10 Worst Real Estate Markets for 2009

Discussion in 'Odds & Ends' started by Lendl and Federer Fan, Dec 29, 2008.

  1. Lendl and Federer Fan

    Lendl and Federer Fan Hall of Fame

    Mar 6, 2008
    Beverly Hills, XX
    Do you believe the real estate will drop another 20% to 25% in 2009. I am not surprised that real estate will plunge in 2009, what is shocking is almost 8 out 10 biggest drop areas predicted in the article are in California.

    10 Worst Real Estate Markets for 2009
    Tuesday, December 23, 2008 provided byFortuneonCNNMoney.com

    The housing market hasn't bottomed out yet. For the third quarter, the closely-watched S&P Case-Shiller national home-price index fell 16.6%, and experts are predicting further declines. Of the top 100 markets, here are 10 with the worst forecasts.

    1. Los Angeles

    2008 median house price: $375,340

    2009 projected change: -24.9%

    2010 projected change: -5.1%

    The median home price in the L.A. - Long Beach - Glendale metro area is projected to fall nearly 25% in 2009 - the biggest drop in the country.

    2. Stockton, Calif.

    2008 median house price: $248,050

    2009 projected change: -24.7%

    2010 projected change: -4.0%

    3. Riverside, Calif.

    2008 median house price: $256,540

    2009 projected change: -23.3%

    2010 projected change: -4.8%

    4. Miami-Miami Beach

    2008 median house price: $293,590

    2009 projected change: -22.8%

    2010 projected change: -6.4%

    Miami will be nursing the hangover from its epic building boom for years to come. After falling 22% in 2008, prices are predicted to plunge another 23% next year.

    5. Sacramento

    2008 median house price: $225,140

    2009 projected change: -22.2%

    2010 projected change: 2.3%

    6. Santa Ana-Anaheim

    2008 median house price: $532,810

    2009 projected change: -22.0%

    2010 projected change: -3.5%

    7. Fresno

    2008 median house price: $257,170

    2009 projected change: -21.6%

    2010 projected change: -3.3%

    8. San Diego

    2008 median house price: $412,490

    2009 projected change: -21.1%

    2010 projected change: -2.9%

    9. Bakersfield, Calif.

    2008 median house price: $227,270

    2009 projected change: -20.9%

    2010 projected change: -2.5%

    10. Washington, D.C.

    2008 median house price: $343,160

    2009 projected change: -19.9%

    2010 projected change: -5.7%
  2. LuckyR

    LuckyR Legend

    Jun 2, 2006
    The Great NW
    My only suprise was that Vegas wasn't on the list.
  3. Lendl and Federer Fan

    Lendl and Federer Fan Hall of Fame

    Mar 6, 2008
    Beverly Hills, XX
    Yeah, I am surprised too Nevada, Florida, Arizona, the hardest hit states along with California are not on the top 10 list for next year, I am sure they just barely miss the top 10 here.
  4. kobe3pointer

    kobe3pointer Semi-Pro

    May 11, 2008
    Lmao here in Illinois prices are actually up from last year...
  5. mary fierce

    mary fierce Banned

    Mar 11, 2004
    Nevada, Florida and Arizona benefit from being three of the four top retirement destinations (the other, interestingly, is my beloved New Jersey, the south of which is now full of retirement communities for people who want to stay near their kids in NYC and Philly). The baby-boom generation now ranges in age from mid-fifties to mid-sixties, so tens of millions of people are shortly looking to retire, many to those states, which helps sustain real estate prices somewhat.
  6. dave333

    dave333 Hall of Fame

    Aug 24, 2006
    Considering most of the increase was simply due to the bubble, I'm not surprised at all. In California, the home prices went up extremely fast. No surprise it is going down fast.
  7. Lendl and Federer Fan

    Lendl and Federer Fan Hall of Fame

    Mar 6, 2008
    Beverly Hills, XX
    ^Yeah, I think the housing price would probably drop to prebubble era like 1999 to 2001 before this nationwide correction is over.
  8. dParis

    dParis Hall of Fame

    Nov 30, 2004
    Where in Illinois are you living? While real estate prices in IL are more stable than in many parts of the country, home prices are still down in the state.(Save perhaps for a handfull of select communities - that I would LOVE to hear about!)

    Greater Chicagoland (about 80% of the state's population): Down
    Rockford: Down
    Peoria: Down...
  9. jamauss

    jamauss Hall of Fame

    Jan 25, 2006
    I lived in Stockton, CA during the "boom" times.

