Existing-Home Sales in the Third Quarter

State Existing-Home Sales Hit Another Record in Third Quarter

WASHINGTON (November 15, 2005) – Total state existing-home sales set a record in the third quarter, with 44 states and the District of Columbia showing higher sales compared to a year ago, according to the National Association of Realtors®.NAR’s quarterly report on total existing-home sales, which include single-family and condos, shows that the national seasonally adjusted annual rate* was 7.24 million units in the third quarter, up 6.5 percent from 6.80 million in the third quarter of 2004. The previous record was 7.22 million units in the second quarter of this year.The strongest increase was in Arkansas, where the third-quarter sales activity rose 32.1 percent compared with the third quarter of 2004. Utah existing-home sales increased 26.6 percent from a year earlier, and Washington state was up by 20.0 percent. Fourteen other states recorded double-digit sales gains. Four states experienced declines, while complete data for two states was not available.David Lereah, NAR’s chief economist, said third quarter home sales mark a peak for the current housing cycle. “We’re fairly confident that third quarter home sales will prove to be the high point of the five-year housing boom,” he said. “Favorable housing affordability conditions complemented a strong fundamental demand, but we expect a modest easing from higher mortgage interest rates and home sales will hold at a more sustainable pace.” He expects overall home sales next year to be the second highest on record.According to Freddie Mac, the national average commitment rate on a 30-year conventional fixed-rate mortgage was 5.76 percent in the third quarter, up from 5.72 percent in the second quarter; the rate it was 5.89 percent in the third quarter of 2004. NAR President Thomas M. Stevens from Vienna, Va., said the transitioning housing market will continue to see positive market fundamentals. “Although mortgage interest rates are expected to gradually rise, they will remain historically low; the labor market is firming and the economy is growing,” said Stevens, senior vice president of NRT Inc. “Our growing population has a fundamental need for housing, so these conditions mean home sales should stay at levels that help to support the overall economy.”Click to view State EHS DataRegionally, the South recorded the strongest annual increase with an existing-home sales pace of 2.77 million units in the third quarter, up 8.2 percent from a year earlier. After Arkansas, the strongest increase in the region was in South Carolina, up 18.1 percent from the third quarter of 2004, followed by Georgia, where existing-home sales rose 14.4 percent, and Texas, which increased 13.9 percent. The Northeast saw a third quarter existing-home sales rate of 1.20 million units, up 6.9 percent from the third quarter of 2004. Massachusetts experienced the strongest increase in the region with sales activity 11.2 percent above a year ago, followed by Connecticut, up 8.3 percent, and New York, which increased 7.0 percent.In the Midwest, total existing-home sales in the third quarter increased 5.0 percent to a 1.63 million-unit annual pace compared to a year ago. North Dakota led the region, up 19.3 percent from the third quarter of last year, followed by Indiana, with a 12.3 percent rise, and South Dakota, up 10.5 percent.In the West, existing home sales rose 4.1 percent to a pace of 1.64 million units in the third quarter from the same period in 2004. After Utah and Washington, the strongest increase was in Oregon, where total existing-home sales rose 15.5 percent compared to a year ago; Idaho rose 12.3 percent while Alaska increased 11.7 percent.The National Association of Realtors®, “The Voice for Real Estate,” is America’s largest trade association, representing more than 1.2 million members involved in all aspects of the residential and commercial real estate industries.
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· The seasonally adjusted annual rate for a particular quarter represents what the total number of actual sales for a year would be if the relative sales pace for that quarter was maintained for four consecutive quarters. Total home sales include single family, townhomes, condominiums and co-operative housing. NAR began tracking the state sales series in 1981.Seasonally adjusted rates are used in reporting quarterly data to factor out seasonal variations in resale activity. For example, sales volume normally is higher in the summer and relatively light in winter, primarily because of differences in the weather and household buying patterns.Tables of state resale rates, percent changes and some historic data are available at the site below under Economic & Housing Statistics – click on Existing Home Sales twice, then look for the quarterly data.

Copyright NATIONAL ASSOCIATION OF REALTORS®Headquarters: 430 North Michigan Avenue, Chicago, IL. 60611-4087DC Office: 500 New Jersey Avenue, NW, Washington, DC 20001-2020

'Hotel Condos'

Hotel condos' value hard to figure at ground floor

Projects with rental options are all around, but future is uncertain

By Kathy BergenTribune staff reporter

Published November 27, 2005

Luxury hotel proposals are popping up in Chicago like so many desert flowers after a long drought, and it seems almost every developer is betting on the same virtually untested concept: hotel condominiums.At least 12 downtown projects will include hotel condominiums, which are rooms or suites sold to individuals, who have the option of placing them in rental pools when they aren't using them.More than 2,100 of these pricey dens will be marketed here over the next five years, mostly to affluent Baby Boomers looking for a second or third home.None of the units have come to market yet, so there is no test case. And looking elsewhere in the nation doesn't help much, either.

