The Orlando Condo Blog

For all his aggressive responses to our current credit crisis, Ben Bernanke certainly does like to end with a light touch. The Fed Funds Rate and the Discount Rate both received a 1/4 point cut on April 30th. This was what most experts predicted. Since rate cuts really take about 6 months to be felt by the economy, the Fed didn’t want to be overly forceful after a recent series of robust rate cuts that haven’t been absorbed yet.

However, our country’s economic unwinding seems to still be playing out. Pending home sales data came in -1.0% from February’s data to an reach an all-time low. Consumer confidence hit a 26 year low a couple of weeks ago. Gross Domestic Product for the 1st quarter of 2008 came in at a positive but meager +0.6% annual rate of growth. Crude oil recently hit a new intra-day high of $123.79/barrel based mainly on increased demand, which scares the living daylights out of consumers and businesses.

Additionally, these rising worries about an international food crisis are creating food-based inflation, adding fuel to an already growing inflationary fire. Kansas City Fed President Thomas Hoenig stated today that “inflationary pressures now stand at unacceptably high levels.”

So, Ben and his crew of Fed Governors cut rates but stated in no uncertain terms that the balance be­tween the risk of negative growth and inflationary pressures had about evened out. So, unless some­thing pretty darn big and catastrophic happens in the next 8 weeks, I would guess that the Fed is about done cutting rates. They wanted to signal that their loose monetary policy would probably stop loos­ening in an attempt to put some more international confidence in the greenback and slow the growth of inflation.

So that’s it, Wall Street. This is about as good as the Fed’s gonna make it for you. Enjoy it, because I doubt it’s going to last this way for very long. Continue Reading »

We’ve been asked to enter the FHA Mortgage Center’s Best Real Estate Blogs Contest…

Their goal is to highlight some of the great blogs in the real estate industry. Of course, the “best blog” means something different to everyone but we hope you’ll vote for us! There are 3 different categories and the winners will be announced on June 1st. Thanks for reading - and thanks for your support! Just click on the icon below or in the top right hand sidebar. Or both!

One of the most serious misconceptions for potential home buyers right now is the idea that they’ll qualify for a mortgage “no problem”. If you’re an all-cash buyer, you can ignore everything that follows, but if you’re an investor looking to leverage, listen up - because the days of telling your Realtor “Don’t worry about it, it’s not a problem” are over.

Right now, lenders are changing their guidelines on a weekly basis, and if you haven’t pre-qualified, then you’re unlikely to be considered a “real buyer” and sellers (and probably even your Realtor) will not take you very seriously.

Because as if the lending situation weren’t bad enough already, a dramatic cutback takes effect next week, when giant mortgage insurer United Guaranty - a subsidiary of AIG International, the world’s biggest underwriter - says it will stop covering loans to investors in any of the thousands of zip codes from coast to coast that it defines as “declining” real estate markets - which, surprise, includes much of Florida.

This includes all non-owner-occupied rental houses or condos. United also is cutting off coverage of all condominiums and cooperatives - whether owner-occupied or rental — plus all second home purchases. It’s even refusing to look at loans to investors or owner-occupants that have limited documentation in any market, whether declining or not.

Add to that Fannie Mae’s and Freddie Mac’s new guidelines on condominium financing, which are causing condo associations to adopt stricter rules on the percentage of units owned by investors — and we’re looking at some crushing changes for small-scale investors.

The new guidelines now require lenders to make certain that at least 51 percent of the units in a condo project are owner-occupied, not rented out by investors. Though that percentage has not changed from prior guidelines, the fact that buildings and projects will now be under scrutiny by lenders every time a unit comes up for purchase - or refinancing, is causing condo association boards to keep a stricter lid on rentals. And for owners, that’s actually a good thing…

Continue Reading »

This week’s OBJ reports that the owners of Orlando’s Palazzo del Lago may be selling their 41 acres of condo hotel entitled land, suggesting that this may be the latest I-Drive project to go belly up. International Plaza dropped it’s sales efforts last year and others are not looking so good - with loans becoming increasingly hard to find on the condo hotel product. As usual, the developers are denying there is any problem - all of which solidifies the best piece of advice I’ve been able to offer in the last two years:

If it ain’t built - don’t buy it.

The Dow Jones Industrial Average and the Standard & Poor’s 500 stock indexes both experienced a slightly better than 4% gain over this past week.  Mortgage bonds (and rates) suffered as a result.  Is this indicating a fundamental change in the direction of the markets?

