Friday, November 28, 2008

Interest Rates: The Last Days of the Lows

You have heard the advertisements for the last several years: "Refinance NOW while rates are at historic lows!". Surely, being buffeted with these ads for several years has made us quite comfortable with how low rates are. In fact, I used to ask myself, how can they go any higher? Times are so good, I can't foresee any reason interest rates would increase.

Well, I am a little wiser than I was then. All markets ebb and flow. If low rates are ebb, we are due for some major flow in interest rates.

Lets see what Mr. Nouriel Roubini has to say about it this week:

Desperate times and desperate economic news require desperate policy actions ... The Treasury will be issuing in the next two years about $2 trillion of additional debt ... These policies – however partially necessary – will eventually leads to much higher real interest rates on the public debt and weaken the US dollar once this tsunami of implicit and explicit public liabilities and monetary debt driven by rising twin fiscal and current account deficits will hit a world where the global supply of savings is shrinking – as most countries moves to fiscal deficits thus reducing global savings – and foreign investors start to ponder the long term sustainability of the US domestic and external liabilities.

Mr. Roubini is a highly competent economist and happened to call the subprime mortgage crisis well before it hit the market. In laymen terms he is saying that interest rates MUST increase due to the fact that no one will want to lend money to the U.S. unless the rate of return becomes attractive enough. All these bailout programs instituted by our government are creating inflation problems for us in the future.If you print money to pay for bills you can't afford otherwise, you create inflation. If you don't stop printing money when you have inflation, you get more inflation...and then hyperinflation. Think Weimar Republic. Think $20 for a gallon of milk. Gasoline at $14 a gallon. That is what inflation gets you. It also makes investments in financial insturments (like mortgage debt) very unattractive unless interest rates and rates of return are keeping up with inflation.

I don't know what degree of inflation is coming. The Federal Reserve has pledged bailout funds in an amount over half of the entire economic output of the U.S last year - $7 TRILLION. That kind of infusion into the money base will affect prices. It has to.

So what does this mean to you and real estate?

First, if you have an ARM or any kind of adjustable rate, and you have the ability to refinance right now, DO IT! Don't wait till next year. Do it this week. Why this week? The Fed just purchased $600 billion in agency (read: Fannie Mea/Freddie Mac) debt which has temporarily pushed the the risk for that debt lower and therefore interest rates on mortgage debt have plummeted in the last few days. Once the market adjusts pricing to compensate for future inflation expectations, these low rates of today will be gone for a generation.

You may be asking yourself "Why refinance my ARM when I want to sell my property in a year or two?". Let me answer this for you. First, you need to plan on the buyer getting an interest rate in the future. If the rate is too high, he can't buy your property. You end up being stuck with the home AND a major payment increase when your ARM resets. It will take a couple years worth of rent increases to catch up to that reset payment in a high interest rate environment. Second, if the rate is too high for potential buyers, you may be forced to use seller financing to sell the property. You can't do that if you have a wild and volatile ARM underlying as the foundation for the transaction. Seller financing works best with fixed interest rate mortgages underlying.

These reasons should be enough. Put your financing foundation on a rock of stability.

If you need a competent mortgage professional. I will gladly refer you to someone I work with.

Wednesday, November 19, 2008

2009 Economic Predictions From State Economist

Looks like 2009 will be the doozer we have been predicting. It will be a great year to buy real estate. Look for lots of REO, HUD, and Short Sale property due to significant job losses.

Click HERE to listen this short but informative podcast from the chief economist for the Department of Workforce Services.

Tuesday, November 18, 2008

Der Hypothekenmarkt Ist Verr├╝ckt!!

This is absolutely hilarious if you have been following the national housing market.


Friday, November 14, 2008

Picture of the Day - Collision Course with Wackiness

I found this home while driving around town. The creativity of some folks never ceases to amaze me. However, some things should never be done to a house. This is one of them.

Not quite a home, not quite a strip mall.

Property Reserve Inc. Makes Massive Investment In Downtown Ogden


Property Reserve Inc., the real estate arm of the Church of Jesus Christ of Latter-Day Saints, continues to invest heavily in the Ogden area. PRI is working on a new apartment complex just north of the temple site. This project complements a similar large complex completed in 1998 just to the west of the temple site.

In talking with industry insiders, the complex will have 210 or so units. They are reported to be 2 bedroom 2 bath and will rent for around $750/mo. This project will be top-end and have superior quality tenants. It will be another step in the right direction for stoking the downtown economy.


As a final note, I do find the architecture of this project rather eclectic. The roof lines are from the Frank Lloyd Wright Prairie School motif but the windows and bay windows are more Queen Ann Victorian in design. It's a rather wacky design combo in my opinion. I am sure I am only one who cares. Maybe we can call this new idea Prairie Queen architecture.

The Junction - Exciting Re-Development Continues...

Great things are going on in downtown Ogden.


Today I went down to take some photos of what is being finished. Just walking around down there had a very cool "Town Square" type of feel to it. Soon, retail stores and new residents will be moving in. Its going to be a great mixed use development.

Its reminds me in someways of the town center in Southlake, TX which is a Dallas-Ft. Worth suburb. Check out Southlake's Town Square and make the comparison for yourself. I visited there last year and was completely impressed. I am excited to see our own downtown follow a workable mixed use economic model.


The Sonora Grill and Iggy's are open and doing well. I spoke to the owner of Sonora Grill a couple week ago and he indicated that they have seen a steady increase in business since opening. It happens to be one of my favorite places to eat. Great atmosphere and great food.


The idea of mixed use is to combine several elements of a community (residential, shopping, entertainment) into one centralized location. In the above photo you can see retail space on the main floor and lofts for living on the upper two floors. People have been complaining about not having enough places to shop in downtown for quite some time. That will all change very soon.


