Housing woes lure back bold buyers

From California to Florida, investors snap up distressed properties, hoping to profit.

from the May 16, 2008 edition

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"This assumes we only suffer a modest recession and moreover get some kind of meaningful federal housing policy that helps to stem the number of foreclosures," he says.

In addition, the inventory of unsold homes is still at a high level. According to government estimates there are 2.25 million empty houses for sale compared with 1.25 million in a normal year.

But some housing analysts see some encouraging signs. "We are hearing there is greater foot traffic at open houses and realtors are showing more homes," says Lawrence Yun, chief economist at the National Association of Realtors in Washington.

One sign that there is some selective buying: Blogger Dimitris Ginis (countrywide-foreclosures.blogspot.com) has found the number of foreclosed houses on Countrywide's website has dropped from a high of 15,783 in January to 12,185 as of May 13. This has coincided with a drop in Countrywide's average asking price from $324,000 to $270,000 in the same period.

Mr. Yun says the improvement has been particularly noticeable in areas that have been hit the hardest, such as Sacramento, Calif.; Las Vegas; and Fort Myers, Fla.

But the improvement is coming because of major reductions in price.

In March, buyers stood in line outside a development at Cape Coral (near Fort Myers) after a local developer, O.J. Buigas, put 82 homes and 34 townhouses up for sale. He had purchased the homes from Miami-based Tousa Homes Florida LP, a bankrupt builder. The inducement: price reductions of 40 percent to 50 percent.

"It was like being at the Outback Steakhouse on a Saturday night," recalls Denny Grimes, the realtor handling the sales. "People who bought were actually giddy."

In all of Lee County, Fla., Mr. Grimes says pending home sales in the first quarter were up 29 percent over the first quarter of 2007. But he adds that inventories are still high and prices remain under pressure. "We're not at the bottom anytime soon," he says.

Affordability continues to be a major problem, says Jack McCabe, a real estate expert in Deerfield Beach, Fla. "Turning points have come when median household prices are three to four times median household incomes," he says. "In Florida, they are still six to seven times median household incomes."

Mr. McCabe says investors who hope to rent properties still are not getting a large enough return yet. And "we have to get back to a normal appreciation of 6 to 7 percent per year," he says, instead of, say, the 181 percent that Miami-Dade area saw during the four-year boom.

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