2011 Distressed Residential Properties

Something different this way comes! I am sensing a change in our local Portland real estate marketplace; in that well-priced, well-staged properties, good condition properties are being snatched up by eager buyers!!

Supply and demand!  This is always an element of what controls economics!  Our local real estate market lacks good inventory thus I have found myself in a multiple offer situation 4 times in the last two months.  So,considering the “state of real estate” in the last few years, why the lack of inventory?  Part of the equation is that due to depressed prices, some who might sell, can’t or choose not to right now because they may owe more than the price the current market will bear! Another element is the lack of “good” inventory!  This refers to the number of short-sales (an unreliable thus unacceptable option for some buyers), the number of properties that are in less than stellar condition (i.e: some foreclosures or poorly staged homes) and finally over-priced properties!  Thus, competitively priced properties are selling relatively quickly.  Certain price points are moving more quickly than others!

Warren Buffet recently wrote that he felt housing was a very attractive investment right now.  Then Donald Trump joined the bandwagon! There has been lots of press regarding our improving economy. Home prices are diminished, interest rates are at record lows and buyers with decent credit and the where-with-all to come up with a down-payment are turning back to real estate (remember it takes as little as a 3.5% down payment to get FHA financing, VA financing for qualified vets = 0% down).  Investors have been rounding out their financial portfolios with real estate purchases with decent ROI (return on investment).  However, this hasn’t yet made a huge impact on over-all local home values!  We are still back down to 2003-2005 pricing (according to the location of the property).  Our market does seem to have begun some of the first steps to recovery but I still believe it will be “slowly, slowly…step-by-step”.  So, as a buyer interest rates still trump price! And, as a seller….yes, properties are selling but “pricing, pricing, pricing” is still the new “location, location, location”!!

January 2012 Portland Metro Real Estate Update!!!

The “word” for the last several months of market stats has been “improvement”.  And, last month was no different!!  Closed sales saw a 10.3% increase and pending sales saw a growth of 19.3%.  And, get this!!!  We are now at 5.3 months of inventory (there are currently 8,612 active residential listings).  In the last 3 years we have been at a high of 19.2 months of inventory and this is the lowest in that time period!!  The average sale price dropped 6.7% compared to 2010.  So, in some areas pricing is still declining, in other areas we are seeing some stabilization.

BUYERS:  What does this mean for buyers?  I still see a slow recovery, so I don’t believe that interest rates or pricing will improve so suddenly that you need to feel an undue sense of urgency.  That being said, a declining market is going down until it isn’t!  And, interest rates are low until they’re not!  So, not being a gambler I would begin whatever steps you might need to feel comfortable making that purchase.

SELLERS:  What does this mean for sellers?  Well, it at least gives us hope that our market might be moving towards more balance.  When is the market going to improve?  Probably not any time soon, but we are making some progress.  I do believe that we still have a lot of “shadow inventory” of short-sales and foreclosures that haven’t surfaced.  And, pricing is still “King”.  Stay tuned!

INVESTORS:  What does this mean for investors?  It’s a very solid investor market as rents have been rising due to a shortage of rental properties and more renters entering the market that have either lost their home or decided they can’t buy.  The vacancy rates are low.  Well priced, well located smaller plexes sell quickly so investors must be prepared with mortgage pre-approvals or cash.  But, they must also do their homework and make sure the property will cash flow (how much is based on your developed strategy).  Then you rely on the tenant paying down the mortgage every month to increase ROI (return on investment).

What do you predict will happen in the real estate market in 2012?  It’s been a crazy 3 to 4 years in both our local and national real estate markets.  If you agree with the statistic that March 2007 was the absolute pinnacle of the real estate frenzy, then we are coming up on 5 years of instability and various levels of distress!  I know we definitely started to see some signs in 2007 (and, even earlier) and in 2008 Portland began to experience the adjustment in earnest, albeit slowly! Portland was a little “late to the party” as compared to some areas of the country.  And, we may be out-staying our welcome?

We’ve had these real estate “mood-swings” before in my illustrious 25+ year career, but the difference this time was the “depth of the deceit”; the dark under-belly of a world most of us know nothing about.  The “behind-the-scenes” marketplace wheeling and dealing which ultimately undermined our economy.

