Canadians find half-priced homes, huge inventory in southern U.S. despite foreclosure freeze BY FRANK O'BRIEN Lydia Clarke believes she has found a winning bet for Canadians playing in the Las Vegas housing market. The Vegas-based president of Investment Properties International specializes in buying real estate through foreclosure auctions in the U.S. gaming capital, fixing them up and either flipping them or renting them out. The odds, and the business, are good, she claims. Clarke said most of her clients are Western Canadians, using a muscular loonie and low interest rates to ante up in a city where 80 per cent of the listings are "short sales" or bank-ordered foreclosures, and cash is king. "Simply put, Las Vegas home values have dropped by more than half of what they were bought for five or six years ago," Clarke said, "Many people who purchased or refinanced now owe much more on their homes than they are worth." Some distressed buyers will try for a short sale, where the lender forgives the difference in the sale price and the mortgage owing to get some of the money back. Other owners simply walk away and let the home fall into foreclosure. There was a nation-leading 108,000 home foreclosures in Vegas in the first eight months of this year, nearly 14,000 in August alone, according to California-based RealtyTrac, which monitors the U.S. foreclosure action.
This year, one in every 73 Las Vegas households has received some kind of filing - which means they are at least three months behind in mortgage payments - more than four times the U.S. average. On average, 2,000 homes are put to auction every day in Vegas, Clarke said, and she noted the city has the distinction of leading the U.S. in both foreclosures and highest volume of homes sold - 25,210 in the first seven months of this year Clarke said Canadians could make money through buy-and-hold or through positive cash flow as a rental. As an example she used a Las Vegas three-bedroom, 2.5-bath house in a good neighbourhood that she bought at auction for US$103,000. Such a house can be given a quick makeover for US$1,200 and either resold for a profit or rented out, she told the Jurock Real Estate Outlook conference in September. Buying property as a cheap vacation home seems to be the best play. The rental vacancy rate in Las Vegas is 11 per cent - compared to a 7 per cent U.S. average - and the unemployment rate is 14.5 per cent. As well, nearly a third of Las Vegas multifamily building owners are in default on their commercial loans, the highest in the country, according to Trepp LLC, a New York-based commercial real estate and analytics firm. All of this makes the rental market a gamble. Still, a Canadian investor can buy two-bedroom condominiums in Sin City for less than $100 per square foot, or about a third of the price in a B.C. resort. And as one conference delegate noted: "I'd rather be in Vegas than Cranbrook on a Saturday night." Phoenix One in 165 homes in Arizona is in foreclosure and most of these are in Phoenix, a top choice for Canadians seeking a Sun Belt vacation home. And the number of foreclosures is rising, according to Mark Dziedzic, the Canadian-based president of Cross Border Realty who specializes in the Arizona market. "The U.S. is into a double-dip recession," Dziedzic said, noting that America is threatened by a "shadow market" of defaults that is 20-times higher than those already reported. The shadow market is all those mortgages that, while not in foreclosure, soon could be. "The U.S. foreclosures now total $25 billion," he said, "but the shadow market is $450 billion." The number of homes foreclosed across the U.S. was up 25 per cent this August compared with a year earlier and Arizona trails only Nevada for defaults. The buying opportunities are endless, Dziedzic said, but he warned Canadians to be careful when they hear of Phoenix condominiums and townhouses offered at $20,000 to $30,000 a suite, which is not uncommon. These B- and C-grade units, he said, are often in what he called "ghost towns" - unfinished subdivisions far from the city and often lacking in amenities. "Builders are hurting and hurting bad," stuck with inventory and competing against thousand of discounted resale units, he said. This August marked the first time that Phoenix houses fell below a median price of US$130,000, and they continue to tumble. Part of the reason: Arizona's crackdown on immigration that has spurred some people to leave the state. Dziedzic urged Canadian buyers to get their Canadian financing together before they start looking in Phoenix and be prepared to have at least 30 per cent cash down payments in a U.S. account. Bankers, he said, are not interested in lending to Canadian investors, so it is best to arrange financing before you arrive. Most Canadians come in with cash, often drawn from the equity in their Canadian real estate. Still, he said there are incredible bargains to be found, especially in higher-end homes. Among his tantalizing listings: a near-new 4,000-square-foot luxury detached house with a pool and close to golf and amenities priced at US$176,000, or about $1 million less than a comparable house in Metro Vancouver. He also has 937-square-foot, two-bedroom, two-bath condominium in upscale North Phoenix for $99,000 and a neighbouring detached three-bedroom house with quality finishing and swimming pool for US$156,000, which Dziedzic said would rent for US$1,250 a month. The Canadian dollar close to par, low interest rates and bargain U.S. prices have created "a perfect storm for Canadian investors," he added. Florida According to a U.S.