REAL ESTATE: Finally a Good Investment?

The housing market still looks pretty bleak: There were a record one million foreclosures last year, home prices are still falling in many regions and the number of "underwater" properties is at a record high.

And things don't look much better in other areas of real estate. The number of construction jobs continues to decline, even as other parts of the economy have added jobs. And mortgage rates have moved higher as long-term Treasury yields have backed up during the past few months.

Basically, the real estate market remains a mess.

Real estate encompasses a wide range of markets – homes, apartments, hospitals, office buildings, strip malls, dormitories and other properties. But for our purposes, let's focus on residential real estate, or homes. Here are four reasons to think residential real estate might represent a bargain – with one big caveat.

Everyone hates homes.

Homes are probably the most hated asset class in the country. That's what happens when a bubble bursts. People avoid thinking about the value of their home. Sellers moan about no offers, buyers gripe about impossible lending requirements.

Hatred of an asset is often the precursor to contrarian interest, and being contrarian is at the heart of many investment strategies. To paraphrase Warren Buffett, be fearful when others are greedy and greedy when others are fearful. Mr. Buffett backed that idea when he invested in the stock market in the teeth of the financial crisis in late 2008 and early 2009.

Of course, being contrarian for its own sake isn't wise investing. Gold was hated for years ("dead money") before it recently became an attractive asset class. Still, a lot of smart ideas begin with the question: What does everyone hate?

Smart people are buying real estate.

This cohort is led by John Paulson, the hedge-fund manager who made $20 billion betting against the housing bubble. Last fall he said in a speech: "If you don't own a home buy one. If you own one home, buy another one, and if you own two homes buy a third and lend your relatives the money to buy a home."

Why is Mr. Paulson so adamant? Because he believes long-term interest rates are not going to get much lower. They have, in fact, risen since he gave that speech, but they remain remarkably low by historic standards. Low rates and the expectation that home prices will rise is his argument. For his part, Mr. Buffett has predicted the housing market will bottom this year.

Real estate performs well during inflation.

There's no inflation these days, but when buying a home one should take a longer view. And the longer view shows that the economy has enjoyed a disinflationary period since the early 1980s. A number of folks think that cycle is slowly reversing itself.

If that's the case, then convention would argue for holding assets that do well in an inflationary environment. That includes Treasury Inflation Protected Securities, commodities and real estate. Remember that during the stagflation nightmare of the 1970s, real estate had a strong run.

Inflation isn't a significant issue in the U.S., but it's a growing problem elsewhere. China and India have taken steps to fight inflation, the euro zone is getting flickers of inflation and the U.K. has had oddly higher prices (above 3%) for an extended period of time. If the cycle is slowly turning, real estate makes more sense.

Demand may be coming back.

Supply isn't as out of whack as it used to be. At the end of November, home builders reported 197,000 new homes on the market, the lowest level since 1968, according to Yardeni Research. The National Association of Realtors reports that the inventory of existing homes for sale fell 4% to 3.71 million homes, which represents a 9.5-month supply at the current sales pace, down from a 10.5-month supply in October.

Those aren't pretty numbers, of course, but they are moving in the correct direction. And that may be a reason that many home builder stocks, such as KB Home ( KBH: 14.79*, -0.19, -1.26% ) , Hovnanian ( HOV: 4.45*, -0.06, -1.33% ) , Pulte ( PHA: 24.06*, +0.02, +0.08% ) and Toll Brothers ( TOL: 20.40*, -0.30, -1.44% ) , have come off their lows in the past several weeks.

It's all comes down to jobs. There are a zillion caveats to any positive home thesis, but the big one is unemployment. If the economy is not creating jobs, the chance of a rebound in housing is diminished. It's hard to buy a home without a job, and folks who aren't working don't want to take long-term risks.

The job market is still struggling and the debate is hot about when it will recover. Optimists see recovery this year. Pessimists see pain for several years ahead. How this X factor gets resolved will say a great deal about whether housing will rebound.

