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Desperation seeps into residential sales

By Michelle Conlin
AP Real Estate Writer

A sign at the Sunset Ridge Estates alerts buyers Friday of special incentives when buying a KLM home in Richmond, Ill. (AP Photo/David Banks)

In suburban Chicago, it’s paradise to be a homebuyer.

At the Millbrook Pointe development in quaint and pristine Wheeling, a $269,000, brick-and-stone townhouse comes with $25,000 in free upgrades, including wood-burning fireplaces, all-stainless steel kitchens and marbled bathrooms tricked out with double-bowl vanities and whirlpool soaker tubs.

At the Sunset Ridge estates, the amenity bonanza gets even more surreal: Buy a customizable colonial for as little as $170,000 and get a new $17,000 Chevy Cruze for free.

Spring for homesellers is like Christmas for retailers. Normally, that might mean a better brand of siding here, an expanded choice of tile color there. But a new car?

“Obviously, business has been soft,” said Kim Meier, president of KLM Homebuilders, the company offering the promotion.

The festival of upgrades on new homes, especially in the housing markets that were savaged by the subprime meltdown, is queasy confirmation of just how much the housing market remains the sickest part of the U.S. economy.

Existing home sales plunged nearly 10 percent in February to their lowest level in nine years. It was the largest drop since July. Forty percent of those sales were on distressed properties. And new-home sales are on track to come in at just 250,000 this year, the fewest since the Kennedy administration, when there were 120 million fewer people in the United States.

“What is discouraging in many markets is that it appears as if some of the local builders are creating the volume,” said Wayne Yamano, vice president with John Burns Real Estate Consulting.

Across the country, real estate agents are reporting a rise in traffic at open houses. But they say buyers are reluctant because of the shellshock they suffered after the free-money machine blew up in everyone’s face. The foreclosure epidemic, the plague of employment insecurity, the fear the U.S. is on a downward slide all are playing into buyer commitment phobia, brokers say.

There’s also confusion over the conflicting signals. Prices are low, but unemployment is high. Mortgage rates are attractive, but lending standards are strict.

“Everybody is now self-loathing about how we’re greedy Americans, and we shouldn’t want to own homes,” said Jonathan Miller, CEO of real estate consulting firm Miller Samuel.

The U.S. will certainly have a spring home buying season this year. But even if sales rise as usual, they won’t pull the zombie housing market out of its stupor. Nationwide, forecasters expect house prices to drop at least 5 percent more this year. And no one in housing land is murmuring about anything like price stabilization until 2012 at least.

“We don’t expect a dramatic rebound,” said Paul Ashworth, managing partner at Capital Economics. “We expect stagnation for several more years.”

The buying that is happening isn’t coming from first-time homebuyers. A recent study by Capital Economics found 60 percent of sales are to foreigners and investors, most of them paying cash. In fact, in international real estate circles, the U.S. is viewed as the “new emerging market,” said Thomas M. Shapiro, president of global real estate investment firm GTIS Partners.

Foreigners are attracted to U.S. real estate because their local currencies are so much stronger than the dollar.

“You don’t get much money from buying Treasurys as safe investments,” Ashworth said. “There is a search for yield that is making residential property look more attractive.”

Real estate is hyper-local. The places hit hardest by the foreclosure epidemic — California, Arizona, Nevada, Utah and Florida — are certainly skewing the statistics for the worse. In places such as New York City, Washington, D.C., and San Francisco, the real estate market is strengthening.

Worse news for sellers is buyers don’t think the housing market has hit bottom yet, according to Trulia.com. A recent survey by Trulia and Harris Interactive found that nearly 70 percent of renters who aspire to being homeowners say they will wait at least two years before buying. And nearly 60 percent say a housing recovery won’t come until after 2012.

It’s clear many sellers are panicked. A quarter of sellers who listed their properties on Trulia.com on March 1 already slashed their prices at least once.

Last summer, Bobby Barweki started looking for a foreclosure to buy. Barweki, 30, scraped together a 20 percent down payment by living with his parents after graduating from college in 2007. The foreclosures he looked at were all “trashed,” he said.

Then one day his dad sent him an email about the free-car deal at Sunset Ridge Estates.

Barweki, a store manager at Chicago recreation goods chain Novotny Sales, just closed on a $178,900 ranch. Instead of getting the new car, he opted for $17,000 worth of free upgrades, including a stone facade and hardwood floors.

Barweki doesn’t have much faith in an economy where the definition of a recovery seems to be that things don’t get worse. He said doesn’t think the housing market has hit bottom. But for him, it was the right time.

“Interest rates are low, I had the money,” he said, “and I got a great deal.”

AP real estate writers Alex Veiga in Los Angeles and Derek Kravitz in Washington, D.C., contributed to this report.

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