Home Explodes! Evidence Suggests Common-Sense a Suspect

A very unfortunate family in Ogden lost their home this weekend. Apparently, the family was heating their home with a propane heater. The unit was leaking. Rather than removing the leaking propane tank to an outdoor area, the family cloistered it away in a part of the house where they would not have to smell it. Whoops!

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Let this be a reminder to all of us that safety comes first. I am moving my acetylene tanks and cans of paint thinner away from my furnace for now on.
(PHOTOS COURTESY STANDARD EXAMINER AND WFRMLS)

37 Years of Fixed Mortgage Rates

I love reading history. If anything, it helps give me perspective. It opens the mind to things that were and things that might be again. This same fascination with history is probably why I love reading charts and graphs so much. Life, economics, politics, family, the seasons...all things things run in cycles. If you understand the cycle, you can be prepared and thrive in every season.

Today's chart is on interest rates. Specifically, 30 Year Fixed interest rates:


The first thing you might notice is that big Mt. Everest looking feature that dominates the left side of the chart. We will talk about that in a moment. Our most recent history shows how low interest rates have been since 2001. The past eight years have spoiled us with cheap financing for our homes. This has been a period marked by easy credit, voracious consumerism, home equity line extractions, and overall abundant living. Two other important things also have happened during this time that have had less effect on the average person. One being the Iraq war and the other being a ballooned national debt. More recently, the national debt has gone parabolic with recent Treasure and Federal Reserve bailout packages topping 7 Trillion. See Interest Rates: The Last Days of the Lows for more thoughts on that.

Lets talk about that awful Mt. Everest feature for a moment. In the 1960s Lyndon B. Johnson instituted the Great Society. It was a huge entitlement and welfare program begun with the idea to "spread the wealth" and create a comfortable safety net for those falling into(or perpetually living in) poverty. Medicare was part of this program. Also during this time the Vietnam War began in earnest. The government needed to provide hardware, men, and ordinance to fight the war there.

In the early 1970s, inflation began to show up in the US economy. Where did it come from? Well, the money that was printed to pay for government entitlement programs and the war effort started showing up in the form of higher prices and higher wages. A vicious inflationary spiral began. Wage freezes were ordered with little positive effect. The economy entered two recessions as "stagflation" became the order of the day.

In the late 70's, years after we had left Vietnam and almost a decade after the Great Society programs were instituted, Fed Chairman Volker decided to wake the economy from the inflationary nightmare. The Mt. Everest feature on our graph is how he did it. By pushing interest rates so high, people stopped borrowing, money creation slowed to a crawl. The inflation correction took almost SEVEN years to complete. However, the correction laid the foundation for the next 30 years of relative prosperity.

Today we have an expensive foreign war that needs to be paid for. We have HUGE entitlement programs and government sponsored bailouts that we will be paying for in the future. Yet, todays interest rates are the lowest in history. So where do we go from here? My guess is up.

Riverdale City Brings Out Big Guns To Oust Rentals

More from the suburban front on rentals. Riverdale City, flush with tax revenue, is putting its money to work in its effort to eliminate undesirable rental units. I don't usually quote the paper directly but this article is concise enough that I will quote it in it's entirety:

The Redevelopment Agency Board approved up to $15,000 in incentives for owners of multifamily homes to convert them to single-family dwellings.

A zero percent $10,000 loan is now available to owners of multi-family homes to use for removing second entrances or opening up areas to make the home a singlefamily dwelling. The loans will not be due until the sale of the home and a building inspector will make sure renovations are done.

RDA Executive Director Larry Hansen wants to offer the program to everyone regardless of whether they have registered their rental with the city and are paying separate utilities. Hansen said there will be no income guidelines or credit ratings for the loans. He said homes in multi-family zones are of lesser caliber than those in single-family zones and hopes to improve the long-term quality of housing in the city with this program.

A $5,000 loan is also available to those who purchase a multi-family home with the intent to use it as a singlefamily dwelling. The loan will be forgiven if the owner lives in the home for 10 years or more, 50 percent will be due if the owner lives in the home 5 to 10 years and 100 percent due if the owner is there less than five years. Those receiving purchase assistance can also apply for the renovation loan.