 Yes, we are seeing a change.  But it’s not a change in the markets; it is a change in how investors have adapted to the markets.  They are STARVING for good news to the point where they will throw a party even when slightly-less-than-catastrophic news comes out.  It’s like the investors have selective hearing.  To give an example, CitiGroup announced today that they will be laying off 9000 employees and are suffering a loss of 5.1 billion.  How did the markets react to this ghastly proclamation?  With a standing ovation.  The Citi stock soared, in part catalyzing a substantial stock market rally today.

 The other rally this past week was Wednesday, when the Fed put out their Beige Book.  This is basi­cally a report of anecdotal commentary of current economic conditions taken by the Fed’s governors and key contacts. The report was slightly better than expected, though certainly not all rainbows and gumdrops.  Stocks leapt upwards as a result.

 So, with the contraction leveling off across many sectors, international business still humming along nicely and every newscaster dropping the line “market bottom” every hour on the hour, why am I not getting onboard the bullet train to Happytown?

 Because housing started this and housing WILL end this contraction.  Sadly, there is no indication of a market bottom for the housing and mortgage industries.  Loss of home values means many families lost their financial cushion and are tightening their spending to adjust.  Fixed mortgage rates are hardly any better than when this whole credit crunch started.  Existing and new home sales, numbers we will be getting next week, are projected to reach new lows (which isn’t surprising). Continue Reading »

You probably know this by now, but this year is Viagra’s 10 year anniversary - so be on the lookout for some interesting marketing ploys. I hear they are throwing a party - which I’d love to attend, except I don’t do those open air bath tubs - and I like a party to last more than four hours.

Anyway, despite appearances to the contrary, Pfizer has not claimed responsibility for this proposed tower of Babel wannabe. This concrete Stairway to Allah comes to you courtesy of 51-year-old Prince al-Walid bin Talal (who bought the London Savoy for £1.25 billion in 2005).

Here’s a photo of the handsome devil. Am I crazy, or is this actually Mr. Bean in drag?

Experts report that the technical challenges of constructing a building like this are enormous. No kidding. Much of the lifting will be carried out by helicopters, which will also be used as commuter transport for the builders.

A tower like this would also have to be capable of withstanding a wide range of temperatures, with its top baking in the desert sun by day and dropping to a brass-monkey’s nightmare of minus 40-50 degrees at night.

To resist the strong winds prevalent in the area and stop it from swaying more than it must, it will be fitted with a giant, computer-operated damper in an attempt to prevent office workers suffering from a bizzare sort of high-rise sea-sickness (”Prince Talal? Yes, I’ll put you through now… May I place you on hold briefly? I have to puke into my hand for a moment. I’m on the 271st floor”)

At 5,250ft, the 160 storey, £5 billion project, masterminded by two British engineering consultancies, is expected to be twice as high as its nearest rivals, skyscrapers under construction in Dubai and Kuwait.

So the sooner we have a workable replacement for the internal combustion engine, the better. If something like this ever sees the light of day (unlikely) it would be an extravagant, hugely expensive and utterly pointless status symbol in a country with so much land they should never have to go vertical. And after 9/11, this air traffic control nightmare would deliver a firm slap in the face to Americans from Saudi-based Kingdom Holdings. Or perhaps this is just some sort of sick aviation come-on?

Anyway, if you really want to know why gas prices are so high, maybe it’s because our need for foreign oil would help to fund this ego-maniacal, 5 billion dollar bragging rights indulgence. On the plus side, it does promise to bring a means of joining the Mile High Club that doesn’t involve being chaffed by a dirty 747 bathroom faucet.

By the way, I think the last time I saw the number 5 billion was on a self-congratulatory billboard outside McDonalds: “Over 5 billion sold” Co-incidence? Call me a conspiracy theorist, but maybe at the top of this penile substitute, instead of the usual boring, revolving- restaurant-thing, there will magically appear an enormous, grinning, red-headed clown.

It’s best to start with the big-time trends, so here it is: there was surprising stability in the markets this past week. Sure, companies are still experiencing colossal write-downs and credit is still notably tight. However, both the stock and bond markets have been comparably quiet, barring one substantial drop on the Dow mid-last week. This is not to say that the markets are “calm”, just “calmer”. The alarmist view seems to be giving way to a begrudging acceptance of modern circumstance as poor, but not ex­plosively bad.

However, lots of fun stuff still happened. Here’s the blow-by-blow:

Martin Feldstein, president of the Bureau of Economic Research stated openly last week that he be­lieved our country was already in a recession (experiencing negative growth). This is a big blow against consumer confidence, which tends to clam up on word of bad news from a trusted official. Whether he’s right or wrong, the economy certainly FEELS recessionary.

Median home prices locally (the Greater Orlando area) dropped 1.35% month-over-month in March, showing a 8.33% drop from March of last year. Not thrilling, but not horrible either.

