the housing industry who are actually putting construction dollars back to work for horizontal and vertical development, you can count them on one hand,” said Tom Reimers, a Southern California land broker with Land Advisors Inc. “We’re going to need private equity to move things along. It’s new blood, new money.”

Heritage Fields at El Toro calls for 5,000 new homes, 5.2 million square feet of commercial space and a public park twice the size of New York’s Central Park. The development is being built on the site of a former naval air base in Orange County, which once was used by President Richard M. Nixon, who often flew on Air Force One to his home in nearby San Clemente.

Lennar purchased El Toro from the Navy at the height of the housing boom in 2005, borrowing $775 million from Lehman Brothers Holdings Inc. to finance the purchase of the land. Lennar added about $700 million more in equity from its own funds and from investors, including two affiliates of private-equity company Cerberus Capital Management LP, investment firm Rockpoint Group LLC, and computer tycoon Michael Dell’s MSD Capital LP.

Under a separate agreement, Lennar will buy out Cerberus’s stake in the project, although Mr. Haddad declined to provide details on the stake. “This is definitely one of the most complicated deals I’ve ever worked on,” Mr. Haddad said.

An overleveraged Lehman, burdened by a number of huge commercial real-estate investments like the El Toro project, filed for bankruptcy protection in September 2008. In December 2010, a federal bankruptcy judge in New York approved the sale of the $775 million Heritage Fields mortgage note to State Street for $153 million.

After what Mr. Haddad described as several months spent crisscrossing the country for meetings in Boston, New York and California, Five Point closed on the restructuring deal two days before New Year’s Eve. State Street agreed to reduce the outstanding debt balance on the deal to $210 million, then gave the developers a $180 million line of credit to complete land development.

By putting more money into the deal, State Street is taking a big bet that Mr. Haddad can get the project up and running in short order, and start producing strong cash flows from selling home sites and land for commercial buildings to builders, who will then construct and build homes and office and retail properties.

But the project isn’t a slam dunk. The economy remains weak and while the California housing market has improved, it isn’t clear that the market can support such a project.

“Everyone is talking about residential land deals as if they are all the same. My view on this is simple. Not all deals are the same. Not all locations are the same. And not all management is the same,” Mr. Haddad said. “This is the right deal, in the right location.”

Mr. Reimers, the Irvine land broker, said the Irvine area is expanding. Several companies have located in and around the nearby Irvine Spectrum commercial center, including drug-makerAllergan Inc., computer company Western Digital Corp. and the University of California, Irvine, providing jobs.

“Putting a significant amount of money to work in an Irvine master-planned community is probably as low risk as you can go,” he said.

By ROBBIE WHELAN

The Wall Street Journal

Dave & David Warner

Bidding Wars Are Back in Some Markets

December 1, 2010 4 comments

Edited by CRISTINA LOUROSA-RICARDO

In another sign of a housing-market recovery, bidding wars are back.

Not everywhere. But in some upper-middle-class suburbs around San Francisco and New York, and other areas where prices have hit bottom, first-time buyers eager to take advantage of relatively low prices and low mortgage rates are actually driving up prices, says Tara-Nicholle Nelson, an analyst at Trulia.com. Buyers are competing at the low end of the market, too, for homes under $200,000 and foreclosures, as buyers with smaller budgets take a stab at ownership.

[SJ-28STAT]

But experts say bidding wars play on buyers’ worst fears. When an offer is rejected, it fosters a sense of urgency, so they’ll place more aggressive offers on the next homes they bid on, says Ms. Nelson. In the worst-case scenario, buyer psychology could boost home prices beyond what they’re really worth.

That’s the kind of whirlwind that led to the last bubble, “with the potential for financial disaster for buyers who overspend,” says Jack McCabe, an independent housing analyst.

To avoid a bidding war, here are three things a buyer can do:

Research a neighborhood’s inventory. In a real buyer’s market, houses sit on the market for more than six months before selling. To find out how long is typical in a given neighborhood, compare the number of active listings to those under contract — if there’s a glut of houses on the market, there will be far more of the former than the latter.

Watch the jobs numbers. Areas with strong employment numbers are more likely to see bidding wars, because that’s where more people have the credentials — a down payment, work documentation — to buy a home, says John Mulville, a vice president at Real Estate Economics, which tracks real-estate data.