But, what’s done is done!  Now we have to slowly and surely re-align our real estate expectations to our new normal.  I do believe that we still have a considerable reserve of foreclosures and short-sales which will continue to plague our local market.  Jobs are an integral part of our recovery and with jobs comes confidence.  The jobs numbers of late are a little better but hard to correctly gauge.  Consumer confidence does appear to be on the rise.  We have the lowest inventory of homes for sale in the Portland area in three years!  And, the total “days on market” (DOM), or the time it takes to sell the average home, has decreased.  I think we will continue to deplete inventory in 2012…again…slowly.  Should this sales trend continue, expect prices to level off soon and they could potentially resume their climb from there.  However, I don’t really expect any real noticeable appreciation to begin in 2012.

The first of the baby boomers will begin turning 65.  Woo hoo (or not)!  So, that could precipitate some housing changes.  I think the uber-low mortgage rates will stay with us and attract 1st time buyers who have the credit scores and means for a down-payment. Who knows what the 2012 elections will bring but it usually does NOT mean a lot of drastic changes in policy.  It will continue to be a cautious market!!  I am starting to see a little new construction again.  I believe that tight money will continue to be a stumbling block but we are already seeing a bit of loosening of the mortgage-lending purse strings.  However, my recent experiences will make me predict that the appraisal process will be behind the rest of the mortgage industry.  The appraisal industry received a huge brunt of blame for some of our recent trials and tribulations.  The sins of the few were absolutely visited on the many in that situation!!!

I definitely do NOT have a crystal ball but I do have confidence that the only consistency in life IS change.  However, the one thing I love about owning a primary residence or an investment property is that, no matter what, a certain amount of your investment (principal) goes towards your overall wealth development (whether there’s appreciation or not)!  In a primary residence (your home), you pay a certain amount towards the principal in the mortgage (the rest goes to interest; a tax write-off) every month.  In a cash-flowing investment property, your tenants pay for your mortgage by buying down the principal (you still get the interest write-off plus depreciation plus maintenance=nice tax advantages) .

The Wall St Journal wrote in an article yesterday:  ”The U.S. Housing bust has made the single family home an extremely attractive investment. House prices have fallen sharply and 30-year mortgages are available for people with good credit at rates below 4%. Housing affordability has never been better”.  I’d love to hear other thoughts and opinions.

DECEMBER 2011 PORTLAND METRO REAL ESTATE UPDATE!!!

Merry Christmas, Happy Hanukkah, Fabulous Festivus, Sensational Solstice…or whatever you embrace, believe or endure in this holiday season!!  And, what about the real estate market … you ask??? (or not).  Well, not so bad…not bad at all…relatively speaking!  It’s with tiny, incremental steps that we seem to be somewhat stabilizing. As was the case last year, we had an uptick in activity during this traditionally slower time of year.  Nationwide, existing Home sales were up 4% for the month and up 12% vs. a year ago.  Inventory is down 18% vs. last year, now at a 7 month’s supply. Housing starts were up 9.3% for November and up 24.3% vs. a year ago, while building permits were up 5.7% for the month.  In the Portland Metro area closed sales rose 3.2% for the month and up 18.9% in November 2011 compared to November 2010. Our local inventory is down to 6.2 months supply, which is the lowest in 3 years!!  All of this is “hand-in-hand” with generally more positive economic news, such as the initial jobless claims dropped to the lowest level since April 2008 and continuing claims are the lowest since September 2008. Plus, a better week in the stock market with a 3.5% weekly gain in stock prices, recouping the prior week’s slide!

BUYERS:  So, what does this mean for buyers? Interest rates remain at historical lows! Prices are low! The mortgage market is stingy with its money but not impossible! I would check out your options with a trusted mortgage broker. If you are thinking about your first home, its “cheap money” and with an FHA loan, you can get into a home with as little 3.5% down. Qualifying veterans can get into a home for 0 down with a VA loan! If you own a home and intend to stay and haven’t run the numbers to see if it makes financial sense to refinance, now’s the time to consider that option. If you need to adjust your living situation for more or less room or a lifestyle change, research what your home might sell for and what you could conceivably buy with your $$$ now.

SELLERS:  So, what does this mean for sellers? I’m not going to sugar coat it, if you want to sell you must get competitive with your pricing, condition and/or concessions/incentives. It’s still a buyer’s market. The good news is that when priced correctly, homes are selling! You need to compare losses while selling with gains when buying and see if the numbers make sense.