    Believe me, it deserves to drop all the way down. For a while, it was the #1 most over-valued housing market...in the COUNTRY.

    Houses there were gaining close to $100K a year for a few years so, it doesn't surprise me to see it come crashing down.

    Makes me wonder what's going to happen to all those people that bought boats, RV's, water toys, etc. with all their "equity". HAHA
  10. Lendl and Federer Fan

    Lendl and Federer Fan Hall of Fame

    Mar 6, 2008
    Beverly Hills, XX
    Stockton, Sacramento, LA Inland Empire are the epicenter of this crisis, so I am not surprised. Heck, even San Francisco are taking a 31% discount this year.
  11. Lendl and Federer Fan

    Lendl and Federer Fan Hall of Fame

    Mar 6, 2008
    Beverly Hills, XX
    Mortgage Troubles Are Moving Downtown

    Like others who got caught up in the recent commercial real estate frenzy, Joseph Moinian, the owner of 20 million square feet of office towers, apartment buildings and hotels throughout the country, sought to take advantage of the huge run-up in values as banks feverishly competed to make loans with exceedingly generous terms.

    But now that office rents in Manhattan and elsewhere are declining and empty space is beginning to flood the market, Mr. Moinian, who is developing a 58-story W hotel and residential tower just south of the World Trade Center, finds himself with a problem.

    He recently missed part of a $319,000 monthly payment on a $66.5 million mortgage for 60 Madison Avenue, a second-tier Midtown Manhattan office building that he refinanced in April 2007, Commercial Mortgage Alert, a trade publication, reported in October. The cash flow from the property does not come close to what was projected in the loan documents, according to Realpoint, a credit ratings agency which has put the loan on its watch list.

    Mr. Moinian quickly made good on the delinquent payment and has pledged to keep current on future payments, but his difficulties demonstrate that the troubles that have already begun to afflict the commercial real estate industry will be widespread and not limited to high-profile deals.

    So far, the delinquency rate for loans that were packaged and sold to investors as commercial mortgage-backed securities and are at least 30 days behind is only 0.63 percent, Realpoint said. But the unpaid balance of delinquent loans — $5.3 billion as of October — has increased by 70 percent since January.

    And analysts say the low default rate is deceptive. For one thing, as banks competed for business during the heady period from 2005 to 2007, most of the loans they wrote were interest-only, at least initially, so monthly payments were artificially low for the first few years, said Mike Kirby, a principal in Green Street Advisors, a research company.

    Delinquencies are expected to accelerate next year. And many more delinquencies and defaults are expected in 2010, when five-year interest-only loans issued in 2005 begin to mature and borrowers are unable to refinance them because credit is scarce and property values have declined instead of risen.

    “Defaults on mortgages are a trickle right now, but the pace will pick up over the next year, more than I would have thought in October,” Mr. Kirby said. “It’s coming, and it can’t be avoided. There’s going to be a lot of it, and it’s going to be bad.”

    As the market heated up in the middle of the decade, the volume of securitized loans exploded — to $200 billion a year in the period from 2005 to 2007, from $70 billion a year in the 2000-to-2004 period, according to Green Street. And as volume picked up, projections of rent growth became increasingly optimistic and the reserve funds intended to make up for the amount not covered by the property’s cash flow were often inadequate, analysts said. The $1.5 million debt-service reserve fund for 60 Madison Avenue has dwindled to $7.80, Realpoint said.

    “The underwriters were very aggressive,” said Victor Franco M. Calanog, the senior economist at Reis, a research company. “They were under a lot of pressure for deals to be made. They allowed investors to take a lot of risks.”

    When Mr. Moinian refinanced 60 Madison Avenue, a 1910 building at 27th Street, it was 86.5 percent occupied. But the 10-year loan was underwritten for occupancy of 95.1 percent, according to documents filed with the Securities and Exchange Commission. In the interim, the building has lost tenants instead of gaining them. CoStar Group, a research company, said that occupancy was now 66 percent.

    The mortgage was written as if the annual net cash flow from the building amounted to $4.9 million, when in fact the building was generating only $3.2 million then and is bringing in only $1.9 million now, Realpoint said.

    Mr. Moinian, a co-owner of the Sears Tower in Chicago, declined to be interviewed. But he told Commercial Mortgage Alert that he made up the shortfall in the debt service payment as soon as he learned about it. “We will continue to make all payments promptly,” he said in a statement.