Taken from an article on SmartMoney.com. Read more: 4 Reasons to Buy a Home Now - SmartMoney.com http://www.smartmoney.com/personal-finance/real-estate/-1295050347411/#ixzz1BhVVZ0hR

Buyer Turn-Offs: What to Do if YOUR House is a Turn Off!

We talked about the features buyers look for, and some things you can do and should NOT do to make sure you show your home's best side to buyers. Now, I want to talk about the top buyer turn-offs, and what to do if your house fits the description.

The top turn-offs for both men and woman are structural damage, bad odors, a busy street, and an awkward floorplan.
First of all, a homeowner must accept reality that if any of these features apply to their home, it will make their home less desireable than a home that does not have these features. Therefore, the home must be priced below a comparable home in size and location. A buyer will naturally buy the home that appeals to them the most within their budget. Reduce the price, and you appeal to a buyer who normally could not afford a home in your area, or a home with as much square footage, or a home with a beautiful yard, etc. There is a buyer for every home, I assure you!

1. Let's take Structural Damage. This often happens to homes that were rentals for a long time, or perhaps the home was owned by folks who became disabled and could no longer either afford to keep the home up or just didn't notice the problems occuring. Perhaps there was a leak in the attic or under the house that slowly caused damage. What to do?

You have three choices: Repair the damage before you put the house up for sale, or sell the house as it is with the knowledge that much of the repairs will need to be paid for by the seller in escrow, or sell to a cash-only buyer. The fact is that unless the price of a structurally damaged house is considerably below comparables, a buyer will not purchase the home without having the damage repaired. Most buyers do not have the capital to repair structural damage. Also, if the buyer is getting a loan on the home, most banks will not loan on a home with structural damage. As your agent, I would assess what the damage is when I list your home and make recommendations based on what I observe.

2. Bad odors. It's a fact of life that we all get used to the smells in our own home! Even some odors that would knock a visitor down seem to go undetected by the resident. Obviously bad odors are a turn off, and if a home is listed without the odor having been eradicated, buyers will run the other way. What to do?

Before you list, get rid of odors caused by cigarette smoking, animals and relaxed house cleaning. Often carpets need to be replaced and walls painted to get the home smelling show-ready. Ask a friend you trust to come over and give your home the sniff test. If you choose to sell your home as is - odors and all, expect to have to lower your price below the comparables to get any buyer interest.

3. A Busy Street. This is a tough one, but not impossile to deal with. Your sales price will have to be adjusted regardless of what you do, but it is possible to make your home appealing even on a busy street. I would recommend putting in dual-paned windows at least on the side of the traffic. Dual-paned windows are a great selling point all over the house, and I would definitely recommend replacing all windows if they are single paned.

Next, I recommend a fountain in your outdoor space. A nice tinkly one that distracts from the street noise. I actually live with a busy street behind my home, and we have a wonderful fountain outdoors. Visitors rarely comment about the street noise, and we rarely notice it.

Plant screening plants to block the view of the busy street from windows. And of course, make sure your home is clean and staged before listing!

4. And lastly, the Awkward Floorplan. If you've got it, you may not even know it, you are so used to it. Buyers are looking for open floorplans these days. If you have no remodeling $$$ to remove walls, you must know that your sales price will need to be below the comparables to make up for the floorplan. Sounds ridiculous, but buyers know what they want.

For floorplans that are set in stone - no way to change it - I would recommend focusing on the positive features of your home mentioned in my prior article. Make sure you have a killer backyard, or a killer kitchen. Something that stands out that buyers want that makes up for the floorplan. Make sure your home is clean and freshly painted. As your agent, I will help you arrange your furniture to distract from the floorplan.

There IS a buyer for every home. Sometimes it takes elbow grease, and often it takes being realistic about the features your home is lacking and the turnoffs your home has that you have no control over, and adjusting your price to compensate. As your agent, I will evaluate your home and take your home's best foot and put it forward and center in order to get you the best possible price in today's market!