Above is the Larry Miller Megaplex, the Solomon Center, and the Earnshaw Condominium building.
The Junction is almost 80% completed. There are a couple parcels left to develop like the big patch of dirt in the right of the above photo. However, due to the economic and financing issues facing new construction, those parcels will probably take a few years to be built out.

Ogden will be well prepared for the next uptick in the economic cycle when it happens. With attractive new office space, amenities close by, and affordability, we should see a spike in economic growth once we get through the national economic funk we are entering.

Thursday, November 13, 2008

$35,000 - Victorian Gem Giveaway!

Many of you have inquired about purchasing this beautiful home. See below to learn more about how to purchase this fantastic historic gem.


Here are the requirements:



Pre-Purchase Phase

· Buyer inspects the property. Contact Jeremy Peterson at 801-390-1480

· Buyer submits application to Ogden City. Deadline is Monday, December 1, 2008.

· Ogden City screens applications and conducts a drawing on Tuesday, December 2, 2008.

· Buyer has ten days after notification to provide verification to Ogden City of ability to provide cash, in-kind, or financing of at least $235,000.

· Buyer’s architect or approved designer prepares preliminary work specifications.

· Buyer’s contractor prepares cost estimate. Buyer may not act as their own general, unless the buyer is a licensed general contractor.

· Buyer obtains an after-rehab property appraisal.

· Buyer and Ogden City will negotiate a deadline for submittal of preliminary plans and estimates.

Purchase Agreement Phase

· Buyer and Ogden City negotiate final rehabilitation work plan.

· Builder prepares final specifications and cost estimate.

· Buyer provides Ogden City verification of ability to obtain financing package.

· Buyer and Ogden City enter into purchase contract. Purchase price will be $35,000. Of that amount, $15,000 will be paid to Ogden City at closing, and $20,000 will be carried back by Ogden City as a second mortgage with monthly payments over 10 years with 3% annual interest rate.

Construction Phase

· Buyer closes purchase of home.

· Buyer closes construction loan.

· Buyer obtains approval of work by Ogden Landmarks Commission.

· Buyer enters into construction contract. Buyer may not act as their own general, unless the buyer is a licensed general contractor.

· Builder completes the rehabilitation contract.

Owner-Occupancy Phase

· Buyer closes permanent, long-term financing.

· Buyer completes rehab work plan items not required for occupancy, according to the negotiated construction schedule.



Contact me with inquiries. 801-390-1480

Tuesday, November 11, 2008

Riverdale Gloom

General Growth Properties, the owner of the Newgate Mall in Riverdale and numerous other malls in Utah, has announced today that it may be teetering on the edge of bankruptcy. It is near defaulting on substantial loans. In another stroke of bad luck, Mervyns, one of the Newgate Mall's anchors, announced it is closing all stores. Circuit City also declared bankruptcy this week.

This is substantial news for our area. Many retail jobs will be lost. I am unsure at the moment what a bankruptcy would do to operations at the mall. I imagine existing tenants would continue to pay rents even if a bank assumed control of the property. However, services may be negetively impacted and those tenants may not want to do business with a bank that isn't an expert at running a mall.

It looks like shoppers will soon have a few less options to choose from in Riverdale.

Friday, November 7, 2008

More Businesses Coming to Ogden

Redevelopment in Ogden continues.

The Standard Examiner is reporting that the city council, in its RDA role, is contemplating assisting in the redevelopment of the new commercial areas at 12th St. and Wall Ave. This area was housing originally and the homes and miscellaneous buildings have since been torn down. The plan is to put a grocery store and accompanying retail stores. I imagine it will be something like the center at Albertson's at 20th and Harrison Blvd but much much better. The location at 12th St. is much more conducive to shopping.

It was also reported today that a 3rd indoor rock climbing facility will be coming to Ogden. The facility will be located in the AmeriCan Building that also houses DiVinci High School and Solomon Ski Headquarters.

This is great news. Despite the general economic slow down, the basic demand for goods and services is still enough to spur redevelopment. This is interesting because as more businesses move to Ogden, more demand for services is created. Therefore, more businesses move to Ogden to provide their services...and round and round we go.

Thursday, November 6, 2008

October Sales Data

October was another rough month for sales. Inventories are creeping up and sales volume continues to slow down. The market is definitely in the buyer's camp right now.

Here is our 13 year chart:


The black line is our 12 month moving average. We are still in the midst of sales contraction. My thoughts are that we are now overshooting on the low side of what would be the normal market equilibrium for sales volume on an annualized basis. With winter coming there won't be much improvement with these numbers until springtime. The downward trend of the moving average means there is tremoundous competitive pressure on Realtors in the workforce.

Here is our 3 year chart:


Each consecutive year has seen a decrease in sales volume. I thought that we had hit equilibrium but it looks like we are in store for more contraction in the marketplace. I called the board to find out how many Realtors there were in our area. They indicated rolls of 2276. Fees were due October 31st. I will find out at the end of this month how many are left. My hunch is that there will be a lot less Realtors out there. The last time the marketplace saw this kind of sales volume there were only 1100 Realtors on the board. Wow! The purge is coming.

Wednesday, November 5, 2008

Picture of the Day

Here is a picture of my daughter Hannah in front of someone's front porch. It looks like they ran out of closet, attic, basement, shed and garage space for their storage. Its a good thing they put tarps on it so you don't really notice its there.


Back In Action

The elections are over...whew! In the race for District 9 of the Utah House of Representatives, my opponent defeated me 56% to 44%. As is always the case in a representative republic system of government, the voters get what they deserve.

I look forward to the future and the opportunities ahead.


Lets talk about Real Estate.

More posts to come.....