Don’t go to war over a foreclosure. Bank-owned foreclosures sell for about 36% less than regular listings, according to RealtyTrac, and they account for about 16% of all sales.

But buyers often lose track of their goal with a foreclosure — to buy a home at a big discount — when competing offers kick in, says Mynor Herrera, a Weichert Realtor who specializes in Washington, D.C., and Montgomery County, Md. In general, buying a foreclosed property at 30% above the asking price wipes out any savings from a foreclosure.

—AnnaMaria Andriotis
SmartMoney.com

REIT Eyes Shariah-Compliant Listing in Singapore

October 12, 2010 1 comment

By P.R. VENKAT

SINGAPORE—Sabana Shari’ah Compliant Industrial Real Estate Investment Trust, or Sabana REIT, is planning to raise about 600 million Singapore dollars (US$459 million) in an initial public offering, a person familiar with the situation said Tuesday.

If successful, this would be the first Shariah-compliant listing in Singapore.

The company is planning to list by the end of 2010 on the Singapore Exchange, the person said. Once floated, Sabana REIT is expected to be the largest certified Shariah-compliant REIT in the world, the person added.

Singapore has been pushing the development of Islamic finance in the city-state, encouraging companies to offer a range of Shariah-compliant products such as bonds and other investments, including REITs. Shariah REITs only differ from conventional REITs in the type of assets held by the trust.

The person said that Sabana REIT’s initial portfolio will comprise properties in Singapore that have no connection to activities such as gambling or to products such as alcohol or pork.

Sabana REIT is planning to acquire a portfolio of properties valued at about 850 million Singapore dollars (US$650 million) and the company received a conditional eligibility-to-list letter from the SGX on Friday, the person said. Office buildings with warehouses, logistics warehouses and chemical warehouses may form part of its holdings.

HSBC, United Overseas Bank and Daiwa Capital Markets are advising Sabana on the deal, while HSBC is also the sole financial adviser.

Monday, Singapore’s logistics business Freight Links Express Holdings Ltd. said it plans a S$192.95 million sale and lease-back of five properties to its unit Sabana Investment Partners, which own Sabana REIT.

Freight Links, through its 51% shareholding equity interest in Sabana Investment Partners, said it will participate in Sabana REIT’s IPO.

Write to P.R. Venkat at venkat.pr@dowjones.com

What Happened to the Mopheads?

October 7, 2010 Leave a comment
WEEKEND GARDENER

What Happened to the Mopheads?

As gardening season winds down, Bart Ziegler looks at what worked, what flopped (those mopheads!) and what’s next for his upstate New York garden.

By BART ZIEGLER

[Gardener3]Bart ZieglerBehold one of the few mophead hydrangeas that decided to bloom in my garden this summer. 

The gardening season is almost over in my yard in upstate New York, with the leaves on the maple trees turning yellow and orange. Now it’s time to take stock. What worked this year, what flopped and which of my endless list of outdoor projects can I pull off before snow falls?

The one big take-away from this summer? Boy, was it hard out there to be a plant.

Too little rain, too much sun and exceptional warmth—it was one of the hottest summers on record in the Northeast—have left my gardens full of half-dead ferns, yellowed hostas and black-eyed Susans whose golden blooms turned brown. My dahlias have less than half the big, showy flowers they usually sport this time of year. The leaves on the magnolias have turned crispy and some already have fallen off, joining the brown patches in the lawn.

Another summer like this and I may finally be forced to install some sort of irrigation system at my weekend house, since I’m not around to water most weekdays.

At the least I need to upgrade the containers I use on my deck to plant annuals. The smallish ones I own dried out far too quickly in this summer’s heat, leading to premature deaths for some flowers and wimpy blooms overall. A friend of mine who is a professional gardener uses planters on his patio that are about three feet wide and four feet high, which means they hold much more moisture-retaining soil. Though they can cost a small fortune—some sold by places such as Restoration Hardware can go for hundreds of dollars—I have decided they are worth it.

So apart from the vagaries of weather, what else did I learn this gardening year?

Well, for one thing I’m finally going to give up on many of my hydrangea shrubs. I have about a dozen of the “mophead” type that are supposed to be covered with big, puffy pink or blue flowers (Hydrangea macrophylla). The companies that promote the varieties I grow claim they will bloom all summer, even if the past winter killed the shrubs to the ground.

Bart ZieglerMy monochrome garden: I went a little too far in trying to tone down the color palette.