    Some borrowers are already rushing to try to renegotiate their loans because the current terms are untenable. This can only be done by transferring the mortgage to a special servicer, a financial services unit that is charged with resolving problems with distressed assets in the interests of investors.

    Last month, the industry was shocked to discover that two loans JPMorgan Chase had packaged with other mortgages and sold to investors in May as a commercial-mortgage-backed security were delinquent. Both loans — one for an open-air shopping center in the Southern California community of Corona, and another for Westin hotels in Tucson and Hilton Head, S.C. — were transferred to a so-called special servicer.

    The transfer startled investors because the loans were originated and sold to investors long after the credit squeeze became apparent in the summer of 2007, said Steve Kuritz, a Realpoint senior vice president. “You would figure a 2008 deal would be a little cleaner,” he said.

    The 350,000-square-foot shopping center, the Promenade Shops at Dos Lagos, was developed by Poag & McEwen, a Memphis company that is often credited with originating the concept of “lifestyle center” — a retail property without a roof or a traditional department store anchor that is aimed at relatively affluent shoppers. The loan anticipated that the shopping center would bring in $10.5 million a year, but the net operating income for 2007 was only $6.3 million, Realpoint said.

    Josh Poag, the chief operating officer of Poag & McEwen, said the shopping center had been on track to achieve revenue goals until the retail industry began to struggle. He said the shopping center also faced competition from other projects that sprang up anticipating further growth in the counties east of Los Angeles, where Corona is located. Instead, the area is among those hit especially hard by the housing crisis.

    “We’ve had three retailers close their doors,” Mr. Poag said. “Other retailers are struggling to meet their payments and some are getting dangerously late — are on the verge of not paying the rent.” He said the company believed in the shopping center’s prospects and hoped to work out a solution with the special servicer.
  12. Lendl and Federer Fan

    Lendl and Federer Fan Hall of Fame

    Mar 6, 2008
    Beverly Hills, XX
    Home prices expected to fall further in 2009
    Growing unemployment, more declines in consumer spending and a particularly long and deep recession are expected to depress demand, economists say, with falling rents adding to the downward spiral.

    From the Los Angeles Times
    Peter Y. Hong

    December 27, 2008

    Real estate experts who were troubled by a 10% drop in median home prices near the end of last year from the previous year probably were stunned by the 35% drop in values since then.

    But that may be overshadowed by what they now worry lies ahead.

    Growing unemployment, more declines in consumer spending and a particularly long and deep recession are expected to batter home prices even further next year, they said.

    "As unemployment keeps rising, demand for housing softens. It will probably get worse before it gets better," said Delores A. Conway, director of USC's Casden Real Estate Economics Forecast.

    And the ripple effect is pushing rents down, which in turn could put greater pressure on home prices and exacerbate the downward spiral.

    Overbuilding in some areas and hard economic times have driven apartment vacancies up, and that is causing rents to stagnate or fall, Conway said.

    In downtown Los Angeles, for instance, apartment rents were about the same in the third quarter this year as they were in the same period a year ago, halting the rise in rents in previous years, Conway said. In Hollywood, apartment rents fell 2% in the third quarter compared with a year ago, she said.

    Data on single-family home rentals are less complete, but real estate agents in areas with numerous foreclosures say rents for houses are falling as the supply of vacant houses for rent exceeds demand.

    Those falling rents could offset any boost to home sales from currently low interest rates and prices, economists said. For those able to qualify for mortgages and willing to buy a home, terms have become quite favorable.

    At the end of November, Southern California's median home sales price had fallen to $285,000, from $435,000 in November 2007. If median prices were to continue falling at that pace, they would be below $200,000 a year from now.
  13. Lendl and Federer Fan

    Lendl and Federer Fan Hall of Fame

    Mar 6, 2008
    Beverly Hills, XX
    January 5, 2009
    As Vacant Office Space Grows, So Does Lenders’ Crisis

    Vacancy rates in office buildings exceed 10 percent in virtually every major city in the country and are rising rapidly, a sign of economic distress that could lead to yet another wave of problems for troubled lenders.

    With job cuts rampant and businesses retrenching, more empty space is expected from New York to Chicago to Los Angeles in the coming year. Rental income would then decline and property values would slide further. The Urban Land Institute predicts 2009 will be the worst year for the commercial real estate market “since the wrenching 1991-1992 industry depression.”

    Banks and other financial companies have not had the problems with commercial properties in this recession that they have had with residential properties. But many building owners, while struggling with more vacancies and less rental income, will need to refinance commercial mortgages this year.

