Million-dollar homes are falling prey to foreclosure

By Joseph Pisani, Special from CNBC.com
Heated pools, ocean views and media rooms are not what most people would expect to find in a foreclosed property, but more high-end homes — priced at more than a million dollars — have been falling into the hands of banks this year.

Foreclosures of homes worth more than $1 million began increasing at the end of 2009, according to data provided to CNBC.com by foreclosure tracking website RealtyTrac.

Foreclosures reached a high in February 2010, the last month data were available, when 4,169 high-end homes were somewhere in the foreclosure process; having received a foreclosure notice, had an auction scheduled or had ownership taken over by the lender. That's a 121% increase from a year ago.

The deterioration comes just as housing experts say that foreclosures in the low and middle ends of the housing market are showing signs of stabilization.

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Owners of expensive homes "were able to stave off foreclosure longer," says independent real estate analyst Jack McCabe, CEO of McCabe Research and Consulting in South Florida. "Lower-end homeowners were the first ones to see the escalating foreclosures, because they generally do not have the cash reserves or credit available that the luxury homeowners do. They had the ability to take their credit cards and pull out thousands of dollars, while the lower-end buyers were already tapped out."

McCabe expects foreclosures in the high-end market will increase into 2011.

DELINQUENCIES DROP: First time since 2006

Though the RealtyTrac data on high-end homes are not available on a regional or metropolitan basis, anecdotal evidence indicates the problem is cropping up across the country. High-end and luxury categories vary widely from market to market. In some suburban areas, in the Northeast and California, for instance, million-dollar homes are fairly common, but nationwide, they represent 1.1% of overall housing stock.

"We have seen an increase, in the million-plus range, of the number of foreclosures and short sales in the greater Chicago area," says Jim Kinney, vice president of luxury home sales at Baird & Warner.

He says that of the 295 million-dollar, single-family properties sold in the first quarter this year, 37 were either a foreclosure or short sale, when a bank and homeowner agree to sell the home for less than the loan is worth. During the same period a year ago, 10 of 231 fell into those categories.

In the Fort Myers, Fla., area, Mike McMurray of McMurray and Nette and the VIP Realty Group says he has seen a few foreclosed high-end homes on the market compared with none last year. He's currently showing a 4,800-square-foot, $3.65 million home on Captiva Island, where foreclosures are usually rare. The bank-owned home has five bedrooms and access to 150 feet of Gulf Coast beachfront.

"There are more we see coming down the pipeline," McMurray says.

Data show that may be the case around the country. The 90-day delinquency rate on home loans worth more than a million dollars hit a high in February at 13.3%, above the overall rate of 8.6%, according to real estate data firm First American CoreLogic. Foreclosure proceedings generally start after a homeowner has been at least 90 days late on a mortgage payment, experts say.

One difference in the high-end market is that lenders are willing to do more to head off foreclosure by renegotiating the loan or accepting a short-sale transaction, which is essentially a last-ditch effort.

"Lenders are far more likely to go the short-sale route," says Andrew LePage, an analyst at real estate research firm DataQuick. "There's a lot more money at stake, and maintenance can be high if a foreclosure just sits there."

A $1.15 million condominium in Chicago in the landmark Palmolive Building was initially offered as a short sale, but after a buyer did not materialize, it's now owned by the bank, says Janice Corley, founder of Sudler Sotheby's International Realty, which is currently listing it. The condo has lake views and a long list of luxury-building amenities, including a steam room, doorman and gym.

The rise in luxury foreclosures has one Las Vegas real estate agent flying prospective buyers into the city via private jet. Luxury Homes of Las Vegas and JetSuite Air teamed to offer the complimentary trip for buyers flying from Los Angeles to view three foreclosed homes priced between $4.9 million and $6.1 million.

Agent Ken Lowman says he gave three tours over a one-week period and hopes to expand the offer to buyers from other West Coast cities.

There's just too much competition, Lowman says. "It takes an innovative approach like this to get results."

Lawmakers move to extend homebuyer credit

WASHINGTON - Homebuyers may get an extra three months to finish qualifying for federal tax incentives that boosted home sales this spring.

Senate Majority Leader Harry Reid, D-Nev., said Thursday he wants to give buyers until Sept. 30 to complete their purchases and qualify for tax credits of up to $8,000. Under the current terms, buyers had until April 30 to get a signed sales contract and until June 30 to complete the sale.

The proposal would only allow people who already have signed contracts to finish at the later date.
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Reid introduced the proposal as an amendment to a bill that would extend jobless benefits through the end of November. Joining him were Sen. Johnny Isakson, R-Ga., and Christopher Dodd, D-Conn.

Reid, who faces perhaps the toughest re-election campaign of his political career, represents a state that has the nation's highest foreclosure rate.

