Real Estate Information

There s a part of the American psyche dictates that for any event or phenomenon a specific cause has to be identified – and all the better if that cause can be pinned on particular actor. Accountability is a good thing, but unfortunately it often segues into a “who’s to blame?” attitude.

Case in point: as the sub-prime market melts down, housing prices drop and inventory levels creep towards historic highs much of the mainstream media coverage has been devoted to figuring out who is behind all of this. The banks? Builders? The Fed?

Real estate investors (and in some cases, speculators) get an unflattering light shone upon them in this environment; witness today’s Money.com article with the musically alliterative title?Flippers Fuel Foreclosures? which claims that investors are “ driving defaults in four of the states with the fastest rising default rates in the nation ” The article sites statistics from Nevada, Arizona, California and Florida.

If you look for it, though, there is a more interesting fact buried in the article: nationwide non-owner occupied properties accounted for just 13 percent of prime loan defaults and 11 percent of subprime defaults.

Consider this: according to recent census figures around the homeownership rate in the United States hovers around 68%. Meaning that over thirty percent of homeowners live in properties that are owned by someone else. Some of this housing is owned by corporations, but according to census figures the vast majority is owned by individual investors.

It would appear from the numbers that investors, as a whole, haven’t been doing a bad job at making prudent decisions. Investment properties are perceived as a higher risk than owner-occupied properties, but in many regions they default as a lower rate.

As investors we’re not trying to win any popularity contests, but it’s good to remember that prudent, responsible investing and property management is just good business. An investor who maintains a property that a tenant is proud to call home is probably an investor who also realizes low vacancy rates, inexpensive turnover, timely payment and low incidental expenses. This, along with prudent buy/sell decisions adds up to a profitable investment. And low default rates.

The more I've been travelling investing, the need for quick money has been evident more than just once In case you have this need too:you may find this interesting

There are many uses for cash advances and most of them entail financial burdens that have urgent need.

The ability to stretch payments makes the payday loan a versatile financial tool, yet one to use only responsibly and in a dire time of need, especially when you think about the loan fees and interest rates.

However, the payday loan can be used in otherwise non-emergency roles, for instance, in the purchase of a new home. There are many unforeseen expenses when buying a home and the availability of a payday loan can really help out in a pinch.

If, for example, you find yourself short and your new home is in need of an inspection, you can borrow money to pay such an expense. This gives you time to pay the loan back and assure that the closing on your home is not delayed.

Also, the more money you can offer as a down payment, the less you have to borrow in your mortgage. If you take a payday loan that you know you can pay back pretty quickly, you might be able to throw in a little extra for the down payment.

The lower your mortgage the better as there always tends to be expenses that happen along the way as a homeowner. The payday loan is a very versatile instrument in home buying as it can take care of things here and there. When used carefully, a payday loan can be a great safety net, just in case.

All the best in your Investing and borrowing!

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I’m not an electronic gadget guy (I didn’t run out and get an iPhone) but I am a fan of well made mechanical things. I’ll probably be the last guy shooting film while the world around me goes digital; I love my Leica rangefinder - the feel of those hand-assembled German gears pulling the film though the camera’s perfectly engineered sprockets.

But things like this are expensive, so they’re an occasional indulgence. When I glance down at my wrist I see my daily watch: the venerable Casio W-201. Date, time, alarm, stopwatch, water resistant to 50 meters. Accurate to fifteen seconds per month, and the battery lasts ten years without changing.

And the best part is that it costs about fourteen bucks at Wal-Mart.

So if I make a big windfall profit on my next sale how is it going to change my life? Well, not much, actually. I’m happy with the watch I have right now and buying a newer, more expensive one isn’t going to make me happier. This is a good proxy for my life in general - or at least the philosophy that I aspire to live by. Being happy with the here-and-now helps me greatly in trying to be good at what I do.? As a real estate investor it gives me the patience to do good long-term deals that build wealth, and the courage the take prudent risks when the right opportunity arises.

So for now I’m sticking with my plastic watch. And as an added bonus: whether I’m pushing a broom or swinging a golf club it’s so light I don’t notice it’s there!

I’d written here before about how there has never been a national correction in the history of the U.S. real estate market. Well what we’re facing now is not exactly a national correction, but it is a notable occurrence nonetheless: we’re about to mark the first year-on-year decline in national median home prices since federal housing agencies started collecting statistics on pricing.

The reason that this doesn’t represent a national correction is the fact that even though the national median is down, there are still some regional markets that are flat or rising. Investors know this and we’re watching our local markets.