Gardener2

Gardener2

But almost none of my mopheads bothered to bloom at all this summer, even though a few seasons ago they were covered with flowers. Meanwhile, two other types of hydrangeas I grow—an old-fashioned variety called Annabelle (Hydrangea arborescens ‘Anabelle’) and paniculata hydrangeas (Hydrangea paniculata)—bloomed profusely.

What went wrong with the mopheads? Beats me. Some of them are in full sun, others in part shade, so the light doesn’t seem to be the problem. I could experiment with different plant foods to see if I could revive them next year, but, frankly, I don’t have the time or patience for finicky plants.

Now I’m faced with the tough choice of giving my mopheads one more year to prove their worth—most didn’t bloom last summer either—or digging them out. Then I’ll go through my usual agonizing about what do to with the cast-off plants. I have a hard time committing planticide, especially with mature shrubs that are almost three feet across. But I also won’t keep plants that don’t do what they’re supposed to do. After all, my yard isn’t a plant charity.

So, in a compromise I may move a few of the hydrangeas to my “bad-plant corner” at the far end of the yard, where I have exiled other shrubs that became problem children. As for the rest, I will give some to friends, whose yards may be more conducive to blooming, while a few may face death somewhere in the woods where I dump them.

Another thing I learned this summer: I went too far in my scheme to tone down the colors in my gardens. A year ago I pulled out all the pink echinaceas, purple-pink tall phlox (Phlox paniculata) and other reddish flowers in the hillside garden behind my house. The goal was a minimalist composition of blue, white and yellow-gold hues. I thought it would look more sophisticated.

Bart ZieglerHydrangea paniculata, which are dependable bloomers.

gardener1

gardener1

All was fine in the spring, when the blue and white bearded iris, yellow and white daffodils and bluish-purple salvia looked pretty stunning together. But these early bloomers disappeared and by late summer I was left with nothing but lots of black-eyed Susans (Rudbeckia fulgida ‘Goldsturm’), white phlox and, along the front of the bed, some blue-flowered geraniums (Geranium ‘Rozanne’) that didn’t bloom as much as usual due to the drought. The look ended up too simplistic and monochrome.

Now, I need to figure out what to plant to spice things up next summer, without returning to the busy look I tried to remedy.

What did you learn from your yard this year? Join our discussion by clicking the Comments tab above.

Write to Bart Ziegler at bart.ziegler@wsj.com

The Housing Market is Doomed! Really?…

September 29, 2010 Leave a comment

Though the general consensus via most talking heads is that things are spiraling out of control there are plenty of voices of reason that are taking a counter stand to that concept.  Here are just a couple of examples:

“…the negative news regarding housing is overblown. Cramer said the Case-Shiller housing data, released Tuesday, confirms stability in housing prices and also verifies that a bottom was reached last year. Yet the bears won’t allow this empirical evidence to be heard.”

-Jim Cramer from CNBC’s Mad Money

Click the link to read Jim Cramer’s: 7 Reasons the Market Stays Higher in its entirety.

“Enough with the Doom and Gloom about Homeownership.” – WSJ 9/16/2010

WOW! If that quote was attributed to the National Association of Realtors or the National Association of Home Builders, it would have been quickly dismissed. However, it was the Wall Street Journal that was calling for the end of the ‘doom and gloom’ talk surrounding real estate.

We are finally seeing a powerful backlash to all the recent claims that homeownership should never have been part of the American Dream. It is about time!

We have been posting on the financial advantages and the other non-financial benefits of homeownership for over a year. We must admit that, at times, we felt very lonely. It now seems that we are part of an ever growing army of believers preaching the advantages and opportunities available in today’s real estate market. Who have joined this cause? Let’s name a few.

The Wall Street Journal

In an article last week, 10 Reasons To Buy a Home, Brett Arends reported:

Sure, maybe there’s more pain to come in the housing market. But when Time magazine starts running covers that declare “Owning a home may no longer make economic sense,” it’s time to say: Enough is enough.

He then posted 10 reasons to buy a home today:

  1. You can get a good deal.
  2. Mortgages are cheap.
  3. You can save on taxes.
  4. It will be yours.
  5. You’ll get a better home.
  6. It offers some inflation protection.
  7. It’s risk capital.
  8. It’s forced savings.
  9. There is a lot to choose from.
  10. Sooner or later, the market will clear.

-From Steve Harney’s – the Keeping Current Matter Blog