Monday, October 31, 2011

Home Price Hysteria: Triple Dip Drama A Delusion

Headlines today are warning of another forthcoming dip in home prices as a financial analysis firm declares that home prices are headed down again.  How far down?  Here an except:

The besieged housing market has even further to fall before home prices really hit rock bottom.

According to Fiserv, a financial analytics company, home values are expected to fall another 3.6% by next June, pushing them to a new low of 35% below the peak reached in early 2006 and marking a triple dip in prices.

So home prices could possibly decline 3.6% between now and June?  Pardon me folks if I am simply unimpressed by the alarms being sounded.  It is not that I don't believe what they are saying. Rather, I believe that this is a contrived headline and these numbers are inconsequential to us based on the big picture.

The truth of the matter is that house prices have bottomed, bottomed again a few months ago, and will likely bump a bottom again "by next June."  To see why this is a non news event, lets take a look at the house price index charts from CalculatedRisk:

As you can see the double dip was really us bouncing along the bottom of house prices.  A triple dip will be an even less newsworthy event.  House prices have blown off all their excesses and now are operating in the historical price range ratios that are more closely tied to household income instead of household income leveraged to the Nth degree through interest-only and option-arm loans.

This correction in house prices and their return to equilibrium prices becomes even more apparent when you look at prices adjusted for inflation:

Due to Uncle Sam's incessant printing of money, house prices have never really stopped dropping in real terms.  Which means that today's house prices are right about in the sweet spot of equilibrium.  Even if home prices didn't drop a dime in the next year, the printing presses are still running which means that each year the homes become a better and better value at current sticker price. 

Meanwhile, price-to-rent ratios are also showing we are very near to equilibrium:

So, the next time you hear headlines telling you that the sky is falling, be sure to look up.  You will likely live to tell the story the next morning...if it's a story even worth repeating.  


Thursday, October 27, 2011

Real Estate Investment: Getting the Good Deal

I am working with some clients right now who have been mentored by another investor to cast a broad net over the market to find bargains.  Their methodology is to follow a specific formula to derive an offer price and then submit that offer regardless of list price. 

My experience has taught me that even though a property may be worth of a specific value, the list price for that same property may or may not reflect its value.  In many cases, the list price may be too high.  Does this mean that a low ball offer should be submitted to such a property?

A couple of years ago I wrote Blacklisted at 10%: Betting Against The Seller.  The article has a very interesting chart showing you the List Price-to-Sale Price rations for single family home transactions in Davis County.  What we discovered was that back then most transactions happened at 90% of list price of above.  Therefore, the chances of success offering a price below that threshold were very small...something we discovered to be on the order of a 1-out-of-33 chance.   My advise then: Don't low ball because it's a waste of time.

In light my new client's methodology, I wanted to revisit the data and see if there were any new trends.  I also narrowed the focus to the multi-unit market in Weber County.  I present you with today's chart:

 What we see here is interesting. Surprisingly, given market conditions, we discover that 13% of all transactions are occurring ABOVE list price.  How can this be?  Well, remember that list price and sale price are not necessarily the same thing.  If a property is listed lower than its current value, which happens 13% of the time according to this chart, then the price will be bid up. Nearly half of all transactions are occurring between 90% and 99% of list price.  16% of transactions are happening between 80% and 89% of list price.  And finally, only 8% of transactions are happening below 80% of list price.  That means you have to submit over 10 offers at 80% or less of ask price to get one to stick.  That is a lot of offers.

So, is it worth the time and effort?  That is up to the agent and the client to decide.  My preference is to be more analytical and hone in on the deals based on experience and subjective research.  However, some folks do things differently. 

So, whatever it is you choose to do...happy bidding!

Wednesday, October 26, 2011

Fudgery: Uncle Sam's Mortgage Manipulation Madness

I found this interesting video online today:

New guidelines for refinancing (aka HARP) have come out to "help" homeowners again who are underwater on their homes.  After the failure of the first push to modify mortgages, I doubt this push will be any more successful.

My favorite quote from the video:

"Will it be enough? Maybe.  Maybe not.  But its definitely a step in the right direction."