The New York Times writes about the housing number, and two things jump out at me from this article. The Times refers to the median drop as a national decline, stating that the statistic contradicts “widely held notion that there is no such thing as a nationwide housing slump.” This is a statement written by a journalist, not an investor. It’s not true for the reason that I’ve stated above.

A second annoyance is that the article is full of predictions, from the likes of Global Insights and Moody’s. Predictions made by economists are notoriously un-useful.

But a decline in the national median may be significant if it adds fear and confusion to an increasingly volatile lending market.? Liquidity is already starting to dry up in some areas which pulls competition out of the market.? Bad for sellers, but good for buyers.? Bargain hunters looking for a quick flip better have better confidence in thier crystal ball than I have in mine, but buy-and-hold investors in undervalued markets should have their eyes peeled for solid positive cashflow investments that will be able to weather the current storm and which will have some upside once the market turns - whenever that may be.?

CNNMoney has an interesting profile of opinions of the current real estate and mortgage markets by some of the wealthiest and powerful people in America. I highly recommend you read each one of the profiles before you solidify your stance on the future of America s economy.

Here are a few highlights from the piece:

Warren Buffet

Many institutions that publicly report precise market values for their holdings or CDOs and CMOs are in truth reporting fiction. They are marking to model rather than marking to market. The recent meltdown in much of the debt market, moreover, has transformed this process into marking to myth.

They should simply sell 5% of all the large positions they hold. That kind of sale would establish a true value, though one still higher, no doubt, than would be realized for 100% of an oversized and illiquid holding.

Wilbur Ross

Now that we have identified the cause of the disease, how severe and how contagious is it? The present $200 billion of delinquencies will grow to $400 billion or $500 billion next year because $570 billion more low, teaser-rate mortgages will reset to market and consume more than 50% of the borrowers income. Therefore most of the loans will be foreclosed or restructured. Probably 1.5 million to two million families will lose their homes. Meanwhile, few lenders will put mortgages on the foreclosed houses, so the prices will plummet. Despite these tragedies, total losses will probably be less than 1% of household wealth and only 2% to 3% of one year s GDP, so this is not Armageddon. However, even prime jumbo mortgages will be more expensive and more difficult to obtain.

Henry Paulson - Treasury Secretary

The current strained situation will take time to play out, and more difficult news will come to light. Some investors will take losses, some organizations will fail–but the overall economy and the market are healthy enough to absorb all this. As I have said, a repricing of risk is occurring, not just in the subprime credit markets but across all capital markets. Market liquidity will ultimately be realized as investors reassess risk and return, relative to the underlying fundamentals. But again, the fundamentals are solid, our markets are resilient, and they ultimately follow the economy.

Robert Shiller - Bubble Blogger Economist Hero

My more optimistic thought is that lower housing and stock prices wouldn t necessarily be a bad thing. It makes housing more affordable and provides better opportunities for younger investors. It s not any kind of big disaster. It might slow down the economy and put us in a recession, but we ll emerge from it, and many people will be better off.

I ve had the question of real estate purchase timing posed to me in several emails I ve received as well as in comments throughout this site and on other real estate blogs. “Is now a good time to buy real estate?”

The short answer is, “it depends.” I m not going to leave with a short answer. People are either optimistic or pessimistic about their personal financial life and they are the same way about more macro economic topics like housing and jobs. Each month, surveys are conducted to measure consumer sentiment to try and get a reading on the likelihood people will purchase in the near future.

The topic of real estate is a pretty split camp. There are rational and compelling reasons to be optimistic or pessimistic about housing and it doesn t really matter what part of the country you live in.

Five reasons to be pessimistic about real estate

1. House prices are falling in parts of the country. Why buy in a declining market? 2. Cost of ownership on a monthly basis is higher than renting. 3. Taxes and home owners insurance are too high. 4. Prices of homes are too high. 5. Houses take time to sell. With less people being able to buy, it will take even longer.

Five reasons to be optimistic about real estate

1. Real estate is a relatively safe investment over the long run. 2. Prices continue to appreciate in 2/3rds of major metro areas. 3. Interest rates are at near historic lows. 4. Buy now while mortgages are still relatively easy to get. 5. Everybody needs a place to live. Why not own it and get the tax break associated with ownership?

The one thing I would say has changed about real estate over the past nine months is I would no longer recommend buying a home without financial reserves. In the recent past, house prices were shooting up so quickly, it was impossible to save enough money fast enough to even out. During this time, getting into a house at any cost was a smart move. I don t believe that same philosophy still holds true.

While Salt Lake for instance, led the nation second quarter in appreciation, I don t think 20% appreciation will continue to hold up. It is no longer smart to pay anything to get into a house and it is no longer smart to purchase homes with no financial reserves.