Last week brought us the G7 Financial Summit, where financial leaders from around the world get together to strategize and share ideas. A major topic of conversation was trying to stop the decline in the dollar’s value, which no one internationally seemed to inclined to worry about. A weak dollar can decrease deficits owed to us, which is fine by them. Looks like we’re on our own to strengthen our currency.

National pending home sales contracts, a leading indicator for national home sales, fell to it’s lowest level last month since realtors started recording it in 2001. Continue Reading »

So I speak with buyers on a daily basis, and the vast majority wants to know how the so called “Credit Crunch” will affect them when it comes to buying a home. Have underwriting guidelines gotten tougher, is there really any money available for buyers with less than perfect credit, or heck what if I have no credit established? Alas, here is some information that you may find helpful.

Most major lenders pull a tri merge credit report for a borrower. A representative credit score is a statistically based rating that assesses the likely future performance on a loan or other credit obligation. Scores tell us how likely customers are to pay debts as agreed and use credit wisely. They assess how well a customer will probably manage credit in the future.

A minimum of two credit bureau scores must be obtained in order to determine the “representative” credit score for each applicant.

When there is more than one applicant on a loan, each applicant’s “representative” credit score will be used to determine a “representative” credit score for the loan. This score will be used when underwriting loans within any recommended credit score requirements based on the product selected and the lender.

Particular mortgage products have minimum credit score guidelines, which vary lender to lender.

So what happens when I have no credit established? Many first time homebuyers have a limited credit history which leads lenders to seek alternative financing, such as FHA loans. The lender asks the buyer to provide a Non-Traditional Credit History. A credit profile must be established for all customers whose income is being used to qualify. When reviewing loans with non-traditional credit, the rest of the loan must meet standard underwriting guidelines.

Customers may provide three to four non-traditional credit references. Each credit reference must reflect a satisfactory payment history for the previous 12 months. The customer can provide a written reference from the creditor (which must be on the creditor’s company letterhead) or provide copies of cancelled checks (front and back) for the previous 12 months. Some examples of non-traditional credit references are rental payments, utility bills (gas, electric, telephone, cable, etc.), insurance premiums (health, auto, life), medical bills, or payments for child care and school tuition.
There you have it, some information as to how credit scores are used to gauge repayment, and what information you may need to be prepared to build your credit in order to purchase down the road.

If you’ve paid any attention to the Florida real estate market over the last few years you will have witnessed a tremendous roller coaster ride. Unfortunately, the ride is not an enjoyable one for many who bought real estate and got caught with property where prices have dropped below what they paid.

It is not unheard of for real estate prices to drop. While infrequent, real estate prices have dropped in the past and will do so again. I don’t think too many people saw the magnitude of the price correction that has occurred in Florida.

Like most of Florida, Sarasota real estate prices started to rise in 2003 and took off in 2004 and 2005. We hit the wall in August of 2005 with sales activity dropping dramatically. Our prices have been correcting ever since.

In many segments of our market, prices have returned to 2003 levels. I suspect the same for the Orlando market as well. Those who have purchased their home prior to 2003 have seen a wild ride in the amount of equity in their home.

This price volatility has created a lot of problems. Many of the weaker buyers who purchased in 2004 and 2005 are walking away from their homes because they are thousands of dollars “upside down”. People used the equity in their homes to go on vacation, purchase boats, new cars and other toys. Now that the equity is gone people aren’t spending as much - which has ultimately led to the current recession.

Let’s say you owned a home in 2003 that was worth $500k. The appreciation rate in Sarasota for 2004 and 2005 was in the 30% neighborhood. At those rates your home would be worth in excess of $800k in the middle of 2005. Now that prices in many areas are back to 2003 levels all of those properties that were purchased in 2004 and 2005 are now worth less than what was paid for them. So basically, we are back to where we started in terms of price except now we have a whole bunch of foreclosures, bankrupt financial institutions and people, a recession and a skittish buyer pool.

The good news is that I see a light at the end of the tunnel. The demand for real estate in Sarasota has been very good in the first quarter of 2008. We still have a supply imbalance but if you have a good property in a good location at the right price you will see action. This is a very price sensitive market. Buyers are scared and before they get off their checkbook, they have to feel a sense of value. Remember that when pricing your home.

STOP PRESS: 2 one-bedroom lake views purchased at auction have just come back on the list due to buyer being unable to close. One is third floor, one is first floor. These were among the first to be picked up at auction so if you were disappointed at not being able to get a lake view, you now have less than 24 hours to get back in the game! These are the last 2 lake views left at Tradewinds.

Post auction pricing ends at 5pm tomorrow (Friday).

Until then you can still pick up a 2/2 for $93,500 or a 1/1 for $73,000!