    The persistent chill in lending from banks to the credit markets will make that difficult — even for borrowers who are current on their payments — setting the stage for loan defaults.

    The prospect bodes ill for banks, along with pension funds, insurance companies, hedge funds and others holding the loans or pieces of them that were packaged and sold as securities.

    Jeffrey DeBoer, chief executive of the Real Estate Roundtable, a lobbying group in Washington, is asking for government assistance for his industry and warns of the potential impact of defaults. “Each one by itself is not significant,” he said, “but the cumulative effect will put tremendous stress on the financial sector.”

    Stock analysts say commercial real estate is the next ticking time bomb for banks, which have already received hundreds of billions of dollars in capital and other assistance from the federal government. Big banks — like Bank of America, JPMorgan Chase and Morgan Stanley — each hold tens of billions of dollars in commercial real estate securities. The banks also invested directly in properties.

    Regional banks may be an even bigger concern. In the last decade, they barreled their way into commercial real estate lending after being elbowed out of the credit card and consumer mortgage business by national players. The proportion of their lending that is in commercial real estate has nearly doubled in the last six years, according to government data.

    Just as home loans were pooled, then carved up and sold to investors as securities over the last two decades, commercial property loans were repackaged for the financial markets. In 2006 and 2007, nearly 60 percent of commercial property loans were turned into securities, according to Trepp, a research firm that tracks mortgage-backed securities.

    Now that the market for those securities has dried up, borrowers cannot easily roll over the loans that are coming due.

    Many commercial property owners will face a dilemma similar to that of today’s homeowners who cannot easily get mortgage relief because their loans were sliced and sold to many different parties. There often is not a single entity with whom to negotiate, because investors have different interests.

    By many accounts, building owners have been caught off guard by how quickly the market has deteriorated in recent weeks.

    Rising vacancy rates were expected in Orange County, Calif., a center of the subprime mortgage crisis, and New York, where the now shrinking financial industry dominates office space. But vacancies are also suddenly climbing in Houston and Dallas, which had been shielded from the economic downturn until recently by skyrocketing oil prices and expanding energy businesses. In Chicago, brokers say demand has dried up just as new office towers are nearing completion.

    “The economic recession is so widespread that we believe virtually every market in the country will see a rise in vacancy rates of between 2 and 5 percentage points by mid-2009,” said Bill Goade, chief executive of CresaPartners, which advises corporations on leasing and buying office space.

    There is no relief in sight for Orange County, where subprime lenders and title companies once dominated the market but are now shedding space because their business has dried up, and big banks are now shrinking because of a wave of mergers. The vacancy rate has soared from 7 percent at the end of 2006 to 18 percent, a rate that the Tampa area should match this month, local real estate brokers say.

    In New York, where rents had risen the highest as financial companies gobbled up office space, vacancy rates are floating above 10 percent for the first time in years.

    What looked like the worst possible case a few weeks ago for Chicago now appears to be the most likely outcome, said Bill Rogers, a managing director at Jones Lang LaSalle, a real estate broker. The vacancy rate, which was fairly stable at 10 percent, is now rising quickly and could hit 17 percent in 2009, he said. “A lot of companies are trying to shed excess space ahead of what is expected to be a worse market in 2009,” Mr. Rogers said.

    Newmark Knight Frank, a real estate broker, expects the vacancy rate in Dallas to rise to 19 percent this year, from 16.3 percent.

    Houston, like Dallas, held up while many other cities were showing the strains of an economic slowdown. But job growth and the brisk business of oil and gas exploration have come to an abrupt halt.

    Vacant or unfinished shopping centers dot the highways. Among the 8.4 million square feet of office space under construction or recently completed in the metropolitan area, 80 percent has not been leased. As a result, the vacancy rate is 11 percent and rising.

    “I see a wave of troubled assets coming out of Texas in the near future,” said Dan Fasulo, managing director of Real Capital Analytics, a real estate research firm.

    Effective rents, after free rent and other landlord concessions, have already started to fall and are expected to decline 30 percent or more across the country from the euphoric days of the real estate boom, according to real estate brokers and analysts.

    That is making it all the more difficult for owners, who projected ever-rising rents when they financed their office buildings, hotels, shopping centers and other commercial property. Owners typically pay only the interest on loans of 5, 7 or 10 years and refinance the big principal payments necessary when the loans come due.

