After Pushing Up Prices, Investors Are Left Holding Too Many Homes - Wash. Post

Doors Close for Real Estate Speculators After Pushing Up Prices, Investors Are Left Holding Too Many Homes By Kirstin Downey Washington Post Staff Writer Saturday, April 22, 2006; A01
Investors who sought quick profits buying and selling real estate in the Washington region are in full retreat, dampening demand for homes, most notably for condos.
What is becoming apparent, market watchers say, is how big a part speculators played in the region's real estate boom of the past few years. Not just condominiums, but also townhouses and single-family houses, were snapped up by investors using no-money-down financing and non-traditional loans. They helped send prices soaring at unprecedented rates. And now many are trying to sell, or rent at a loss. Some may eventually dump properties at low prices to get rid of them. That could weigh down values for everyone.
Sales of new condos fell 43 percent in the first quarter of the year, compared with the first quarter of 2005, according to one report, and there are almost four times as many existing condos for sale than last year.
"We think the softness of the market is largely due to the pulling out of investors," said Gopal Ahluwalia, staff vice president for research at the National Association of Home Builders. "They have not only pulled back, they are canceling purchases."
David Bath, a retired dentist in Reston, rode the boom up. A condo he bought in Vienna for $97,000 sold for $250,000 in a single day. He was able to sell another condo in Herndon for an even bigger profit.
Now he wants out. He has had no luck finding buyers for two investment houses and a four-unit apartment building he owns in Florida. He has been stuck making mortgage payments on vacant houses that took a lot of time and money to repair.
"It's a lot of work and I don't see the returns anymore," he said. "I'm going to the table to cash my chips in."
While condominiums were the product of choice for investors, luxury neighborhoods also fell prey to real estate speculation, leading to the prospect of price drops even in affluent subdivisions.
"Here we had it even in $1 million homes," said Kenneth Wenhold, Virginia and Maryland director for Metrostudy, a real estate information firm.
Robert Toll, chairman and chief executive of Toll Brothers Inc., which builds luxury homes, said in a recent conference call with analysts that the Washington market was the hardest-hit in the nation by investors who bought properties intending to flip them, and who have put the homes up for sale. "We can feel the impact of speculative play coming back into the market," he said.
Nobody knows exactly how much of the real estate boom was driven by investment and speculation. Experts say that between 15 and 30 percent of all purchases were made by investors, rather than by people who bought homes intending to live in them. Some bought the properties for cash, sometimes with equity they pulled out of their own homes, so there is no loan record. Other buyers pretended on loan applications that they would live in homes they really intended to flip, so that they could qualify for better loan terms or get around developer restrictions on investor-buyers.
Some projects became particular investor magnets, and, more recently, the subject of real estate blogs criticizing speculative excesses. For example, the local Internet blog Bubble Meter focused last month on what it called "the bubblicious bench." At one recently completed condominium called the Halstead at Dunn Loring, a luxury condominium complex in Fairfax County, a park bench outside the building bristles with real estate agent lockboxes to permit vacant units to be shown to prospective buyers or renters. On a recent morning, there were 49 lockboxes there, outside a building that has about 200 units.
Manuel Tagle, a real estate agent with Fairfax Realty in Falls Church, is representing two units there, both owned by investors, one of which is for sale and one for rent. He owns a unit there himself, which he has rented out.
"There's a very high concentration of investors," he said. "I have seen a lot of investors selling now. They see values going downhill."
The prevalence of investors -- and now their disappearance -- is causing real problems for owner-occupants who want to sell, sometimes against competitors willing to cut prices substantially because of profits they made in 2003 or 2004. Mike Pugh, a real estate agent with Re/Max Allegiance in Arlington, is trying to sell a condo at the Halstead for a woman he says bought it for her retirement home, then became ill and went to live with family. Pugh said his client, who he believes was one of the few purely owner-occupants in the complex, is likely to lose money she had saved over a lifetime.
"We aren't investors, but we are being punished by the market as though we were," he said.