"There is very little track record," said Pat Ford, president of Lodging Econometrics in Portsmouth, N.H.And so a grand gamble is getting under way.

For the trend to succeed long-term, there will need to be a winnowing out of the weaker contenders, a deep and renewable pool of well-heeled buyers, as opposed to short-term speculators, and a sustained recovery in downtown luxury-hotel business.Other factors could derail the vision as well, among them rising interest rates or a pullback of tax deductions allowed on second homes.

"I have my doubts that all the projects will be built or that all will be successful," said Arthur L. Buser Jr., managing director at Jones Lang LaSalle Hotels. "There will be some that are winners, and some that are last-to-the-party, or not as well done, or only half sold out. ... There will be some failures."The proliferation of proposals stems from hotel developers' continuing difficulties in obtaining more traditional financing."Occupancy and room rates have not recovered sufficiently," noted Ford.With a condo-hotel project, the developer "gets an opportunity to use other people's money," he said.And those other people, namely the hotel condominium purchasers, generally don't have the same expectations for return on investment as would a typical financier, noted Buser."An individual owner would like a profit, but doesn't necessarily need one," he said. "But he does want a place."Willing to be patientIt's certainly true that some buyers are willing to take the long view on investment return.

Attorney James M. Duggan is buying a one-bedroom suite at the proposed Elysian Hotel, primarily as a weekend getaway spot to share with his wife and secondarily as an investment.

"Up front, I'll be in the red, but I'll be having a great time downtown," said Duggan, a Lake Forest resident who is a principal at Handler Thayer & Duggan LLC. "I think I'll be cash-flow positive within five years."And he expects the value of the unit to appreciate over time.

Other prospective buyers in the Chicago market view the transactions strictly as moneymaking opportunities.Real estate broker Viju Patel is paying $389,550 for a one-bedroom unit at Hotel 71 at 71 E. Wacker, which is being redeveloped as the Solis Chicago Hotel Condominiums.Because she is an early buyer, she hopes to see substantial appreciation in the value of her unit, enabling her to sell within three years or so.She likes the proximity of two luxury hotel-condominium projects: the Trump International Hotel & Tower, under construction across the river, and the Shangri-La Hotel, proposed for 111 W. Wacker.Those properties will add cachet to the Solis, whose room rates will be a little less stratospheric, said Patel, a South Barrington resident who is a partner with Keller Williams Success Realty.

"Some of the Trump units have doubled in value over the last two years," she noted."I think the Solis property will appreciate a lot initially, once the facelift is done," she said, adding that a high-end, brand-name spa may be among the amenities.

The companies selling hotel condominiums generally steer clear of touting their investment potential, said attorney David Neff, co-chairman of the lodging and time-share practice at Piper Rudnick Gray Cary.

"If they are viewed as investments, then you have to register the offerings as securities," he said.

Most companies prefer to avoid this extra layer of administration and expense.Still, many hotel condo buyers have dual financial goals: to recoup most, if not all, of their mortgage and maintenance costs from rental income, and to see price appreciation whenever they choose to sell their units.Realizing the first goal may be difficult, some observers say, given hefty monthly condo assessments and fees layered atop mortgage payments and real estate taxes.Monthly assessments and fees could run as high as $2,000 at the Trump project, at the ultra-luxurious end of the spectrum.

Hotel condominium operators "will need to get pretty aggressive on room rental rates and occupancy levels in order for buyers to come out whole on these deals," said Gail Lissner, vice president with Appraisal Research Counselors."With the more expensive units, it will take a while until Chicago reaches room rates high enough to provide a return on the investment," said Ted Mandigo, a hotel consultant based in Elmhurst.

The greater potential, Lissner believes, lies in price appreciation on the units over time.Two have seen growthIn fact, prices for units at the Trump or the Elysian have appreciated significantly in the two years since these early-bird projects were announced.At the Trump, units are priced between $815,000 and $3 million-plus, compared with $559,000 to $1 million-plus two years ago. At the Elysian, asking prices top out at $925,000, compared with $700,000 in 2003.Whether prices remain on an upward trajectory in Chicago remains to be seen.Consumer choices will be expanding, as more newly announced projects begin marketing. So far, only six of 12 downtown projects have been actively selling.And some of the existing upward momentum is likely attributable to speculators, who typically comprise an estimated 25 percent of hotel condo buyers.