“This is a positive way to mitigate issues,” RDA Chairman Bruce Burrows said, “This is a tremendous way to move forward to solve a problem we all recognize.”

Its very apparent from all this news from Riverdale and Clearfield that they want to keep a short leash on landlords. These cities are applying an ounce of prevention to thier laws to mitigate the effects of high non-owner occupancy percentages. Ogden City is applying a pound of cure to undo the effects of rediculous zoning laws from two generations ago.

ADDENDUM

Here are the links to criteria and information on Riverdale's RDA money:

1. Property Consolidation Funds
2. Buyer Assistance Programs

Riverdale City Clamps Down on Density

It seems like the suburbs are lining up to keep their communities in order. Riverdale City just changed its zoning rules to account for a "family" as three people living together. Their previous definition called for four. What this does is clamp down on the number of unrelated people living together as a "family". Imagine four college students shacking up in a single house. They each drive a car and have friends that visit frequently and intermittently. Things get quite busy at this house. Neighbors start to complain.

Ogden City instituted this type of change to its zoning years ago. It has clamped down on "families" of nefarious types living together. A house that I own as a rental has two bedrooms in it. Before I owned it, somebody walled in an entryway and made a "third" bedroom out of it. Three guys who didn't know each other each paid for a room. Occasionally friends of theirs would move in and live there for a while. This was a terrible situation with too many people living in one space. Space that was not intended for that type of use. Now the property is used by a single person and they make use of the home as it was meant to be.

Riverdale's ordinace is probably a reaction to the increased demand for rental properties. Landlords there are likely trying to capitalize from the situation and are therefore cramming people into tight spaces.

This ordinance, will put pressure on rents to increase. NOW is a good time to be a landlord.

Ogden Streetcar Study Coming Soon

Finally, the study to determine what route would be best for the Downtown Ogden-WSU-McKay Dee Hospital route is going to start.

The three possible choices are:

1. 23rd and Wall to Washington to 36th to Harrison to WSU-McKay Dee.
2. 23rd and Wall to Washington to 30th to Harrison to WSU-McKay Dee.
3. 23rd and Wall to Washington to 26th to Harrison to WSU-McKay Dee.

Place your bets on which you think the study group will find the best.

I think 30th Street makes the most sense. The rail has the potential to act as a segretator when going though residential neighborhoods. 30th Street, because it is so wide and so busy, just like Harrison Blvd, already acts as a segragator. The neighborhoods would spare being further segregated as would happen if one of the alternative routes was chosen. 30th Street also has the room to put a street car through. 26th St. might have room and 36th St. definitely does not.

Logistically and economically, this 30th St. choice makes the best sense to me. Lets see what the study group says in 2010 when done with its work.

Clearfield Re-Zoning Big Win for Landlords Not in Clearfield

Clearfield city is again in the news. The city has decided to rezone a large portion of its geography to only allow for single family residences. On top of that, grandfather clauses only allow for units provable prior to 1979.

According to the city's data, almost half of the city is rental property.

This rezone change is huge. Its going to wipe out property value for non-conforming multi-units. It may pose a logistical problem for owners who got financing for multi-unit housing but now have a single family use in the property. Market conditions are such that refinancing to better rates is difficult for landlords already. Add to that the decline in value of the property and now you have a major problem for landlords. Lenders may also have some issues since their collateral is now worth significantly less.

I have several thoughts on this decision by the city:

It is a success for Clearfield city. I have to give them credit for having the guts to institute a zoning policy that will address significant quality of life issues that are coming down the road due to the high percentage of rentals. In general terms, quality of life in a community tends to go down when the percentage of rentals is too high. The logic is that nobody has ownership in the community so nobody cares for it or about it.

On the flip side, this is a defeat and possible disaster for some landlords. Having the use of your property arbitrarily restricted by government is never fun. Some landlords may be put into financial hardship because of this rezoning. It will be interesting to see how many units were created and being used after 1979. I anticipate foreclosures as former landlords walk away from properties that no longer make sense to own. Negative cash flow and negative equity are tough positions to justify. Banks will take ownership, eat the loss in value, and resale the property at a price that makes sense for single-family home use.

