Wednesday, July 16, 2008

All real estate is local... (local political rant included)

I have to give credit where credit is due. I can't act like I found this real estate article on my own. Frequent comment contributor Ken Herskind sent me an interesting link this morning. I've decided to do some cut and paste with the article, but really you should read the whole thing.

Article linked here

Housing rebound: When to spot one
Nationally, there's still a dark cloud hanging over housing. But to check the health of your local region, look for a few key clues.

By Amanda Gengler, Money Magazine writer

Title of article above and here's some bits of the article below... with commentary of course.

This is already one of the worst national housing downturns in half a century. But what's really scary is that judging from the still-huge overhang of unsold homes - one of the key indicators of the market's prospects - things could get worse. In fact, much worse if the economy slips into recession.

But real estate is a local game. Your region could be in far better shape than the country as a whole. Median prices for existing single-family homes in a third of the country's metro areas are actually higher than they were a year ago, according to the National Association of Realtors.

Okay... our region is NOT in far better shape than other parts of the country but there are many interesting points that do correlate to our situation, things we most likely need to be mindful of.

Remember too that during the boom, regions moved at different times. Las Vegas and San Diego were among the first markets to take off. Boston spiked early as well, but not to the same degree.

I remember emailing back and forth with other Realtors from other parts of the country during our local 'boom' and them telling me that they were not experiencing the same things in their market. Mostly folks from the mid-west. Of course now... those same folks are not experiencing the same kind of 'crash' that we seem to be entertaining ourselves with here locally now either.

Just as cities moved independently on the way up, they're not moving in lockstep on the way down. That's why "it's more important than ever to examine what's happening in your city," says NAR president Richard Gaylord.

Yes, fine advice... even though it comes from NAR (I am a member for disclosure, but I like to play along with the folks that seem to think that NAR is part of the devil incarnate).

Our city, our market, we do have an idea as to what is happening. Personally I use the sales reports that I find on some blog that is published in Kingman to get an idea as to how many homes are selling and for what price level. It has fancy charts and stuff like that... What's that Beatrice?? Oh... that is right, I publish those charts here on this blog. Maybe the data helps you as well, but this article points to other issues that are most likely more important that some statistics.

This isn't to say that you'll be able to precisely time the market. But keeping track of a few key indicators will give you a general sense if a turnaround is near.

For starters, pay attention to changes in your local job market. The more new jobs created, the greater the demand for homes. Conversely, an uptick in unemployment - or a persistently weak labor market - can warn you a recovery may still be far away.

To me, this is the biggie as it pertains to our local market. The info above is all too self explanatory. Here are some more...

The problem in most markets today is simple: too many homes and too few buyers.

I know that I've heard this somewhere before... Beatrice?!?!

Therefore, the best signposts to look for are a significant reduction in the supply of homes and a jump in sales, says Mike Larson, a real estate analyst with Weiss Research.

But getting local data on inventory and sales isn't that simple. Your local realtors association or a competent agent should be able to provide you with basic supply and sales figures, though the type of data will vary. So be sure to ask for as much as you can: monthly inventory of homes in your area, average days on the market and total number of homes for sale.

With many local 'experts' chiming in at public meetings stating that there are thousands of unsold homes in the Kingman area, it makes me want to beg to differ with the article writer, obviously many people in our locality have inventory data (they just have the wrong data).

While we really haven't seen a significant reduction of supply, supply seems to be heading to lower numbers very... very... very slowly (that is based on the data I collect and I admit that it may not reflect each and every property available for sale in the Kingman area, but I know that my data is not off by 'thousands').

It is more than likely that sales of listings are not bringing inventory numbers down all by themselves. I see many listings expire on a monthly basis. Also many listings are simply taken off the market for a variety of reasons. Since new listings have kept up at nearly the pace they have over the last year, while sales have done the same (neither stat is what I'd consider 'good') it is obvious that other factors have contributed to the trimmed numbers of property on the market.

A telltale sign of your local market starting to heal: The rate of home-price declines should start to slow.

Sorry folks, but this telltale sign hasn't revealed itself as of yet 'round these parts.

If you start to track these figures, be patient. "You need at least three months of smaller price drops to be confident the market is really shifting, since housing numbers are really volatile and are affected a lot by the weather," says Patrick Newport, an economist with Global Insight, an economic forecasting firm.

So if you're a buyer who's looking for the best deal, wait at least that long. If you're a seller, be even more patient. That's because even if prices stabilize, they could stay low for a while. In fact, it likely will be months before prices rise again.

Really hard to argue on this one. Our market hasn't truly found a true and consistent market level since average sales prices began to plunge. Once sellers and buyers begin to speak on the same terms we'll notice a difference.

Is it cheaper to rent than to own?

Here's a useful back-of-the envelope calculation: Take the price of the type of home you want in your market. Now call around or ask your broker to see how much it would cost annually to rent a similar property in the same region. For example, if you can purchase a home for $540,000 but can rent a similar one for $36,000 a year, your so-called price-to-rent ratio would be 15.

In general, buying starts to look attractive when the P/R ratio is around 15 or lower, says Newport. (The current national average is 12.5.) As your market's P/R ratio falls, more sellers are likely to come into the market. So demand could pick up and help stabilize home prices.

I think the writer made a mistake and actually meant that more 'buyers' are likely to come into the market to help stabilize home prices.

I just grabbed a rental list from property manager extraordinaire (who is continually on a quest for world domination) Helena from the office next door to mine to see if I can find a rental that matches up with the average sale of a home in the Kingman area. Oh yes... I found one.

