Peer Into Jeremy's Crystal Ball....

Some time ago I wrote Investing in the Market Cycle - Know what to Do When. In it I described three phases of the real estate cycle. I included charts that described the Utah market model.

For reference purposes here is that chart:

So this first chart is theory and is a good guide. Now lets talk about reality:



If you are looking for hard data on where we are, where we have been, and want a hunch on where we are going, this chart reveals all. The black line represent the adjusted house price index for Weber, Davis, and Morgan counties. The red line represents appreciation rates (%) for these same counties. So, according to this graph, if you bought a $100,000 home in 1986, that same home today would be worth just under $300,000. If you look at homes that were selling in 1986 for 100K you will find that this assessment is pretty accurate.

As you can see, the theoretical chart was made to closely resemble reality. The purpose of our second chart is to show what the different phases look like in real life. In our chart the brownish area represents a market correction or phase 2. The yellow areas represent buyers markets or phase 3. And finally, the red areas represent seller's markets or phase 1.

We are currently in a correction phase with prices depreciating slightly as has been the pattern in the past. I anticipate this correction to last at most 6-12 months longer before we enter a prolonged buyer's market phase. The most recent correction/buyer's market combined phases lasted 6 years (1999-2005) total. The one before that (1986-1992) was also a 6 year stint. We are only a year or so into our correction and if, history proves predictive, we have another 5 years to go.

If you want to be rich in 10 years, buy as much wholesale real estate as you can for the next 5.

Utah Foreclosure Ranking

One of my favorite blogs is Calculated Risk. This is a no-BS site on economic facts and figures and I highly value the information presented there. Today the blog posted this chart which I found quite interesting:


This ranks the percentage of mortgages in foreclosure or delinquent in each state as reported by the Mortgage Bankers Association. Utah is in the bottom 3rd of the group. Interestingly enough, 10% of homes listed in Utah are short sales right now. This roughly corresponds to the combined figure reported on this chart for bad loans. Bank Owned properties do no show up as short sales on the MLS however, so I believe that the difference is made up by folks trying to short sale their homes prior to becoming delinquent on their mortgages.

Media One: A Giant Bumbles Into The Briar Patch

Media One, the parent company of the Salt Lake Tribune, the Deseret News, and Hometown Values Magazine has announced it is now a Real Estate Brokerage!

This should be an interesting and likely unfortunate excursion for the media company into a field which is dominated by seasoned specialists.

The business model they espouse has been tried before: List homes for cheap and list them for volume. We might remember the now-defunct Real Estate Mint who advertised heavily in 2006 and 2007. They followed this same model.

So far the Media One brokerage boasts three agents. That level of manpower will certainly irk sellers who want more communication and service from their brokerage. Nevermind working with buyers.

Lets watch and see how they pull this together. My bet is Media One will be out of the business in 14 months.

Landslide Devours Widow's Home

The Standard Examiner reported this morning about a home that was demolished by the County due to landslide problems.

The 6,000 SQFT home was built in 2001 in Mountain Green.

Geologic hazards are not new to developers in Utah. I wrote about a bunch of them here. What baffles me is that developers do not do sufficient due diligence to predict where these types of events will occur. I am unsure whether it is a prohibitive cost or if mother nature is simply too unpredictable to make the extra testing meaningful.

Anyway, my heart goes out to this widow to lost her home. Let it be a warning to all of us who try to push the envelope by risking building on geologically active ground.

Photo Courtesy the Standard Examiner

July Sales Charts

Its a mixed bag this month. Davis County appears to have reached bottom on average sales volume and is now pushing for growth. Weber County is still trying to find its bottom. However, I suspect it is almost there. Wohoo!

FUN GAME: Can you spot the bubble in the below charts?

Google Maps Shows Foreclosures

Google Maps just enabled a very interesting feature that allows you to see REO and foreclosed property. Its not totally updated but its enough to give you a feel for what is going on in various cities.


View Larger Map

Take it for a test drive!

We're Turning Japanese!

There has been an ongoing debate for the last two years about which direction our nation is headed economically. Some have speculated about hyperinflation as the government prints its way to oblivion. Even I have talked about future inflation, its causes, and the effect it would have on real estate. The other camp has talked about deflation. Particularly a Japanese style recession.

After learning a few things from those I trust on this issue, I am finding myself more in the deflation camp.

I don't think that deflation will go on forever, but for the foreseeable future (say 7 years or so), I believe it will have an impact on our national economy.

Real Estate is always a good bet in the long term. So how do you make money in a deflationary market?

The answer is "Buy Right". Or, in other words "Buy below current market pricing."



Lets take a look at an example and see how things play out. In this first chart, you bought a home worth $100,000 and paid full price and financed the entire purchase. Lets say the market has deflationary pressure from economic contraction, population shrinkage, war, or some other factor. If the rate of contraction is 1% per year for 30 years (highly unlikely in real life), you still experience an equity position (albeit small at first) the entire life of the loan. This is because, due to the time value of money, the amoritization pays off faster than the property declines in value.

If the deflation rate is 2% annually, then you pretty much maintain zero or slightly negetive equity until about year 10. At that point, you pay your loan down faster than your propety depreciates.

Finally, at a 4% deflation rate, you would be underwater for 23 years with the final seven years being in an equity position. No fun.