"When they feel the party is over and stop buying, 25 percent of the buyers disappear, and it's a much thinner market," Buser said.

Other experiencesOne of the few cities with any extended history in this niche is Vancouver, which saw overbuilding in the 1990s."People bought on projections that properties would continue to ramp up, and it didn't happen," said Buser, of Jones Lang LaSalle.

Prices fell, leaving unit owners in limbo until the market recovers.In contrast, Miami has seen torrid price appreciation lately, so much so that some developers have broken contracts with potential buyers in order to resell units at higher prices, leaving some irate former customers on the sidelines, noted Mandigo.

"To me, the units in Chicago are not quite as strong an investment," he said, citing weaker room rates, the bitter winters and a substantial supply of hotel rooms in the suburban market.

"The hotel condominium flurry really has been at the luxury end of the market," said Scott Steilen, principal at Warnick & Co., a hotel advisory firm. "And I think there is a legitimate question of whether this market is deep enough to absorb all that luxury lodging supply,"That said, some projects will pan out better than others."This is still location-driven," Steilen noted.And investors should remember they are buying a piece of a hotel.

"Look at how the chain is doing, find out about the management company and its track record," said attorney Neff.For Patel, who is buying a unit at the Solis, this was key.

She likes the fact that West Paces Hotel Group LLC, which will manage the hotel condominiums, is headed by Horst Schulze, a Ritz-Carlton veteran.And buyers should keep in mind that ownership and management companies can change, and that new regimes can institute new ways of operating.In 2003, the Grand Traverse Band of Ottawa and Chippewa Indians purchased the 660-unit Grand Traverse Resort and Spa in Acme, Mich., and later that year announced plans for an extensive renovation program.For the first time, owners of the resort's 234 hotel condominiums were asked to participate in a uniform refurbishment plan, with costs ranging as high as $40,000, a hefty sum given that many units are valued at around $100,000.

"There was a complete owner revolt in October 2003," recalls David Boyer, a Chicago attorney who owns one of the units.Two years and many hard feelings later, the two sides appear to be approaching the possibility of detente.

The owners have "agreed the initial plan was too ambitious and are allowing the condo board to be part of the think tank," said Michael Mysliwiec, a Michigan lawyer who is president of one of the condo associations."Rather than a divorce between the owners and the condo association, I'm working to patch things up," he said. "I don't know if I'll succeed, but I'm trying."

----------kbergen@tribune.com
Copyright © 2005, Chicago Tribune

Tricia Fox 

Real Estate Commission Arguments

I Don't Wanna Pay That Much!
by Walter Sanford

(edited)

(...)
"Well," you say, "why am I any different? Everyone has sales" The profit margin in real estate can be brutal. Many agents have 60% or more in overhead, when you take into consideration your broker, income taxes, and other overhead. This simple little reduction now translates into a 42% reduction of net profit, based on the fact that approximately 40 cents of every dollar goes to your bank account. This is a business practice that is guaranteed to keep you from innovation, success, and retirement.
If you're worth it, this is how to say "no thanks" to commissionectomy, in a warm fuzzy way.
(…)
1. ?Mr. Johnson, please allow me to restate some of the extras and differences that my marketing plan and service delivers????
(…)
3. ?Mr. Johnson, I understand that is your bottom line, but I need my full fee to offer my services. Let us both ask the buyer to pay for it in a higher price. However, after marketing the home, we may have to reduce the price after 30 days. If the market will not realize our higher price, I would like your "okay" now for a price reduction that is more in keeping with the comparable sales.?
(…)
5. "Mr. Johnson, what business are you in? How do you respond to requests for lower prices, fees, etc?"
6. "Yes Mr. Johnson, I understand that Brand X will do it for less; however, when you buy something, you look at all the features for comparison, right?" Then let's look at a comparison chart of:
A. Number of signs up (more signs equals more buyer calls).
B. Sold properties in last twelve months (proof of excellent marketing).
C. Number of agents in company (all your sales people!).
D. Systems and strategies (show them your checklists that guarantee consistency in service).
E. Education and experience (you want the best CPA for your audit, right?).
F. Marketing powers (let's check some internet sites!).
G. Years in the business.
H. Testimonial letters.
I. Proven lead generation systems.
J. Number of buyer contracts in force.
K. Resumes of all team members.
L. Technological proficiency.
M. Internet search engine superiority.
N. One hour return phone call guarantee.
O. (Where does the competition eat your dust?)
(…)
8. ?Mr. Johnson, I have offered discounts to volume clients. What other business can you offer our team??
(…)
10. ?Mr. Johnson, is this a test to see how I will negotiate for the best price on your home??