The average sale for a single family home back in May had 3 bedrooms, 2 baths, a 2 car garage with a bit over 1,500 square feet of living space and sold for a bit over $170,000. On the rental list I find a home similar in size that calls for a monthly rent price of $835.

$835 times 12 equals $10,020. $170,000 divided by $10,020 equals just a smidge under 17. Obviously not a number under 15.

Here is some more bad news... I occasionally ask Helena if rent prices are going up or down... or stable. Today the answer as it has been for awhile now... thumbs down.

Double whammy for our market.

Are houses more affordable?

Unless a significant percentage of households in a market can afford to buy homes there, sales won't rise. It's as simple as that. So check your region's affordability level.

The National Association of Home Builders calculates this figure - which it calls its housing opportunity index - for about 220 metro areas. The index considers a home "affordable" if no more than 28% of median family income in that area is required to pay for it.

The national average is 53.8, which means that slightly more than half of the homes purchased recently were deemed to be affordable. But again, it's not fair simply to compare local data with national averages. So if you really want to know if conditions are improving, check if your region's affordability index reading is climbing. In St. Louis, affordability has risen from 77% a year ago to 80% today.

I decided not to go the extra mile and research our local affordability level. The writer has given enough information as to where to find such info and hopefully it is available for at least Mohave County.

I just have a hunch that Kingman is not St. Louis and affordability is a greater concern than most folks around here have considered.

Now there's one more indicator you might be aware of: foreclosures. The rate of foreclosures in your region is certainly one sign of the health of your market. But this is a lagging indicator. It can sometimes take six months or more from when a homeowner first defaults to foreclosure.

Foreclosures are currently putting pressure on the falling prices... does anyone disagree?? Banks are competing with banks right now in an effort to get rid of their non-performing assets and leaving human sellers in the wake. At some point banks will compete once again with us humans but by then...

So "by the time foreclosures peak and start falling, the market will have already bottomed out and turned around," says Larson. In other words, buyers will have missed the sweet spot.

So buyers you too will have to pay attention to the market.

Yikes... none of the fundamentals covered above look all that bright in our local market.

[political rant on]...

The jobs market here is not what it once was and with so many local jobs being tied into growth and development it is easy to see how the calls for limiting growth has affected property value (even property on the sacred street of Seneca).

The hardships of a reduction in jobs, in my opinion, has led to many people trying to sell their property... leading to a surplus of inventory of homes for sale and clearly swinging the negotiating power to the side of the buyers... and it is NOT clear how many buyers are 'in' the market. Buyers are showing patience each and every month... and they are being rewarded.

The surplus of homes for sale has led to clear price concessions in order to attract whatever population of buyers that are out there. Sales prices have been falling but actual sales have not noticeably increased.

Falling prices have left some sellers in the position to try to rent out their homes instead of selling. Good for inventory of listings perhaps, but it has increased the number of rental units on the rental market. In turn we have seen fierce competition amongst landlords reducing prices and therefore keeping the cost of rents lower than the cost of ownership. It just may make sense to rent instead of purchasing at this time, depending on personal situations... that is if you are sticking around Kingman instead of looking for opportunities on other communities.

The clear lack of demand and the loss of opportunity (jobs) has also affected the ability to afford housing in many cases. It is all related folks.

All of this ends up leading to increased foreclosure activity which is never good for a community.

The local elections in 2006 were trumpeted as a clear defeat for growth related issues. So did the 2007 November special election. I know this because some in the media were cheer-leading at the time. People were inexplicably led to fear 'explosive' growth the same way that I fear explosive diarrhea.

Those of us who work for a living in this community were basically told that 'we just didn't get it'.

But Todd, but Todd... don't you remember the 'emails'?? Bullshit (sorry for the language, this post is PG-13).

But Todd, but Todd... there were grifters - pirates - and rabid animals to fear. Really.

But Todd, but Todd... we voted on the General Plan as a community. Loyalty to a document required by the state government but legally can be (and has been) changed as situations change... color me not impressed.

But Todd, but Todd... slaugherhouses, tattoo parlors, and adult bookstores. Oh my.

My guess is that some of the media folks and other community 'limit the growth' pom-pom shakers have been negatively impacted by their actions... especially as it pertains to their property value. Oh for some that won't matter as they believe they are living in the last home they will ever live in. The negative implications may finally dawn on them when the level of service they need begins to suffer or worse... when a methlab or crackhouse is two doors down on their street instead of somewhere across town (oh noes, I think I just did a scare tactic, my bad. The judge orders the jury to disregard the comment about the methlabs and crackhouses).

Does it have to be this way?? From the article...

Your region could be in far better shape than the country as a whole. Median prices for existing single-family homes in a third of the country's metro areas are actually higher than they were a year ago

No it does not have to be this way is the correct answer. Other communities are improving their situations. Kingman can as well.

If I learned anything in the couple of semesters of college it was this... how to copy. If a third of the country's metro areas are getting passing grades (I consider an increase in property value a passing grade), then we need to copy what they are doing. Doesn't matter if we copy their study habits, or their resources, or just simply grab their test off their desk and copy their answers and turn in the exam to the professor and mooch some beers off a pal after class... whatever.

We can't get expelled from this figurative classroom for copying papers. There is no professor here that would stop us so there is no real risk to take. Pick a success story or two and copy at will.

What is it that is going to attract opportunity and demand?? Welcoming those that are willing to take their own risk to make a buck or two is a great place to start. Yeah... that means having conversations with developers willing to risk real money, their money, to create opportunities for the community as well as themselves.

...[Political rant off]

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