If the credit crunch we re seeing now turns out to be more than a passing trend, it can have a major impact on the entire economy. It all goes back to whether you re an optimist or a pessimist. I don t believe personally this will be a lasting trend. Financial markets are resilient and innovative and I predict the mortgage of choice for most Americans will soon be FHA. Yes, this subprime backlash will soon be remedied by the most classic of saves, the government bailout.

I ve even heard that Washington DC is being strongly lobbied to raise FHA loan limits to match conforming. This means that except in the highest priced States and neighborhoods, FHA loans will be just as competitive and available as any other option. With mortgage insurance and the backing of the US government, there won t be a bank that will be afraid to make this loan and there won t be an investor who won t buy it.

To answer the original question, “Should I buy real estate now?”, I have to say it depends on if you have reserves. If you re an optimist, I think you should have six months of reserves in cash, CDs or savings that will pay all your mortgage and other monthly obligations if you lose your job, or have to make a major repair to the home. Reserves also allow a seller to hold out a maximize their sales price in a less demanding market.

Economic pessimists shouldn t buy unless they have a year of reserves for the same reasons. For everyone else who would someday like to own a home, now is the time to start saving and reducing your debt. With home prices stabilizing, for now the best action you can take is to save money.

The Salt Lake City skyline has permanently changed. Early Saturday morning, the Key Bank tower (pictured on right) was imploded. This planned demolition was one of the last steps before new construction can begin on the new City Creek Center.

City Creek Center is a billion dollar mixed use project that will revitalize the old heart of downtown Salt Lake which has currently been replaced by the Gateway Center another major mixed use development that has been highly successful.

See a video of the implosion here.

With the recent credit crunch for real estate and changing lending standards being enforced some people are finding it harder to get mortgages from the places they used to.

Sunday s Salt Lake Tribune recounts the story of one such borrower.

Max Johns of Salt Lake City should not be having a problem qualifying for a mortgage.

His financial house is in order, and his credit score is well above the minimum most home-loan providers have had in place for years.

But Johns, a construction contractor, is having problems qualifying for a home loan. He s one of a growing number of Utahns caught up in one of the biggest, swiftest, nastiest shakeouts the mortgage- lending industry has ever seen - one that s suddenly making it more difficult for many to buy or refinance a home because of heightened requirements.

Sitting in a bank office a couple of weeks ago, Johns was told that although he probably would have qualified several months ago for a real estate loan, he no longer does. “My credit score is only a little bit below what they want now, but they definitely aren t making any exceptions. It s frustrating.”

Yes it s getting tougher to find a mortgage, especially if you have limited work history, limited self-employment history, a lower credit score and no downpayment. However, borrowers needing a refinance or seeking purchase money shouldn t lose hope just yet. Publicly traded lenders whose stock is being punished by the subprime fallout have been quick to change standards, but there are many lenders out there still willing to make loans.

It s important to realize the difference between a bank and a broker as a lender. A bank will typically have a set of criteria they adhere to when judging a borrowers application. If it doesn t fit, it gets turned down. A mortgage broker has access to dozens if not hundreds of lenders with a number of different loan programs. Since the broker doesn t get paid unless they close the loan, they ll be more diligent in trying to find a loan that will work for the borrower.

If you need a mortgage loan, don t give up if the bank turns you down. In fact, if you don t fit a conforming loan profile, there are not many banks that can fund your mortgage right now. Finding a reputable broker with many wholesale lender relationships is a good step in finding a loan in these more challenging circumstances. Another thing to look for is a broker with an FHA license. This serves as additional vetting because FHA licensees go through a formal screening process.

There are still billions of dollars out there for mortgage loans available right now. It s a matter of looking in the right place, or getting the right broker to look for you.

If you read the mainstream media headlines lately, you d think the American money supply and credit lines for mortgages have all but dried up. Headlines even claim that borrowers with good credit and down payments will feel the effects.

It s true the foundation of the risk mitigation that has driven mortgages for the past five or so years is at risk. However, this risk is based mainly on speculation at this point - speculation that all subprime mortgages are going bust.

The Washington Post ran a great story Sunday with the worst case scenario of this credit crunch. The conclusion?

The credit system is losing its, well, credibility. People no longer trust the triple-A ratings that many complex debt securities carry. The risk models used by rating agencies, hedge

funds and banks have also come under suspicion. The effects of subprime losses are being felt in unexpected places, including supposedly impregnable money market funds. Hedge funds and other highly leveraged investment vehicles are being forced to unwind. After years of excess, credit is beginning to contract.