-based National Association of Realtors study of international home-buying activity, Canadians were the No. 1 foreign purchasers of property in the United States in the last two years. Aside from Nevada and Phoenix, many Canadians also look for bargain-priced property in Florida, which is seeing a bit of a rebound. In August, condominium sales in Miami rose 59 per cent from August of 2009, but prices continued to fall, according to the Miami Association of Realtors. The median sales price for condominiums in August was $104,800, down 28 per cent from a year ago. Statewide median sales prices decreased 9 per cent to $134,000 for single-family homes and 24 per cent to $81,600 for condominiums. There are more than 25,000 homes listed for sale and most of these are in default. In South Florida, foreclosures made up more than one in three home sales in the second quarter of 2010. Miami-Dade had 4,439 foreclosure sales between April and June, up 14.11 per cent from the first quarter. Statewide, there were 39,121 foreclosure sales between April and June, up 9.2 per cent from the first quarter and up 1.3 per cent from the second quarter of 2009. Canadians can find plenty of Miami-area condominiums for less than $100 per square foot - sometimes as low as $60 per square foot - but there are tax implications. Out-of-state residents, whether from Canada or other U.S. states, pay higher municipal taxes than those who reside in Florida, under the Homestead Act. Purchasers should also check carefully before placing a deposit, because there are a lot of shady deals in the sunny state, according to realtors. These include homes with multiple liens and condominium projects that have extremely high vacancies and reserve funds that are severely underfunded. If that's the case, buyers could be hit with a huge bill once they move in. The apartment rental vacancy rate in the Miami-Dade market is in the 6 per cent range but is expected to rise this year as more product comes to market. In an October study of the most discounted U.S. home prices by California-based Zip Realty, nine of the top 10 were in Florida. Examples include a Miami short-sale condo discounted from $173,000 to $59,000 and a luxury five-bedroom, four-bath house where the price was slashed by $650,000 to $345,000. California A weaker-than-expected economic recovery will result in a projected decline in California home sales for 2010 and a meager recovery next year, according to a forecast released last month in Los Angeles by the California Association of Realtors (CAR). CAR expects 546,000 home sales this year, up 10 per cent from 2009 with a 2 per cent increase forecast for 2011. Many of the sales will be foreclosures, CAR said, which are expanding from the lower-end market to homes priced at $500,000 or more. More than half the homes that sold in California in the first half of 2010 were in some stage of foreclosure, placing the state second only to Nevada. "We're finally seeing the banks start to process the inventory that has been in foreclosure, but delayed in processing," said Rick Sharga, a RealtyTrac senior vice-president. "We expect the pace to accelerate as the year goes on." The average sales price of a California home in foreclosure is US$246,272. After two consecutive years of record-setting price declines, the average house price in California will climb 2 per cent in 2011 to US$312,500 compared with 2010, according to the CAR forecast. But experts note that even this modest projection could go out the window if the market is flooded with distressed sales. This could happen after giant Bank of America suddenly joined three other lenders last month in stopping foreclosures on its home loans. Most of the homes will likely fall back into foreclosure, but they could flood a future market. The foreclosues were stopped while an investigation into a faulty foreclosure process and allegations of mortgage fraud are investigated. Some realtors say the only result so far is that "more homeowners are staying in their houses without paying mortgages," at least for the next few months. Meanwhile, even some luxury Malibu Beach homes are selling at 50 per cent reductions. Hawaii Hawaii had the 10th highest number of U.S. foreclosures filed during the month of August - 473 homes - according RealtyTrac, and it's also a state where more homes are going to auction, including a beachfront Maui house owned by singer-actress Cher, which sold at auction this year for US$8.7 million, about US$4 million less than what was expected. On October 2, Okalahoma-based auction firm Williams and Williams put 10 Hawaii homes up for online auctions, most with very low nominal bids. Examples include a four-bedroom house with a base bid of US$50,000 and a Honolulu one-bedroom condo with an opening bid of US$25,000. Zip Realty CEO Pat Lashinsky summed up the U.S. housing market: "It's like shopping and finding everything is 50 per cent off; some homes are reduced by more than two-thirds of the original price."
from Western Investor, November 2010 |