This ruling is a big win for owners of legitimate rental property in Weber and Davis county. As tenants vacate the now un-rentable units in Clearfield, they will be seeking housing elsewhere. Clearfield just cut the supply of available rentals. Demand is the same. Look for higher rents because of it.

December Inventory Round Up

Here are some amazing charts. Normally we like to see inventory levels between 4-6 months in a healthy marketplace. Anything over 6 months is a buyers market.

First lets take a look at Davis County:

West Bountiful seems to be the best place to sell a home. It's the only place that isn't a buyers market. Granted, it is a small geographic area and there arn't too many homes for sale there. What is shocking to me is that inventory levels for bread and butter communities like Woods Cross and West Point are over TWO YEARS! This is not good for those communities. I expect these neighborhoods to be shell-shocked with foreclosures as job losses mount for 2009. Keep your eye on buying opportunities there.

Here is Weber County:

Weber County has a lot of small little communities that are incorporated as cities so the list is longer here. There isn't a community in Weber County that is not a buyers market right now. I am surprised here by Riverdale (6 years of inventory) and Farr West (5 years of inventory) being so high in inventory. These cities saw huge developement over the last four years. Most of the developments were large (2800 SQFT+) ramblers with two or three car garages. I guess the people who moved up into these neighborhoods are needing to move down again. Look for more buying opportunity as sellers lose jobs and banks cut prices to move inventory.

Let me again express my shock as these figures. My brain is trying to handle talking about inventory in measures of years instead of months.

Good Landlord Program Spreads to Clearfield

Clearfield city recently announced that it will be instituting a Good Landlord program much like the one in force in Ogden City. Clearfield City now requires all landlords to be licensed and pay a $27 fee per unit annually. If landlords choose to participate in the Good Landlord program, that fee will be reduced to $5.

This is a good move for Clearfield city. Ogden has had a 30% reduction in crime amoung rental units because of heavy participation in the program. Ogden's program was instituted in 2004. Ogden's non-participant fees are much higher than what Clearfield is proposing which probably accounts for the strong participation levels in the city. It will be interesting to see what percentage of landlords choose to participate in the Clearfield area and how that will affect crime statistics there.

Lessons in Owner Finance

I recently closed a transaction that involved owner financing. Given the tumultuous nature of the mortgage market, it is likely that we will see more seller financing soon.

It might be beneficial to give a quick review of how ownership and conventional financing work in order to understand how owner (aka seller financing) works.

Lets review:

CASH PURCHASE TRANSACTION
This is the most strait forward transaction. The black arrows indicate ownership or a participating interest. In this case the buyer paid cash for a home. He then receives title and owns the home. Very straight forward.

FINANCED PURCHASE TRANSACTION
This is the scenario we are most familiar with. Since we don't save enough to buy our homes outright these days, we find a bank willing to give us a loan. In this case, the "Old Mortgage Company" has agreed to give the buyer a loan. The home is collateral for the home and the bank has the right to take possession of the home if the buyer doesn't make monthly principal and interest payments (represented by the green arrow). The bank has an interest in the existing mortgage through an instrument called a Trust Deed. The Trust Deed is what allows them to foreclose on the buyer if there is a default. The Deed is recorded on the title of the property. Therefore we have represented this as black arrows tieing the bank to the mortgage which is tied to the home.

So what happens if a buyer wants to purchase a property and a seller wants to sell a property but no mortgage company can give a loan...even to the highly qualified buyer?

STRAIGHT OWNER FINANCED TRANSACTION
This transaction is a little less familiar but easy to explain. In this case, the seller has paid off the property or owns it out right. This seller may be the original cash buyer from our first chart. Now, the buyer for the property doesn't qualify or doesn't want a conventional mortgage; but, in the seller's eyes, the buyer is a good credit risk. Therefore, the seller agrees to "finance" the transaction. In this case, the buyer might pay a negotiated down payment to the seller and then have the rest of the equity in the home "loaned" to him. The buyer agrees to make monthly payments to an escrow company who in turn makes payments to the seller. The loan amount, interest rate, and payments are all accounted for by the escrow company and the seller now becomes like a bank...making interest. Notice that the seller, like the Old Mortgage company from before, has a Trust Deed on the property and can foreclose if the buyer does not make timely payments. The home is still collateral for the loan from the seller.

