Multi-Unit Market Update

It has been a while since I ran the numbers on the multi-unit market.  Here is a look at the numbers through the end of 2011:

First, lets look at sales volume.  Clearly we can see that a volume trough occurred in 2009.  That was the most pessimistic year of the multi-unit market.   In contrast, last year put sales volume nearly with par of sales in 2001.  It appears we are improving in sales.  However, to understand what is driving the market, lets take a look at sales according the the financing style of each transaction:

This chart is intriguing.  A whopping 44% of ALL transactions are done in cash.  That is up from 35% last year.  That speaks of a tremendous amount of distress still in the market in 2011.  Notably, seller finance and FHA/VA transactions were on the decline as a proportion of sales.  Also, conventional transactions seemed to be increasing though not significantly.

Overall, I believe 2012 will be a transition year.  Look for conventional financing to improve and the number of cash transactions to decrease from where they were in 2011.  If those two things occur, it will be the mark of an improving investment property market.  Nevertheless, those that are buying right now are making a killing in return-on-investment. 

If you want to explore purchasing a great bargain on multi-unit property, contact me and we can put a plan together that is right for you.

Irony of the Day: Burned-Down House

I was cruising through town today and came across this bit of irony.  Check it out:

Real Estate Regulation and De-Regulation from The Hill

This year was an interesting and exciting Legislative season.  While working on my committee, I saw several real estate related bills come through for discussion and debate.  There were several more that were debated on the House Floor.  Here is a summary of some of the Real Estate related legislation that will become law this year:

Window Egress and Zoning Enforcement

HB383 - This was a bill that I ran which dovetailed with SB178 that I reported on last year.  My bill puts teeth into the law which prevents building officials from requiring owners of rental property to cut into the foundation of their properties in order to enlarge existing egress windows.  The State Fire Marshall wrote the language for the bill and testified in its behalf at committee.  This should bring an end to most of the egress window non-sense where owners have been forced to endanger their properties by cutting into old and fragile foundations.

Short Sales and Deficiency Collections

SB42 - This bill brings deficiency collection for short sales in line with those for foreclosure.  Before this law passed, lenders had 6 YEARS to file a deficiency judgement against the seller of a property.  Most lenders don't file these judgements because the financial status of the sellers makes the action pointless.  However, in some cases, the lenders do file.  If they do, they now have 3 MONTHS from the time of the short sale closing to do so.  This should increase the number of short sales being worked in the marketplace and help us churn through our distressed inventory faster.  That, in turn, should help us accelerate toward a full market recovery.  


Property Tax Reductions for Urban Farms

SB122 - This bill allows parcels of land of 2 acres or greater that are zoned for uses other than agriculture in urban areas to be taxed at an agricultural rate when they are dedicated to that purpose. The bill closely follows greenbelt statute and allows the property to have reduced taxes as long as the property is in use for agriculture production.  When the property is sold, the seller must pay up to 10 years of the difference between the taxes they paid and what they would have paid had it been taxed the full rate through that time.  This should do two things.  First, it should increase the number of viable agricultural operations in urban settings; second, it should create an incentive for the properties to stay in agricultural use over longer periods due to the lump tax due at time of sale.

Mortgage Fraud Prosecution

SB281 - This bill funds the Mortgage and Financial Fraud Unit of the State Attorney General's Office.  The unit has been in hibernation for several years due to budget constraints.  The funds were available this year to restart the unit and begin investigating bad actors in the market.  

Good Landlord Program Changes

SB216 - This bill makes some changes to Good Landlord programs across the state.  It creates reciprocity for certification between cities who have a GL program.  It also restricts the fees that cities can charge for a business license to be no more than the actual cost of providing the license.  Ogden landlords have nothing to worry about.  The city charges $83 for a non-GL and $13 for a GL license when the actual cost to the city is $108.  Ogden has been an excellent example of how to run a GL program. The bill also provides an appeal process in the even that a landlord is kicked off the program.

Zoning Enforcement

HB302 - This bill requires cities to issue notices to owners and property managers, if desired, when giving notice of zoning violations.  It also requires that a notice be issued for each instance of a violation.  This will likely affect owners in Ogden regarding mowing of yards.  The city policy prior to this bill has been to send a notice once in the year and then move strait to issuing fines if the violation occurs again later in the same calendar year.  This will require a notice for each instance of the violation.