    Without new financing, owners will have few options other than to try to negotiate terms with their lenders or hand over the keys to banks and bondholders.

    Among commercial properties, the most troubled have been hotels and shopping centers, where anemic sales and bankruptcies by retailers are leading to more vacancies and where heavily leveraged mall operators, like General Growth Properties and Centro, are under intense pressure to sell assets. But analysts are increasingly worried about the office market.

    The Real Estate Roundtable sees a rising risk of default and foreclosure on an estimated $400 billion in commercial mortgages that come due this year. In recent weeks, a group led by the New York developer William Rudin has pleaded with Treasury Secretary Henry M. Paulson Jr., Senator Charles E. Schumer, Democrat of New York, and others to have the government include commercial real estate in a new $200 billion program intended to spur lending.

    Mr. DeBoer, the roundtable’s leader, said building owners are by and large making their loan payments. It is the refinancing that is worrisome.

    Most loans, he said, were made at 50 percent to 70 percent of property values. At the top of the market in 2006 and 2007, though, some owners took advantage of available credit and borrowed 90 percent or more of the value of a property, a strategy that works only in a rising market. Since then, property values have dropped 20 percent, Mr. DeBoer said.

    Where possible, owners are trying to extend loans. A lender might agree to extend the term on a 10-year commercial mortgage, for example, if the borrower remains current on payments and can make an equity payment to compensate for the decline in the building’s value.

    Already, $107 billion worth of office towers, shopping centers and hotels are in some form of distress, ranging from mortgage delinquency to foreclosure, according to a report by Real Capital Analytics.

    New York, the biggest market by far, leads the pack with 268 troubled properties valued at $12 billion. But there are 19 more cities, including Atlanta, Denver and Seattle, with more than $1 billion worth of distressed commercial properties.

    Analysts are especially concerned about buildings like 666 Fifth Avenue, One Park Avenue and the Riverton complex in New York, the Pacifica Tower in San Diego and the Sears Tower in Chicago, which were acquired in 2006 and 2007 with mortgage-backed financing based on future rents rather than existing income.

    “Many of those buildings are basically underwater,” said Mr. Goade of CresaPartners. “The price they paid was too high to begin with. There’s no way anyone would lend that kind of money today.”
  14. Lendl and Federer Fan

    Lendl and Federer Fan Hall of Fame

    Mar 6, 2008
    Beverly Hills, XX
    Economists see jobless surge, deeper housing hole

    * Monday January 5, 2009, 12:56 pm EST

    By Pedro Nicolaci da Costa

    NEW YORK (Reuters) - The worst financial crisis in more than a half century is going to get even worse, putting further pressure on U.S. home prices and driving the unemployment rate above 11 percent, according to two prominent academic economists.

    Carmen Reinhart, from the University of Maryland, and Kenneth Rogoff, of Harvard, suggested housing might not bottom until 2010, which bodes poorly for struggling banks that still hold trillions in mortgages.

    "Financial crisis are protracted affairs," Reinhart and Rogoff wrote in a paper presented at this weekend's annual meeting of the American Economic Association, in San Francisco.

    The two emphasized that, despite the best efforts of governments and monetary authorities around the world to stem the crisis, policy measures can only do so much to contain the aftermath of the largest debt bubble in modern history.

    "Some central banks have already shown an aggressiveness to act that was notably absent in the 1930s," they said. "On the other hand, one would be wise not to push too far the conceit that we are smarter than our predecessors."

    They said that on average the examples they studied as comparisons, which included rich countries like Sweden and Japan as well as poorer developing nations such as Malaysia and Thailand, the unemployment rate rose an average of 7 percentage points over a four-year period. Given that U.S. unemployment bottomed at 4.6 percent in late 2006, this would take the eventual rate above 11 percent.

    That would mean at least another 6 million to 7 million jobs could be lost from current levels, according to government data. The November jobless rate, the latest data point available, was 6.7 percent.

    The global nature of the crisis will have continuing repercussions, they said, including a renewed rise in sovereign debt defaults.

    Another prediction to emerge from their research is already under way: an explosion in government debt.

    "The big drivers of debt increases are the inevitable collapse in tax revenues that governments suffer in the wake of deep and prolonged output contractions, as well as often ambitious countercyclical fiscal policies aimed at mitigating the downturn," the authors said.
  15. stormholloway

    stormholloway Legend

    Nov 30, 2005
    New York City
    At some point we should see bargains, but I wouldn't buy real estate in Florida nor California anyway.

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