The National Association of Realtors has been pushing hard in Congress for the extension. Mortgage lenders, the trade group says, have been swamped with borrowers trying to get approved by the end of the month. Many potential borrowers are unlikely to make the deadline.

"Time is of the essence," said Lucian Salvant, a spokesman for the group. "It's important for Congress to get this done, because there's whole bunch of loans that aren't' going to close on time."

First-time buyers were eligible for a tax credit of up to $8,000. Current owners who bought and moved into another home could qualify for a credit of up to $6,500.

Home construction up, building permits fall

WASHINGTON - Construction of homes surged in April to the highest level in 18 months, fueled by buyers capitalizing on an expiring tax credit. Permits for new construction sank, signaling the rebound could fade.

Low mortgage rates and two tax credits — up to $8,000 for new buyers and $6,500 for current owners who buy and move into another home — have boosted home sales this year. To receive a tax credit, borrowers had to have a signed offer by April 30 and must close the deal by the end of June.

The rate of home building has now risen more than 40 percent from the bottom in April 2009, though it's still down 70 percent from the decade's peak in January 2006.
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Without the tax credit, analysts say home sales will slow in the second half of this year. High unemployment and tight lending standards will likely help keep many buyers away.

The report Tuesday from the Commerce Department said the rate of construction of single-family homes and apartment buildings rose 5.8 percent last month to a seasonally adjusted annual rate of 672,000. That was up from an upwardly revised March level of 635,000. The rate, the highest since October 2008, was driven by a 10 percent increase in single-family home building.

A separate report Tuesday showed wholesale inflation remains tame. Prices fell 0.1 percent in April, the second drop in three months. Core inflation, which excludes volatile energy and food prices, rose 0.2 percent, the Labor Department said. But over the past year, core prices are up just 1 percent.

The absence of inflation pressures means the Federal Reserve can keep interest rates at record lows to bolster the economic recovery.

In the Commerce report, the government said building permits, a gauge of future activity, sank 11.5 percent to an annual rate of 606,000. That's the lowest point since October 2009.

Still, a survey Monday showed homebuilders are feeling more optimistic. The National Association of Home Builders said its housing market index, which tracks industry confidence, rose three points this month to 22, the highest reading since August 2007. Readings below 50 indicate negative sentiment.

In March, sales of new homes rose 27 percent in March. That was the biggest monthly increase in 47 years.

A four-decade low stockpile of new single-family homes, combined with low interest rates and prices, has made home buying affordable, said Sal Guatieri, an economist with BMO Capital Markets. That means that even without the tax credits, housing starts should rise modestly.

"Until the foreclosure wave ebbs and the overhang of unsold existing homes abates, the recovery in homebuilding will be subdued, Guatieri said.

For April, food costs dipped by 0.2 percent. It was the first decline in nine months. And it came after a 2.4 percent surge during the previous month — the largest gain in 26 years. The March increase reflected the impact of a winter freeze in Florida that damaged citrus and vegetable crops.

Energy prices fell 0.8 percent in April with gasoline prices down 2.7 percent.

The rise in core inflation followed two straight months of 0.1 percent gains. Household appliances posted a 1.9 percent jump, the largest since October 1974. Passenger car prices rose 0.6 percent. It was the biggest such increase since June.

Economists predict a report on consumer prices on Wednesday will also show slight price pressures. They are predicting overall prices and core inflation will both post 0.1 percent gains.

The recession has banished inflation for now. The more than 8 million jobs lost over the past two years has left workers without the bargaining power to boost wages.

In addition, companies, facing slack demand and idle plant capacity, have lacked the ability to raise prices.

Design company owners list 3BD home for $1.199M

Julius Bhang and Jane J. Bhang have listed for sale a three-bedroom, 2.5-bath home at 142 N. Lucerne Blvd. in Greater Mid-Wilshire/Hancock Park for $1.199 million.

Jennice Anne Tronciale, of Sotheby's International Realty Inc., is the listing agent for the property. Julius and Jane Bhang acquired the property for $506,000 in April 2000. The home was built in 1920.

Mr. Bhang is a partner and co-founder of the design studio, Gatemark Design. Prior to this, he worked with RTKL Associates and Sussman/Prejza & Co., an internationally renowned environmental graphic design firm. His expertise is in design detailing, wayfinding programming and project management for high profile projects.

He obtained a degree in political science from UCLA and environmental design from the Art Center School of Design in Pasadena, California.

Ms. Bhang is also a partner and co-founder of the design studio, Gatemark Design. Prior to this, she worked as design director and creative director with Equity Marketing, Saban Entertainment, Fox Family and Disney/ABC Cables Networks Group. Her expertise is in marketing graphics, trade event signage, displays and branding for major entertainment companies.

She also is an alumnus of the Art Center School of Design.