Now not everyone has a home that is paid for. In fact, only about a third of American's homes have no mortgage. That leaves a lot of folks out there that may want to sell a property but have an existing mortgage.

How is it possible to sell a home with seller financing if it has an existing mortgage?

ALL-INCLUSIVE OWNER FINANCING TRANSACTION
This is the most complicated form of seller financing but is probably the most necessary in today's marketplace. In this instance, the buyer can't get a loan even though they are a good credit risk. Meanwhile, the seller has an existing mortgage from the Old Mortgage Company that needs to be paid. The All-Inclusive Seller Financing transaction is our work-around to this dilemma. In this scenario, the Old Mortgage company keeps their Trust Deed on the home. They still demand monthly payments. However, the seller creates an All-Inclusive Note and Trust Deed which "wrap" around the existing mortgage. This allows the buyer to have title conveyed to him "subject to" the existing Old Mortgage Company financing. The scenario plays out like this: the buyer makes monthly payments to the escrow company toward the seller's new loan . The escrow company takes that money and makes a payment to the Old Mortgage Company to make sure they are happy. Then, the difference (if there is any) goes to the seller as profit. If the buyer stops making payments, the seller can foreclose through the power of the Trust Deed.

Lets pretend for a moment the escrow company wasn't involved and the buyer made direct payments to the seller. If the seller stops making payments to the Old Mortgage Company, they will foreclose on the seller and in turn on the new buyer. To avoid this possibility, I absolutely recommend using an escrow company as the best way to keep this arrangement clean and properly accounted for. It's good to trust those whom you make business arrangements with. Its even better to hire an impartial third-party to make sure the trusted parties are doing what they are supposed to.

CONTACT ME if you would like to learn more about how these arrangements work.

Ogden City and School District Working Together

News came out this week that Ogden City and the Ogden City School district have entered into an agreement to work together regarding land development and use within the city. Currently, the School District owns some hodge podge lots and obsolescing schools that it wants to make useful. The city also owns some land that is adjacent to many of the school's parcels. The school district needs land to build schools and the city wants land for more possible in-fill development.

The arrangement they have made will be good for the city. It includes some land swaps and also some colusion on development on other areas.

I think the most interesting part of this arrangement is the land swap proposed.

The above photo is of Dee School and the LDS Church Pioneer Ward building. I will let you guess which building is which. (HINT: The church is not the military looking edifice in the right of the photo.) The Dee lot is expansive and consumes the entire center section of the block. It would be an ideal location for new residential construction. This location is only two blocks from The Junction. The school is steel and reinforced concreste with no walls in the classroom areas. The floorplan is circular in design. Think of the USS Enterprise from Star Trek. That's what it feels like inside the school. Its an architectural atrocity.


Here is a photo of the front of the school. Not much different than the back...or the side...or the other side. Dee has been scheduled to close and then unscheduled to close multiple times in the last couple of years.

The proposed land swap is for city land at 20th Street and Jackson Avenue.


This parcel of land happens to sit adjacent to the school district land that runs along 20th Street down to Monroe. It makes sense for the city to exchange this land with the school district. It is close to the school district headquarters campus and large enough for an elementary school.

Another interesting colusion involves land at 24th and Adams. I am unsure what the possibilities are for this land. The large space is owned by the city and the building just to the north is owned by the district.

It will be interesting to watch and see how this partnership helps make better use of the land that each partner has stewardship over.

Buyers Further Fortify Their Bunkers

Bad economic news has taken timid home buyers and sent them running for cover. Although Utah's economic outlook is not rosy for the next year, anxiety-inducing national economic headlines have gripped buyers and kept them in their current homes or renewing leases. November's sales numbers are simply bad.


As you can see in the chart above, November sales are at par with January of this year. January is traditionally the worst month of the year for sales due to weather. In January we had 3 feet of snow on the ground. In contrast, November was particularly warm and balmy. Nevertheless, November's sales mimic those from January. Ominous.