Really?  What direction might that be?  Entrenching people in their homes as debt slaves?  Creating dis-incentives for bond investors to enter the market so they can lend to folks who actually qualify?

The answer is to let the market find its equilibrium by allowing homeowners who are underwater and lack the income to service their debt to foreclose.  Foreclosure eliminates excessive and bad debt.  It resets home prices at lower and truly affordable levels that are related to household income and not manipulated according to gimmicky government programs.

Foreclosure is uncomfortable and often traumatizing to the homeowner.  However, with so many homes already reset to lower prices, the chances are high that a homeowner will be able to rent a home in the same neighborhood for less than they were paying on their mortgage prior to foreclosure.

Foreclosure is the natural solution to excessive debt.  The sooner that nature can take its course, the sooner our economy will be on the mend, and this tough period in history will be behind us.  

Monday, October 24, 2011

Things to Do In Utah: Capitol Reef National Park

The family and I took a much needed vacation this last week.  Part of our adventure included a trip to Capitol Reef National Park.  The park is off the beaten path and getting there is a little tricky, especially when we couldn't find our map and our planned route was closed.  However, store clerks were a very helpful guide.

Our adventure started from St. George and took us to Cedar City.  State Road 14 was closed due to a massive rock slide which meant we had to travel via Parowan through Cedar Breaks.  That was a spectacular scenic detour.

Cedar Breaks is located just a few miles from Brian Head ski resort.

After visiting St. George, we were unprepared for the cool 40 degree temperatures found at the lookout.  The elevation was approximately 10,000 feet.

And, just in case you didn't know, cliffs and lightning can be harmful.

Our jouney then took us though some fascinating country to the quiet secluded town of Panguitch.  The clerk at the gas station was kind enough to direct us where to go from there.  We stayed at the Best Western which is just three miles from the Capitol Reef.  Here is the view from our hotel room.

We then traveled into the park and checked out The Goosenecks which is a winding canyon created by Sulpher Creek.


 We then headed to the Visitor Center to get oriented and traveled down Scenic Drive toward the Grand Wash.  At the entrance to the Grand Wash are some interesting features.  The abandoned uranium mine was a nice diversion.  It was dug into the thin white band near the base of the cliff. 

Of course, our family already had our radiation dosage allowance for the year so we decided not to break in and explore.

Further into the wash the geologic features continued to fascinate us...

Notice Kim and the kids at the very bottom of the above photo.  It gives you a sense of scale.

The next morning we awoke to a beautiful sunrise...

We then drove to Capitol Gorge...

Near the end of the gorge there is a side trail taking you up to "The Tanks" which are these large pools of water held in deep depressions in the rock.  The pool you see below is about 15 feet across.

After Capitol Gorge we headed along SR 24 and stopped to photograph the Fremont Indian petroglyphs.

Then, we headed up the Hickman Bridge trail...

Since I had the camera, I had to take a self portrait to prove I was actually there.

The trail also had some interesting surprises.  There was a cave feature off the trail that we found and played in for a few minutes. 

The "bridge" is a massive arch feature high above the valley floor.

The trail ends with a fantastic view of the Fruita Historic District and park Visitor's Center area below...

After the hike we traveled north out of the Goblin Valley about an hour and a half away.

Our trip was so short and yet packed so full of interesting events and scenery that I am still stuggling to digest it all.  The geologic features still haunt my mind and I find myself yearning to go back so I can explore this part of Utah again.  It has certainly found a special place in my heart.  

Friday, October 14, 2011

Real Estate Investment: Creating Win-Win Deals

I recently sold an investment property that I had acquired a couple months ago.  The sale was unanticipated, but when the opportunity presented itself, I thought that it would be best to move forward.

You might recall my post from earlier Super Bargain: The $10 Real Estate Transaction.  I had received a call from a gentleman in Kansas who had obtained a parcel at the County Tax Sale back in 2008.  The parcel happened to have a four car garage sitting on it.  However, the lot was tucked way back behind some other properties and adjacent to a bombed out fourplex.  The county did not know that the parcel had a garage on it until this year and his tax burden increased 5-fold because of the new higher valuation.  The garage had been taken over by squatters and looked like a tent city. 