JUST SOLD! Bargain Breadbox Short Sale

I just sold this 4 bed 1 bath home in Ogden for a client.

I took this listing in July of 2011.  The owners were retiring and moving out of state.  We originally listed the home for $105,900.  After a short period, it became apparent that the owners would need to move to their new destination and they would not be able to make two house payments on their new reduced retirement income.  At that time we reduced the list price to $64,900 and began to work on the file as a short sale.

The home had many showings and we obtained a cash offer in September for $55,000.  I submitted that to the bank immediately for review.

Bank of America, the seller's mortgage company, ran us through the gauntlet several times.  Our negotiator with the bank also changed a couple times.  Finally, after jumping through all the hoops, Bank of American came back to us in January with a counteroffer proposal of $57,000.  The buyer accepted. It took Bank of America soem time to wrap up the process but when they did we quickly closed on the home. 

Congratulations to my sellers! 

If you are contemplating a short sale on your property, contact me and I can help you through the process.
   

Loading the Springs: Weber County's Pent-Up Demand

In understanding the housing market, it is important to understand market dynamics in light of the variables that are at play.  Fundamentally, the housing market is driven by the activities of people.  Jobs, family creation, plague, war, natural disaster, and other factors all affect how people demand housing in a particular location.  Thus, it is important to know what people are doing and why.

While thinking on this on a long drive this week, I began to wonder how our sales volume in Weber County stacked up against the population count.  How bad is the housing market?  We know it is less than what it was at the peak of the bubble.  But on a per person basis, what does that look like?

I started digging through the data and put together a chart showing "sales per person" for Weber County.  The idea would be that the sales would be adjusted to reflect the change (or in this case growth) in population.

Since people need a place to live, it is reasonable to assume that an increase in people could correspond to an increase in sales volume.  If all other things held constant, you would expect to see a per capita numbert that is consistent from year to year even as population increases.

So what does Weber County's chart look like?  Queue the chart please:

Data was pulled from the U.S. Census and from the MLS for sales to drive this graph.  As you can see, the normal estimate population growth line (in red) is very seldom followed.  Unfortunately, I didn't have enough data go back further in time.  However, the bubble is clearly apparent in the chart.  Since the bubble has burst, it appears that sales are now about 25% below where they should be based on how our population has grown.

What does this mean?  It means that for the time being, there is pent up demand in the market place. It is represented by people renting or living in their parent's basements instead of purchasing homes of their own.

At some point in the future, this gap will be made up and sales will be boosted just to return back to historical norms.  Since the market is troughing right now, look for that correction upwards to come over the next several years.  This is just one more reason that now is a great opportunity to buy a home or invest in real estate.

Turning The Corner: Private Mortgage Lending Returns

 

An interesting article out of Housingwire reports good news from the mortgage market.  Here is an excerpt:

 

Wells Fargo finalized a new division built to originate mortgages outside of Fannie Mae and Freddie Mac guidelines.

-snip-

The bank promoted Brad Blackwell, formerly a sales manager in charge of West Coast operations, to lead the new business. He will work with Wells Fargo community banks, wealth brokerages and retirement groups, and the non-agency, jumbo and home equity loans will be kept on the Wells portfolio.

If this isn't a clear indicator that we have entered the bottom of the current market cycle, I don't know what is.  Banks don't like to lend on collateral that is falling in value.  It follows the maxim: Never Try To Catch a Falling Knife.  When house prices stop falling, lending becomes a much safer bet for banks.  This is just the latest evidence that we have entered a turning point in the market.

For those of you waiting to buy a home, I would highly recommend that you take a look around the market.  Bargains abound and interest rates are ridiculously low.  Let me show you where the bargains are.   

Photo of the Day: Visions of Blue

I went shopping in Riverdale with a client today and we stumbled upon this interesting scene:

Blue walls, blue ceiling, complimented with blue carpet.  My client and I both agreed it's the only room we have ever been in where we felt like we were drowning.  Needless to say...we didn't write an offer on this home.

Climbing Out Of The Abyss: Weber County Sales Data

I reviewed sales data from Weber County for the past several months.  There is some good news.