INVESTORS:  So, what does this mean for investors? If you can come up with the down-payment (10%-30% down), qualify for the loan and embrace a little extra responsibility, you could really make an excellent investment to round out your retirement and savings portfolio!! It’s simply another strategy to build wealth. The rental market is very good in the Portland area, generally with vacancy rates less than 4%. You use your down-payment + other people’s money (a Mortgage) to purchase a property. Your tenants pay that mortgage (PITI=principal, interest, taxes, insurance), you realize whatever cash-flow (rents minus PITI & maintenance=cash-flow). So, whether the real estate market appreciates or not, you accrue equity due to the tenants paying down the mortgage on a monthly basis.

So, I’m hopeful for our real estate market and excited in general for 2012!! I’m sensing a tiny glimmer of a light at the end of the tunnel.  Here’s wishing you, your family and friends happiness and health in the new year!

An Investment Alternative

To say the investment market is unsettling is an obvious understatement. The market is up, then down 8% in the last ten days and the news suggests that this roller-coaster ride may continue for awhile!

Preservation of capital is probably today’s most important investment consideration (especially for those enjoying or nearing retirement) and making a profit would be a bonus. Of all the conventional investment alternatives like stocks, bonds, mutual funds, gold, commodities, CDs and annuities, housing could be one the best asset classes in America.  I always say that I’m a great believer in investment real estate: you use other people’s money (a mortgage) to handle the major part of the purchase of an investment, the tenants’ pay off that mortgage (albeit slowly), you immediately enjoy the available cash-flow + realize the lowered principal balance/equity accrued caused by the tenants paying down the mortgage!  So, even if there is NO appreciation in the housing marketplace (which I think we can expect in the short-run, but eventually our economy will recover and natural appreciation will begin), you win!!  I certainly can’t say that about my mutual funds!!

Homes have had a 30% to 40% price correction in the past four years. Mortgage rates are at near all-time low rates with 30 year terms available for investors. Rents have increased significantly over the past two years while vacancy rates have decreased. People will always need a place to live.

Five year certificates of deposits earn a little over 2% but rental properties are yielding much more than that. Income properties are tangible assets that have benefited dramatically in inflationary times. Cash assets can be devastated by inflation and diversifying into income properties could provide some protection.

Single family homes, duplexes and multi-plexes offer investors the opportunity to borrow large loan-to-value mortgages at fixed rates for long terms on appreciating assets with tax advantages and reasonable control. Investing in rentals can provide a high rate of return!

“The significant problems you face today cannot be solved at the same level of thinking you were at when you created them.” Albert Einstein

The housing market has definitely caused significant problems for some people but is also providing some amazing opportunities for others.  If you have a down-payment, some life stability (is that an oxymoron???) and good credit, you could get a combo of diminished property pricing and extraordinary interest rates.  Buyers, sellers and real estate agents have been surprised and financially affected by these new economic developments over the past few years.  Real estate agents aren’t like retailers who wake up one day realizing they have the wrong merchandise on the shelves.

Everyone needs a place to live and whether you rent or buy, you pay for the house you occupy.  While the home for sale remains the same, the way you plan your entry into the housing or investment property market has to change.  A true sense of your lifestyle, your financial plan and strategy, your stability AND your resilience have to be evaluated!  I believe a true financial strategy is a “fluid thing” and you have to be responsive to the other elements you can’t control. But, you have to at least start with a plan.  It can be a very simple plan (that you can embellish later) such as “I want to buy a home for my new or growing family”.  So, start with speaking with any mentors you might trust.  Family members, friends and confidants, other professionals (such as a trusted Realtor, mortgage broker, CPA, accountant). You begin by brainstorming your “simple plan”.

Remember listing agents are diametrically opposed to the objectives of buyer’s agents. This is not to say that there cannot be a win-win situation but each agent is trying to negotiate the best price and best terms for their client.  So, make sure you have secured representation that is working for you!

Financing can make listings more marketable and structure a transaction to provide the buyer with the cheapest cost of housing.  Personal experience is a great teacher but a very expensive way to learn.  Get help…but get trusted help!

On a VERY positive note.  We live on the west coast and are not enduring the effects and after-effects of Hurricane Irene!  Perspective is always good to add to whatever you are facing.