There were several factors that contributed to purchasing this property at such a low price:

1.  The market value of the garage was tough to determine because of non-existent comparables.  The county assessed it at $16,000 but it needed some repair. 
2.  At such a low price point, marketing it with a realtor would be a non-starter.  Most agents would not want to put up with the hassle of marketing this property for the paltry commissions involved.
3.  Property managers would be equally disinterested because the total rental income from the garage would be around $180/mo.  Most property managers charge 10% of gross rents.  Being paid $18/mo. for dealing with four separate tenants wasn't a winning option either.
4.  The seller was absentee and the property was a liability rather than an asset to him.  It cost him money each month rather than generating revenue.

So, with this in mind I agreed to eliminate his problem and pay his property taxes.  That is when I got to work.  I dressed up in my church clothes, typed up a serious sounding vacate notice, and marched over to the garage to post it on the premises.  For good measure, I also notified all the tenants in the fourplex just in case they happened to know who might be using the space.  Of course, many of them denied knowing anything about the stuff in the garage.  I also offered to rent the space to them for $45/mo. if they didn't want to move their stuff. 

To my surprise, as the deadline approached for vacating, I got a call from a tenant and she agreed to pay the rent.  We signed a lease and I collected rents for two months.  That is when a good friend of mine called and out of the blue asked if I had a garage for sale. 

My original plan was to sell the garage in a few months when the fourplex came up for sale in an effort to piggy back on the interest and hopefully have the buyer of the fourplex purchase my garage also.  However, my friend needed some storage space today and didn't want to pay out the nose for rent on a storage shed he didn't own.

We put a deal together.  I agreed to sell the garage for $10,000 with seller financing for 5 years on a 6.25% note.  He put $1,000 down which covered property taxes, title insurance, and closing fees.  The monthly payment is about $175/mo.

This is a classic win-win deal for both transactions.  I didn't want the headache of fixing up the garage and my friend didn't want to pay for something he wasn't going to own in the end.  Based on rent-to-value ratios, I sold the garage for about half of its retail market value on a generous seller finance contract.  The payments I receive will be nearly equal to what I could rent the garage out for each month.  Everyone is happy.  When I acquired the garage, I cured someone's headache who did not have the time or money to cure the problem himself.

These are the types of transactions you want to put together.


Thursday, October 13, 2011

Ogden to Gain 700 Jobs from Massive Home Depot Service Center

It was reported by ABC 4 today that Home Depot has announced plans to open a customer support and service call center in Ogden.

Construction will begin soon on the building and will be completed by Spring 2012.  A location has not been announced but my guess is that it will be in the Business Depot Ogden facility on 12th Street.  This is where CSN Stores recently opened their new center as well. 

Ogden's rise continues...

Monday, October 10, 2011

FOR SALE: Restored Victorian Cottage

We finally completed our historic Victorian Cottage restoration and it is ready for market. This home was built in 1908 by James and Charles Moore who owned the home until 1919. It has lots of interesting history that I will share in a later post.

The home has new everything: roof, kitchen, bath, lights, electrical, and more...

Here is the video of the exquisite finished product.

This property its just a block away from the Ogden River and a kayak launch point. For anyone looking for outdoor recreation, this is a prime locale. It is also just a block from museums, restaurants, entertainment and everything cool about downtown Ogden. Plus, if you move into this home, you have some awesome neighbors that include myself nearby. Come take a look at this Victorian era gem! Priced at $89,900, you won't find a better value.

Friday, October 7, 2011

Ogden Rising: Ogden River Restored!

I attended the ribbon cutting on the Ogden River restoration project today as a dignitary.  After years of hard work, the river has been converted from a dumping ground to an outdoor sports and recreation sanctuary.  Fox 13 has this video of the event:

The river now boasts a board walk, kayak ramps for easy access, and restored vegetation and wetland areas.  A new playground was also installed in the park adjacent to the river.

Come to Ogden to live, work and play!