There has been a “run on Wall Street finance,” said Doug Noland, editor of the online Credit Bubble Bulletin.

But no one knows how long it will last, or where it will end.

I ll add no one knows how bad it will be either. Right now the markets are all moving on speculation.

To understand the credit crunch, it s important to understand the various procedures and safeties our financial system has in place to keep credit flowing in an orderly and efficient pace. Our mortgage system is comprised of mortgage backed securities to provide liquidity to markets so lenders can lend and investors can invest. UrbanDigs in New York offers a very basic and thorough tutorial on how these financial instruments work.

Further, Pat at Transparent RE offers a basic tutorial on why this system of safeguards is suddenly not so safe.

After reading these two articles you should understand the analogy I am about to present -

The current mortgage lending crisis is like a buy/sell relationship between a collectibles store and a customer. The product, in this case, is a finely packaged box of gems, at least that s what it is presented as. For years the customer of the store has been pleased with their purchases, so much so that they buy as much as they can and refer their friends from all over the world (China, Europe) to come and buy these packages. The collectibles store owner has been so desperate to meet demand, he hasn t been looking too closely at what kind of gems are in the finely wrapped boxes.

One day recently, one of the buyers opened up their box and realized it wasn t full of gold and gems, but was only partially full. The rest of the box contained worthless rocks. Soon they told their friends and some of them discovered the same thing. Others didn t open the box and simply assumed it was full of rocks. Now nobody will buy the finely wrapped packages because they don t know what s in them. The collectibles store owner now has demand from the supply side, people wanting to sell him fine gems and must borrow from the bank to pay for these gems instead of using the profits from the sales to pay for them. If he doesn t do this, he ll go out of business.

If you haven t guessed yet, the boxes of gems are the mortgage backed securities, the store owner is the big lenders, the buyers are the hedge funds and foreign investors and the rocks are the bad loans now coming to light.

So what is the solution to the current mortgage crisis? First of all, buyers need to more accurately know what s in their portfolios. Through the recommendations of ratings agencies, too many loans have been packaged up as being good investments when they inherently contain more risk than originally presented.

As this adjustment is made and faith returns to the ratings of these securities, we ll see demand for these instruments pick up. Treasury Secretary Henry Paulson, a Wall Street veteran, said today -

“Credit is being repriced, reassessed across our capital markets,” Paulson said in a television interview.

“As the Fed addresses liquidity this makes it possible, this makes it easier, for the market to focus on risk and pricing risk,” he said. “This will play out over time and liquidity will return to normal when the market has a better understanding, investors have a better understanding, of the risk-return trade-off.”

In the mean time Governments across the world are stepping in to assure markets continue to operate smoothly. By injecting needed capital to stave off speculative hoarding by lenders, reducing interest rates and even changing loan limits, central banks and regulators will do their best to insure orderly markets and enough mortgage capital to meet demand.

Whether this will be enough, nobody knows.

Real estate investors in Salt Lake must be the envy of the country. First of all, appreciation remains in the double digits for Salt Lake and much of Northern Utah real estate. In fact, Salt Lake led the nation in appreciation during the second quarter.

Now a recent report shows rents are rapidly rising as less borrowers qualify to purchase homes and more people fearful of a real estate decline wait on the sidelines.

The Salt Lake Tribune reported today -

Rental rates in Salt Lake County have risen by a hefty 6.7 percent over the past year - the highest rate in more than a decade - to an average rent of $697, a new report shows.

The higher rents stem from a dwindling supply of available units, according to the Greater Salt Lake Multi-Family Report, published by Apartment Realty Advisors-EquiMark.

Apartment vacancies in Salt Lake County have fallen from a high of 10.9 percent in 2002 to 4.1 percent - the lowest point since 1996, the report said.

This phenomenon is not unique to Salt Lake City as the report said the same results are happening across Northern Utah. Landlords are benefiting from this market shift. For years rents remained stagnant and finding renters was difficult to do. Now the roles are reversed.

While the market undoubtedly will create more headaches for renters, landlords are benefiting from the change in the market.

“There is no doubt, it s a good time to be a landlord - finally,” said L. Paul Smith, executive director of the Utah Apartment Association.

In addition to the rental increases, landlords are benefiting from a larger pool of prospective tenants, Smith said.

“It s a scary market for people with bad credit and people with criminal histories,” he said. “When the vacancy rate gets this low, landlords are much more choosy.”

This shortage of rental housing is creating opportunities for developers, but they are choosing to build high density condos and townhouses while demand for lower priced new housing still exists.

The vacuum for rental units will have to be filled by existing units for now until development swings back towards rentals. In the mean time Utah real estate investors with rental units are reaping profits.