July 2011 Portland Metro Real Estate Update!!

Despite the fact that summer refuses to join us this year, our Portland real estate market marches on.  Nationwide, 2011 thus far is the worst year for home sales in history!  However, locally it doesn’t necessarily feel that way.  Closed sales were definitely down in June 2011 compared with June 2010, but pending sales jumped compared with last year.  And inventory is the lowest it’s been since July 2007!  At the current rate of sales, the Portland Metro area has only 6 months of inventory!!  Builders broke ground on more new homes than expected last month and U.S. housing starts reached a 6-month high according to Reuters News. Which indicates some optimism on the part of home builders. Of course, our lack of inventory is two-fold, I believe.  In part, we are seeing reduced homes on the market due to pricing getting to the point where buyers are willing to venture into the market and absorb the existing inventory.  Low numbers are also a result of less homes being willing and able to go on market due to lack of equity!  Are we at the bottom in the Portland marketplace?  Some areas are definitely still dropping, some appear to have stabilized somewhat.

SELLERS:  What does this mean for sellers?  I have never been a big proponent of “losing” money on real estate.  However, if life changes demand the sale of a home where equity is non-existent, keep in mind that you may lose money on your sale but you will gain on your purchase.  Homeowners are still having trouble accepting just how much the values of their properties may have fallen, says a new report from the Zillow real-estate site. Current sellers who bought their homes in 2007 or later, an analysis of the site’s home listings shows, are overpricing their properties by an average of 14 percent. Sellers who bought their houses before the bubble, and those who bought during the big run-up in home values, also are overpricing their homes, but not by as much. Those who bought before 2002 are pricing their homes roughly 12 percent over market value, while those who bought from 2002-06 price them about 9 percent over market value.  Keep in mind these are national statistics and real estate varies neighborhood by neighborhood!  But, it’s not just sellers.  As a Realtor, I find pricing correctly and low appraisals to be my biggest current challenges!

BUYERS:  What does this mean for buyers?  Mortgage rates continue at record lows and opportunities definitely exist!  There are definitely tougher lending guidelines but more loan products are being slowly introduced (or re-introduced) into the mortgage marketplace.  FHA gives many buyers options like a low 3.5% down payment and the option for seller-paid closing costs. You can even set up your Bridal Registry with a bank and use the funds for a down payment.  VA financing still offers 100% financing to qualified veterans.  Don’t labor under mortgage misunderstandings, it’s free to find out if and for what you might qualify.  If interested, you might as well inquire…last I heard the worst they could do is say “NO” (they can’t shoot you, you know).

INVESTORS:  What does this mean for investors?  The local rental market continues to be hot, hot, hot (even tho’ our weather is not, not, not)!!  I’m in the midst of another duplex remodel and already both sides are rented, tho’ only one side is ready!  Financing for investment properties can be a challenge, especially for the self-employed (like myself).  A lot of patience and perseverance is required!!  A home or investment property is a “leveraged investment”! Leverage is the ability to control a larger asset with a smaller amount of cash through the use of borrowed funds. Paying cash is not always “King” when figuring your yield on an investment.  Leverage is not a dirty word, it’s a be-U-tiful thing!

MAY 2011 PORTLAND METRO REAL ESTATE UPDATE!!!

This real estate market has “teeth”!!!  All I can say is that the real estate market in the greater Portland Metro area has sustained the momentum that began just before the holiday season of 2010!  So, while sales activity was down in April 2011 compared with April 2010, average and median sale prices increased compared with the previous month of March 2011.  Closed and pending sales were still down from last year this time (but, remember we were still enjoying the “home-buyer tax credits” that were artificially buoying the market).  At this last month’s rate of sales, the current 11,621 active residential listings would last about 7.2 months (which compares to the months where the market was still enjoying the home-buyer tax credits!).  The average sales price for April 2011 declined 5.2% compare to April 2010 and median sales price fell 8.4%.  However, what I see is some “pent-up buying energy” that is being released and, hopefully, will start to absorb the inventory.  Absorbing existing inventory (along with other economic indicators staying a positive course) are the first steps to eventual pricing appreciation!