Weber County Housing Inventory Snapshot: October 2011

A client asked me which markets in Weber County were the "hottest" as far as sales go.  It's an interesting question.  I liken it to asking which body in the cemetery is the warmest.  I was curious myself and ran the numbers.  Here are the findings:

This chart measures the "Months of Inventory" available.  In other words, at sales rates over the last 12 months or at the 30-day pace, how long would it take to sell all of the homes that are on the market today. 

Anything under 6 months is considered a healthy market.  Anything over 12 months is considered extremely overstocked.  It appears that the rurul communities of Plain City, Farr West, and Slaterville are doing relatively well along with Hooper.  The upper income communities of North Ogden, Pleasant View, and the resort communites of Eden, Liberty, and Huntsville are still glutted with listings. 

But before you start a pity party, lets take a look at how far we have come from 2009.  Here is a chart I posted a couple years ago:

There was a time when inventory levels were north of 10 months for most of the county.  Check out Eden and Liberty!  Those markets have come a long way to better health today.  Nobody likes an 80 month market time.

The contrast between these two charts shows that the market today is finding an equilibrium point after the shock of the market collapse in 2008.

Thursday, October 6, 2011

Safer Neighborhoods: Ogden's Proposed Gated Community

Recently I have been made aware of efforts to make Ogden's neighborhoods feel safer.  One of these efforts includes a proposal to create a unique gated community in Downtown.  Here is a map of that neighborhood:

Basically, the proposal includes gating Eccles, Van Buren, and Brinker Avenues at 20th Street and also at 19th Street and Jackson Ave.  The four gates would  enclose a community of approximately 150 homes, most of which were built in the 1940's. 

The idea is to create an environment that would allow home owners to feel safer but also create an environment that makes it more difficult and less opportunistic for criminals. 

Interestingly, crime is not necessarily higher in this neighborhood than the surrounding area but rather the geography and street layout provide a unique opportunity to create a gated community with the least amount of infrastructure expenditures.  It will also be interesting to see how this kind of project will affect crime statistics once it is completed.

The project is still in the research stage so it will be interested to report on this again as community buy-in gets underway and plans are presented for approval. 

Watch for a report on this again in the future.

Monday, October 3, 2011

Creating Wealth: Timing the Real Estate Market

It's no secret that one way to build wealth is to buy assets at a low price and sell them at a higher price.  Day traders do this with stocks all the time.  The same is true for real estate investment.  There are bargains in any market but there are more opportunities in a buyer's market.  So how much more time do we have before house prices start increasing again? (In other words: How long will this awesome buying opportunity we are in now last?)  Housingwire gives us some insight:

The U.S. housing market hit bottom this year and will remain flat until 2014, when it will start to slowly recover, said Rick Sharga, an executive vice president with Carrington Mortgage Holdings.
Banks hold about 800,000 REOs, and three-quarters of those are not listed for sale, said Sharga. Another 800,000 homes are in foreclosure and 1.5 million loans are delinquent.

This "shadow inventory" will slow down a housing market recovery, he said, as monthly foreclosure numbers will remain elevated through 2012 and REO inventories will stay high through 2013.

So, according to the crystal ball, it appears the window of opportunity will be open for another 2 years.  Let's make use of it.  Those who have acquired real estate during this period should be well rewarded in the years to come.  

Saturday, October 1, 2011

Old Provo Tabernacle to Be New Provo Temple

Last year we mourned what we thought would be the loss of a historical icon: the Provo Tabernacle.  Today during General Conference of the Church of Jesus Christ of Latter Day Saints, it was announced that the tabernacle will be restored and dedicated as a new temple.  This will be the 2nd temple in Provo, Utah.

As was the case with the new Ogden Temple, the church has provided elevations of the new restored victorian structure.  Here is the rendering of what the finished product will be:

This will be an improvement over what the tabernacle structure was before it burned last year.  The large steeple in the center was taken down back in the 1940's due to structural weakness.  Here is a picture of the tabernacle shortly after it was built:

The church deserves credit for committing the resources to resurrect this fine edifice.