They face plenty of competition. Delta Associates, an Alexandria real estate research firm, said there are about 25,853 new condos being marketed locally now. But only about 1,996 new condos were sold from January to March, down from 3,520 in the first three months of last year. And the area's multiple-listing service, which lists mostly previously owned properties, showed about 5,500 condos and co-ops for sale in March in Washington and the close-in suburbs. That was about a fourfold increase from about 1,400 listed in March 2005 with the service, Metropolitan Regional Information Systems Inc.
Some developers are struggling to sell units in the face of competition from the investor-buyers who want to dump the properties. Many had sought to protect themselves against an invasion of investors for just this reason.
A National Association of Home Builders survey of builders last year found that about 52 percent of builders tried to sell only to owner-occupants, 33 percent prohibited renting the unit out during the first year after settlement, 29 percent declined to make multiple sales to people with the same last name and about 28 percent kept the right to buy back the unit at the same price if the owner sold in the first year.
But many failed to ferret out investors or could not resist the buzz of a fast sell-out when speculators flocked to purchase. A quick sales pace allowed the builders to ratchet up prices more quickly for those who got to their doors behind the early birds.
Speculative buyers at the hottest part of the market were able to put down a $20,000 deposit on an uncompleted unit, then close on the transaction and sell it to someone else the next day, pocketing $60,000 or $70,000.
That spawned a "get-rich-quick" mentality, said real estate agent Frank Borges Llosa, of FranklyRealty.com, who said that the people who got in earliest made the most money, while those who came later are at greater risk. Unlike with stocks or bonds, which can simply be sold, a seller of real estate has to find a willing buyer or renter because a mortgage obligates the owner regardless of the value of the asset.
"People who got caught are in trouble," Borges Llosa said.
Some investors are holding on to the properties they have, but they are not expanding their empires. Ruben Cuya, 37, a Peruvian immigrant who works as a quality control technician at Cuisine Solutions Inc. in Alexandria, bought his first rental property, a townhouse in Lorton, in 2002, using the equity from his own home for the down payment. Then he bought an additional rental property in that same way each of the next two years.
"This year I'm not buying," Cuya said. "It's not a good year to buy."
The situation has made home shoppers more wary about making purchases. Real estate agents say many are so leery about where prices are headed that they are engaged in a kind of stare-down with sellers as they seek to negotiate for lower prices and more concessions.
"The buyers are there, there are people who want to buy," Borges Llosa said. "But they see no immediacy to buy now versus next week."
Some buyers are even walking away from transactions. Lawyer Angana Shah, 36, almost bought a new one-bedroom apartment in Adams Morgan last month for $454,000, but as the settlement date approached, she found herself "petrified" over the high price and worried that values would fall.
Then, during the walkthrough, she learned the place was smaller than she had been promised. The developer was unwilling to cut the price, so she decided to walk away from the sale and got her money back. She was glad she did because prices have flattened and she can now afford a two-bedroom instead.
"I don't want a one-bedroom anymore," she said. "I want a two-bedroom. Now people are begging people to buy one-bedrooms. The market is better. I couldn't have bought a two-bedroom last fall and prices for one-bedrooms are falling."
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Yeah a relative near cambridge MD, reports homes arent selling a a new home developer cut price 50 grand to try and move them along.... without much luck, existing homes are taking a beating
now what of those who refinanced repeatedly to pay off credit card debt and get the deduction for interest? as home prices drop they may owe more than the homes are worth, futher depressing prices:(
With 3 buck a gallon gas prices perhaps going to 6 bucks a gallon or more, and bush threatening iran with nukes, the endless iraq war, I think the country is about to see the economy in a recession.
that will drive home prices even lower. if you have cash buy at the bottom.
lack of presenditial leadership will be remembered as a major factor in the coming ecnomic disaster.........
we are entering a disaster
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snipped-for-privacy@aol.com wrote:

Isn't that nice you have a presidnet who doesn't seem to care of anything for ordinary Joe?
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Bush appears disconnected from the reality of our countries troubles. he has the typical behavior of a alcoholic. I think he is back on the booze........:(
The big issue is high gas prices will cripple our economy, and he doesnt appear concerned.
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wrote:

They're already hurting around here. I'm in a tourist town in South Texas, on leave at the moment to take care of a sick parent. The local merchants are hurting first because tourism is down due to the high price of gasoline, and second because people need to travel long distances to get anywhere out here so a major portion of their disposable income is now going for gasoline instead of buying goods at the marginally-profitable small stores that keep this town alive.
I don't see any fix for it, though. The way I see it, Bush gave the go-ahead to the big oil companies to set prices. They did so, raised prices, made money, but then OPEC decided they wanted that money instead so THEY raised prices. The oil companies raised prices again and cited OPEC as the cause. OPEC raised prices some more. The oil companies raised prices again and blamed OPEC, then Katrina and various other scapegoats and around and around it goes.
Even if some new President reins in the US oil companies and restores competition, OPEC has learned that they can get more for their oil and, being a cartel, they can't be made to back down.
So, once again Bush has gotten us into something that nobody can get us out of.
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To some extent, WE can have an effect. But unfortunately, that requires effort and behavioral changes, which some meat heads intperpret as someone trying to control them. Oh boy....imagine if our grandparents felt that way when victory gardens were suggested during WWII.
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Doug Kanter wrote: <big snip>

You sell us too short, I believe. During WWII FDR had something called "Fireside Chats," and I believe he asked the American people to sacrifice, and, with that leadership, as you say, they did.
Recently, however, I seem to recall the threat of some terror group posed at Wall Street, and the leadership repeatedly said to "keep shopping." If we are repeatedly asked to do nothing special, make no sacrifice, and we faithfully carry these instructions out, aren't we then, today, every bit as valiant as our grandparents, who also did what they were asked to?
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Obviously, that was a different president, someone capable of communicating without someone's hand up the back of his shirt. And, the reasons for the sacrifice were more easily understood. A war is a pretty clear reason. Now, we're in a different situation, one where the "enemy" may be a period of economic change which a large segment of the population is wholly incapable of understanding. It will require a much better president than the current one to lead the country through this period. In fact, it will require someone who's been successful in business, not in politics. Someone capable of dealing with trends which are not yet clear, instead of reacting to the obvious things, like burning buildings. It'll require a leader capable of deflecting enormous amounts of criticism for making unpopular decisions. And, someone who can spot political barnacles who have no skills other than appearing in the right place when they see a chance to speak just to hear themselves speak. The White House has always been a popular place for that species. It's gotten us into two or three wars that were none of our business.

Being asked to keep doing the same thing as yesterday is not so noble a task. I hope you were being sarcastic with that remark.
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wrote:

===========================Can you at least tell US what you would do to lower the prices at the Pump...
I am retired, living on a fixed Income...and have 7 vehicles in the garage.. so Yes Gasoline prices do have a pretty good impact on my budget....
BUT
Right now the supply of oil is actually at an 8 year high,,, The demand however is at at all time high...Oil Companies are opperating at a 9 percent profit margin (not unusual and not as high as most industries).. That translates to about 25 cents per gallon... What is the actual Federal and actual States Taxes on that gallon of Gas?
Please Give the World your answers...
I am NOT about to even try to Justify the retirement package of Exxons CEO... (just a few million too much in my opinion) but then again I bet the shareholders are extremely happy with what he has done with that company (a true turn around for sure)... A shareholders suit against the board of directors is almost a sure bet...
Wish I had some answers...
Bob G...
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_remove snipped-for-privacy@adelphia.net says...

Sell six and fill up the seventh. (Though I haven't a clue what the number of vehicles in your garage has to do with the price of gas).

IIRC it's $.46 here, though fixing highways is rather important too.

The retirement package of any company executive should be of no concern to non-stockholders.
--
Keith

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