BUYERS:  What does this mean for buyers?  If you are in a stable life situation and financial position to make that first or next purchase, you might want to start the exploration.  Most economists predict we are likely “at or near the bottom” of our real estate market (whatever that means) and that a long, slow recovery is ahead. But, it doesn’t really matter if you consider the tax benefits of owning vs renting plus when running the numbers you know that over the long haul interest rates are much more important than sales price (to a point, of course). Interest rates are staying incredibly low, but will reflect whatever economic recovery begins to happen (i.e: they will increase).  The Housing Affordability Index reached a record high of 192.3 for February 2011. The two contributing factors to this Index are the price adjustments homes have experienced in recent years combined with the unusually low mortgage rates which make this an outstanding opportunity for buyers who can qualify. Just to give you some perspective, before the housing decline began in 2006, the index average that year was 108. The high prices and higher interest rates restricted many buyers from purchasing! “Be prepared” (remember the Scouts’ motto?) and visit a trusted mortgage broker or banker to begin the process of finding out what you need to qualify for a mortgage! Remember: whether you rent or buy, you pay for the house you occupy!!

SELLERS:  What does this mean for sellers?  It means there are more buyers in today’s market looking for an opportunity!  But, an “opportunity” equates to pricing that reflects what buyers hope is the “bottom of the market”.  So despite the additional activity in the market and occasional multiple offer situations that I have experienced, it’s still all about price in this marketplace!!  What affects price???  Location and condition!  Your location is already established (so, that’s a “done deal”) and your pricing must reflect your current condition! Okay, so what does “condition” mean? It means, of course, structural components that may be noted in a typical property inspection. Condition also includes cosmetic expectations that are characteristic for the area where your home resides (colors, carpet, kitchens, baths, flooring, vintage, etc). You may be perfectly happy with your home, but the next buyers will have their own set of pre-determinations (some reasonable, some not!).

INVESTORS:  What does this mean for investors?  Woo-hoo!!  Rents have been slowly increasing in the Portland area, reflecting the number of people not in the market to buy a home.  I believe we will continue to see this trend for awhile. One of the biggest challenges in acquiring investment properties is financing. If you own less than 4 properties, the issues are less and you can get the best rates while only putting 25% down (but you can get financing with as little as 10% down with strong income and credit scores). When trying to secure property #5 or above, the requirements can be more stringent and you’ll need 30% down for the best rates. It takes determination and resilience. On the last two investment loans I’ve received, I’ve been turned down at least once. Ouch! Could hurt a girl’s feelings! I love the idea of using a little of my money (downpayment) + a lot of someone else’s money (mortgage) to purchase (leverage) an investment where someone else will make the payments plus a possible cash flow! I always run the numbers with and without appreciation. Because even with no appreciation, equity usually increases as the tenant pays down the mortgage. That plus your cash flow will equate to a certain return on your money. I have a program I can share for running those numbers, so please contact me if you want me to burn a CD or e-mail to you!

Whether a buyer, seller, investor or just someone interested in the real estate market, “keep the faith” and “keep some balance”!!

More Affordable Than Ever

The Housing Affordability Index reached a record high of 192.3 for February, 2011. The two contributing factors to the Index are the price adjustments homes have experienced in recent years combined with the unusually low mortgage rates make this an outstanding opportunity for buyers who can qualify.

Before the housing decline began in 2006, the index average for that year was 108. The high prices and higher interest rates restricted many buyers from purchasing. As the market experienced decreasing values and lower interest rates, the index started to rise.

There are opportunities that are not being seized by buyers and some real estate professionals feel that it’s because there’s confusion in the marketplace. Buyers are uncertain whether they would qualify and whether now is a good time to be purchasing a home.  I think we learned from the current state of our real estate market that not everyone should be in the market for a home.  Although, I do think a lot of the present situation could’ve been avoided with less “irrational exuberance” than was exhibited in our last real estate rally. Common sense requirements need to be in place for institutions prior to lending money (but, not necessarily the pendulum swinging entirely the other way, thus limiting reasonable people wanting reasonable loans).

All markets are different and every situation is unique. The only certain way to determine whether you can get a loan would be to investigate your individual situation.  A good mortgage professional can help you “get your ducks in a row”, pre-approve you for a loan or tell you the next reasonable steps to improving or repairing your credit so that a home purchase can be in your future. 

The National Association of Realtors releases the index at the end of each month with a two month lag time for compiling the information. When the index is at 100, a median income family can afford a median price home. As the index increases, housing affordability increases.