Queue chart please:

This chart records home sales since the inception of the online MLS system for Weber County back in 1995.  From 1995 to 2003 sales volume grows slowly but steadily, likely mimicking population growth.  Then, in 2003, sales start to climb significantly.  That surge in sales never stops until 2007... just as the mortgage meltdown starts.  Then we see a precipitous and painful correction.  The downward trend is choppy as government intervention gooses sales in 2009 only to have the market recoil further in 2010.

But alas, there is hope.  Just looking at the patterns, it appears that 2011 was the first "normal" seasonal cycle we have experienced since prior to the market collapse.

Our trendline is also showing signs of improvement.  After 2010's dismal performance, we appear to have bottomed out and are now climbing out from a sales volume trough.

Another thing to consider is what the long term trend should be based on population growth.  If we draw a line following the average growth that occurred ending in 2002, we should be selling just under 300 homes a month on average.  Right now we are floating around 200.  If we have truly troughed, then look for sales growth to trend toward the 300 mark over the next couple of years.

Brighter days may be upon us.  

Uncle Sam's New Mortgage Tax

 
Headlines today report of a discouraging new tax being levied on new purchase loans and refinances.

Here is a video from CBS:



This is what happens when government spends more than it generates in revenue. If they will tax mortgages, what else will they tax? Your auto loan? Your student loan?

The dark cloud that looms is that the Feds have now created a dependency on Federally backed financing to help generate tax revenue. That can create all kinds of mischief, including an incentive to increase government's involvement in its already near-monopoly in residential lending. However, there is a silver lining.  If the taxes increase to a substantial level, it may be an incentive for private lenders to step in and provide a more affordable option to borrowers.

The best policy decision would be to get the government out of the mortgage and housing business.

HARPooned: Fed Mortgage Mods Let Owners Spear Self In Foot

Headlines showed up recently praising a revamped Mortgage Modification program proposal coming out of Washington.  The official acronym is HARP.  Here are some highlights courtesy of Housingwire:

The plan...allows borrowers in privately funded loans to refinance into a lower rate Federal Housing Administration mortgage. The program would be expected to cost between $5 billion and $10 billion through a tax charged on the banks.

A separate option under the program would apply to borrowers in Fannie Mae and Freddie Mac loans as well. Anyone who refinances could reduce the term of their mortgage to less than 20 years. If the borrower commits to keeping the monthly payment where it is, the GSEs or the FHA would cover the closing costs estimated at roughly $3,000 per refinance.

This is government intervention in the market at its worst.  To understand how bad this policy is, you have to follow the money chain.  Currently, many banks own loans issues to homeowners during the housing bubble.  Many of those loans went bad over the past few years and those banks are now licking their wounds trying to rebuild capital and stay afloat.  For the good loans that are left, the bank receives a monthly payment that includes interest and a portion of principal.  This is income to the bank.

What the HARP program proposes is to refinance the bank's good loans (i.e. eliminate its income source) and lend the homeowner money from FHA (a loan insured by my tax dollars and yours). At prevailing rates which are far lower than rates on loan issues several years ago.

So what kind of crazy consequences could come from this kind of policy?  There are several.

First, the program has the potential to handicap the banks even further.  By holding good loans that have interest rates above prevailing interest rates today, the banks can make use that money to repair their balance sheets and return to health.  If those loans are refinanced, it means that the bank looses that income and must reissue those funds in new loans at todoay's lower rates.  This reduces their income stream and postpones their return to health.

Even more sinister however is the effect that future inflation could have on these banks.  If the bank reissues its entire portfolio at today's record low rates, when rates increase, it means that the banks will be loosing money again hand over fist as borrowers have no incentive to refinance at punitively higher rates.  Inflation could drag banks back into insolvency at interest payments on savings and deposits exceed interest income on loans.   

Think about FHA and all these government owned loans.  What does it mean to the taxpayers if their money is sitting in super low interest loans as inflation pushes interest rates up?  These loans become a loss on the public balance sheet.

Add interest rate risk to the fact that the Feds want to tax banks to pay for a forced divestiture of their assets and you have a recipe for gross unintended consequences.  It's the equivalent of thugs ransacking your house, taking your valuables, and then sending you a bill for their efforts.

It might be tempting to say, "Hey, those slimy banks deserve it!".  Well, not all banks are slimy.  Unfortunately, this policy proposal will affect the good as well as the bad. How much better off will the public be when their good banks whither? The public should not be surprised when their local bank gasps for air after having been HARPooned by the Feds.