Call ASAP to inspect units and put down your $5k deposit: 407-290-3408.

You are Fed Chairman Ben Bernanke. It is 6:00 pm on a Thursday. You get a phone call from Bear Stearns, a major investment bank, saying that they are experiencing a lack of liquid funds and will have to declare bankruptcy unless something is done by the opening of markets tomorrow. Taxpayers are already furious with the economy, and bailing the bank out would incite even more rage. How­ever, letting the behemoth fall would begin an unstoppable unwinding in the already fragile financial system backing our whole economy.

So what do you do? You put on a pot of coffee and get to work.

This week, Ben and his friends had the pleasure of being subjected to a witch-trial style of inquisition where their actions in bailing out Bear Stearns were picked apart and scrutinized. Our senate gave us a fine example of what “armchair critic” really means as they hammered the deciding parties for deci­sions made in a thin window of time. Ultimately, the Fed defended their actions. When asked if they would do it again should another major firm fall, Ben cited market interconnectedness and stated firmly that they would take whatever actions are necessary to preserve the solvency of the economy. Continue Reading »

Last week’s Orlando Business Journal highlights some of the headaches currently facing Orlando’s condo developers:

At Veranda Park in MetroWest, eight developers have filed a total of $11.2 million in leans against the billion dollar project. To date, only half of the 10 projected buildings have been built and it’s impossible to imagine the rest, including a condo hotel, going up in the current climate. The idea of a MetroWest condo hotel seems odd at any time of day, but when there are few buyers, and virtually no loans available on this product, especially for foreign nationals, I think we can safely assume we won’t be seeing that one break ground any time soon! (Despite developer claims to the contrary.)

At the exclusive Reunion golf resort near Disney, developers are facing a massive class action lawsuit from buyers over alleged misrepresentation of the values of homes sold during the height of the boom. We’ve been following this one for a while now - and the case has recently moved back to Florida.

Involuntary bankruptcy is being filed against F.F. Kirkman, the owners of Studio Park condo conversion on Kirkman Road (psyche!) who allegedly owe nearly $2.5 million in loans to an insider company.

Meanwhile, downtown at the Plaza, it seems that the long awaited movie theater may never transpire due to foreclosure on part of the building by the lenders. Developer Cameron Kuhn says RP Plaza Property LLC, which owns the theater space there, has taken the position that it is not building a movie theater in that space. This, despite the fact that it’s virtually complete… Go figure.

As you may have noticed over the last 72 hours - when it rains, it pours…

Condo Metropolis is pleased to announce continued pricing on a limited number of Tradewinds condos for those who can act quickly. Auction pricing was $85k plus a 10% buyer’s premium = $93k.

Condo Metropolis can secure a unit for you with the auction company at this same $93k price for very a limited time.

Quick-Facts

• Built 1989-1991
• MetroWest Orlando, FL
• Converted to condos 2005
• HOA (home owners association fees (”maintenance”) = $187/month
  (covers water, sewage, trash, master insurance, common areas etc.)
• New roof in 2007
• All units “as is”, i.e. no upgrades, no incentives, no closing costs etc.
• All units currently unoccupied

Offer applies to “Mariner” floor plan ONLY

1. 943 square feet - first floor
2. 950 square feet - second floor

If you’re serious about buying, and can move quickly and can close in about 30 days (financing ok), then contact us immediately for a list of available units on 407-290-3408.

With tax season upon us, individuals who own vacation condos must be certain they are able to claim every tax credit and/or deduction allowed them by law. The following is an excerpt from my book, Condo Living: A Guide to Buying, Owning & Selling a Condominium and is part of a tax credit series for the condominium owner and investor.

“There are specific limitations on the allowable business deductions available to a taxpayer who uses a vacation home for both personal and rental purposes. These limitations apply to individuals, S-corporations, partnerships, trusts and estates. The number of days that a vacation home is used for personal purposes, as compared to the number of days that the property is rented at fair value, determines the availability of tax deductions. As of the date of publication of this book, these rules may be summarized as follows:

Rule No 1: If the vacation condominium is used by the taxpayer for personal purposes for not more that fourteen (14) days during the taxable year, or for ten percent (10%) of days that it is rented at a fair price (if this is greater), then it is not considered the taxpayer’s ‘home.’ In this case, tax deductions attributable to income derived from the rental of the property are not limited to gross income produced by the property.

Rule No 2: If the personal use of the vacation condominium exceeds the greater of : (a) fourteen (14) days; or (b) ten percent (10%) of the number of days during the taxable year that it is rented at a fair price, then it is considered the taxpayer’s ‘home.’ In such cases, the tax deductions attributable to income derived from the rental of the property can not exceed the gross income generated by the property. Continue Reading »