Our running chart still shows a down trend in sales. Since December and January are softer months for sales, this trend will continue. The question in my mind is how much further can the market contract? Financing barriers started the decline, now job losses and economic woes will weigh on it. If I were to place a bet, I believe the moving trend will flatten out in April or May and stay there for a year or two...or three. Time will tell. Let's watch and see.

Historic Re-Development: Quincy and Fowler Avenues

As a compliment to my previous post Path to Better Neighborhoods, I thought I would shed some light on an interesting project underway.


This fine Arts & Crafts style home is part of the city's effort to rejuvinate the 25th block of Quincy and Fowler Avenues. Both streets boast historic grade cottage victorian homes and bungalows. They are very cute neighborhoods. This home happens to be new construction and imitates the style and character of the homes around it. Several of the existing homes in the neighborhood have already been restored.

This particular home excites me because it has so many of the features of a traditional early 20th century home. I am particularly impressed by the wanescoating, mission style light fixtures, wood casings, and doors. The floorplan is also reminiscent of older homes except with modern usability kept in mind.
This particular home is about 2600 SQFT which included an unfinished basement. There is a master suite, 3 bedrooms, 3 baths. Matching detached garage in the back


There is plenty of space in the back yard.


The kitchen is modern with a mud room leading out to the driveway.


Still plenty of room for two more period new construction homes to be built soon.
The best part about this home is that its for sale for only $189,900...well below the $220,000 you would normally pay for a home of this quality. They city is also offering special financing for this home. If you or anyone you know is interested in quality historic style housing, have them give me a call at 801-390-1480.

The Path to Better Neighboroods

There is a debate out there about how local governments can best improve neglected and aging neighborhoods. In fact, as a member of a steering committee for the East Central Neighborhood community plan, we are discussing this very aspect and what government can do to improve the neighborhoods.

There are two approaches, I will call them direct intervention and indirect.

With direct intervention, taxpayer money is used to buy, control, and/or renovate property so that it no longer is a burden on the neighborhood aesthetics and property value. Ogden City participates in direct intervention with the Home Sweet Ogden program. This is basically a HUD sponsored program facilitated through grant money from the federal level. I happen to sit on the advisory committee overseeing this grant. The city has also been involved in other direct intervention projects like the recent post on 2601 Jefferson Ave. The city has certainly taken an assertive approach in cleaning up some very awkward properties that perhaps would have been unfeasible to the private sector. The changes being made to these properties are so dramatic that their value and use will be perpetuated for generations.

The indirect approach is one that I support the most strongly. Although it includes zoning and regulations on development, it also includes a very important focus on infrastructure such as sidewalks, curbs, gutters, and streets. This focus is what we think of when we think of the traditional responsibilities of city government. It is the window dressing for the neighborhoods. However, the city needs to know that before investing in these upgrades, that a neighborhood is willing to add-to or protect and maintain this investment in the infrastructure and neighborhood.

Fortunately for our neighborhood, we have reached that point. Crews began work yesterday on removing old sidewalk and pouring new.


This summer, new curb, gutter, and approaches will be poured. I am glad this is finally happening. My contacts in the city have told me this has been on the docket for almost 2 years.

Finally, I am a big believer in infrastructure improvements because I believe they spur further growth and development in a neighborhood. The Jefferson and Eccles Historic Districts all had new street infrastructure installed. Shortly after that, hoards of buyers shopped the neighborhoods looking for homes to fix up or move into. Demand for property in those areas (and therefore property values) jumped once the infrastructure was done. I believe that the public investment in infrastructure precedes the desired private investment in properties. I have the data and charts to support this idea. City efforts to improve our streetscapes will only bring good things to our neighborhoods.

Midtown Clinic Expansion Means Demolition

Midtown Clinic is growing its parking space. I wrote about this in the previous Midtown Expansion post back in August. It looks like they finally got around to the demolition. Architecturally, I like this home that demolished, however, it was a triplex that had been scabbed together. There was a second home in the backyard as well. Very weird. According to neighbors that have been there forever, the original owner lived in the front house until they decided to retire so they built a home in the backyard for themselves and rented out the front home. I guess that worked well until the guy died a long time ago. Then the property fell into the hands of a slumlord. The rest is history...

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