This example above is for those folks, mostly first time home buyers, who are getting into property with no equity position and little down payment..

Here is the chart for investors and those with downpayments:


This chart shows you what would happen if you bought a $115,000 home but only financed $100,000 for it. The scenarios are much more encouraging. In this case, you have equity in all the scenarios except the 4% deflation scenario. Hence, the importance of buying below market value or with significant down payments.

Of course, this is just a theoretical model. Unlike this model, Utah does not have a shrinking population. In fact, it is growing quickly from reproductively ambitious souls like myself (I have four daughters already) and immigration. Also, economically speaking, Utah is more balanced and has a friendlier business environment than most of the nation. For these reasons, we may experience the macro effects the national-deflation phenomonea (low interest rates, consumer product price decreases, declining wages) and yet have real estate not as affected by the problem due to our demographics and economic environment. Time will tell.

I expect that Utah will follow its usual stair-step-up price pattern with the runner on this cycle being extra long. Look for flat pricing for the foreseeable future in Utah.

Ahh! Crazed Kid-Arsonist On The Rampage

We just got back from vacation today. While we were gone my cell phone died so I checked my voicemail at the end of each day. On Saturday I had to sit and listen to this string of messages waiting for me:

4:00pm - From S.W. "Hey man, there are like five pumper trucks right near your house at 22nd and Jefferson, call me"
4:02pm - From Brinks Home Security "We have a fire alarm going off at your home. Please contact us."
4:28pm - From Brinks Home Security "We have a security alarm going on in zones 7,8,9,10...."
4:30pm - From my sister-in-law "Jeremy, call me I need your security code for the home!"

So at this point I was pretty sure my house had burned down.

Fortunately for me, it had not. Unfortunately for my neighbors, it was their home that burned down. We had left our window open an that is what set the alarms off.


The perpetrator of this atrocity was a nine year old boy. Apparently, he poured gasoline on the front porch and threw a match on it. Not out of curiosity, he didn't even live there, but out of anger because his grandmother took a toy away from him earlier. This is the same nine year old boy who lit the yard of Dee Elementary on fire across the street earlier. He is also the same young boy who broke into our church, stole the fire extinguishers, and fired them off with a bunch of friends.

This kid is clearly screaming out for attention. He needs to be put in a home of some type that can handle the vast array of problems he has.

I am just glad the kid didn't pick my house to torch.

Utah Adventure: Ibapah Peak

A good friend and I have been been making plans to climb Ibapah Peak, the highest peak in Juab County and 3rd tallest in Utah, for several years. The peak is in the Deep Creek Mountain Range that lies just east of the Utah-Nevada border. We finally set out to accomplish our goal.




This photo shows the Deep Creek Mountains in the background. The black spot in the dirt next to the driver door is my cell phone. When we got to camp I noticed that my cell phone was missing. In a weird twist of irony, the cell phone was intact and exactly where you see it in this photo when we were driving home the following day and unwittingly ran over it. I will be purchasing a new phone on Monday.

Here is more of the Deep Creek range.


The trail head to Ibapah Peak is in Granite Creek Canyon. It takes a 4-wheel drive vehicle to get there. The trail head is 94 miles (50 of that on dirt road) from the turnoff in Wendover, Nevada. One of the fascinating features of the canyon is the white granite formations. Erosion has created some very interesting caves, fissures, arches, and other things you usually find in national park settings.


The hike starts at an elevation of about 5800 feet. The summit of Ibapah is 12,080 feet.

The trail ascends gradually at first and then becomes a very strenuous as you climb to the top of a bowl. The trail takes you up 4,000 vertical feet in four miles to an alpine meadow.

The alpine meadow sits at about 10,000 feet...higher than any peak in Weber County. Breathing starts to become more difficult at this point. Considering that I was terribly out of shape, breathing became difficult well before getting to this meadow. Ibapah Peak is the prominent rock covered peak in the background...just 2,000 more vertical feet to go.


From the meadow, the trail fades into non-existence. We blazed our own trail up the hill knowing that we would eventually get to the summit if we headed in the right general direction. Most of this part of the "trail" entails scrambling over huge boulders.

As we approached the final ascent to the summit I took this shot looking back at Granite Creek Canyon. Its hard to believe we walked from the bottom of the canyon to this point.


Here we are close to the summit...drum roll please....

Here I am at the summit. Thunderstorms were brewing shortly after we summited so after a brief reprieve we quickly began our decent. It took us six hours to get to the top and four to return to the bottom. Certainly a worthwhile trip just a few hours from home.

Zombie Town: Gold Hill, Utah

I took the last few days of July off to spend time with family and go on a wilderness adventure. Our planned hiking trip took us to some of the nether regions of Utah. Specifically, the Utah-Nevada border about two hours south of Wendover. On our way we passed through Gold Hill, Utah.


This town is another curious study in why people settle and live in the places they do. The town was established in 1892 based on mining exploits. The town languished until World War I when arsenic was mined heavily to act as a pesticide on cotton crops. After World War I the town ebbed until World War II when tungsten came into high demand. The town has floundered ever since.


Here is the old General Store located at the only intersection in town.

One of the homes in town was for rent so if you are looking for a cheap place to live I am sure we can hook you up.