Why Did Housing Take a Tumble?

This question has been rehashed by the talking heads on T.V. time and time again. We all have our theories as to why it happened and who are the villians. Some say it was the fault of the banks. Some say it was the predatory lenders. Some say it was investors buying up property causing inflated values. Others say that it was the "perfect storm."

According to a study recently released by the Mortgage Bankers Association and conducted by the University of Maryland, poor data, incomplete performance metrics, short-term focus, and unrealistic optimism among senior business managers contributed to the housing downturn. The study analyzed the risk management processes employed by mortgage lenders leading up to the housing crisis and discusses lessons learned for future risk managers.

Key findings from the study include: Subprime loan underwriting criteria expanded between 1999 and 2006 and a false sense of security with new products originated prior to 2007 occurred as a result of better than average economic conditions.

Hmmm. Sounds like a perfect storm and few heeded the warnings because so many were getting what they wanted - finally! Investors were making money. First-time homeowners were getting a home for no downpayment, with expectations that in a few years, they could sell that starter home and make money that they could then put down on a BETTER home. Lenders were of course making money.

What those of us on the ground saw happening during those good 'ol days were too many buyers risking basically only their credit scores for those expectations because they had no "skin in the game." No money of their own was sunk into their investment. Human nature requires some accountability, without which it is that much easier to walk away and leave the mess to someone else: you and I. The homes that these buyers left behind were indeed messes. Browned, unkempt landscapes and ill-used interiors needing to be labled, "mild fixer."

Of course, caught up in the storm were very responsible homeowners who did manage to refinance and hang on for as long as they could to their very well maintained and loved homes. A lost job or scarce contracts for the self-employed put these homeowners in the very same position as the risky buyers, and the stigma of foreclosure. It has been painful to watch up close.

A one-size-fits-all bandaid cannot work for even these two scenarios. That is why I am pleased that California has passed a bill to protect responsible homeowners from having to pay income tax on their forgiven debt! These homeowners should not be lumped into the same box as the risky buyer who easily walked away from a mess.

A perfect storm does best describe the housing downturn. And in any storm of life, we must learn something as individuals and as a community and as a State. You can't get something for nothing. If you have, beware of the strings attached.

To obtain a copy of the report, please visit the RIHA Web site at http://www.housingamerica.org.

How to Time the Real Estate Market

A good time to buy? Yes, but no need to rush.

Many housing economists have said that for borrowers with stable incomes, good credit history, and FICO scores of at least 620, now is an opportune time to purchase a home. Although inventory rates are below the long-run average, there still are plenty of options available for buyers.

Are you trying to time the market so you can purchase your home when prices are likely to rise again? You might consider taking a different approach. According to one real estate consultant, while home prices have stopped declining in most areas of the state, and even have risen in many areas of San Diego County, mortgage rates may rise, offsetting any potential savings.

Early last year, the Federal Reserve began purchasing mortgage-backed securities, which helped maintain low interest rates for consumers. However, the Fed’s purchase program ended in March, and some analysts forecast interest rates to increase throughout the rest of the year. One financial publishing company predicts that rates likely will rise to 5.5% by mid-2010 and close the year at 5.75% to 6%. The CALIFORNIA ASSOCIATION OF REALTORS® (C.A.R.) projects rates on 30-year fixed-rate mortgages to average 5.6% this year.

Timing the market, even for economists, is a 50-50 chance at best. What we see now are home prices lower than they have been in many years, along with very low interest rates. For those who are ready to buy a home, this is a very good TIME.

Forbes.com Says San Diego Prices May Rise Over Next Half Year

Some good news, guys! And we are seeing it in buyers beginning to be active, though still afraid to get their feet wet. We bought a house for investment, and we're not alone in the industry. Our main lender contact just bought a house to fix and possibly flip, as well! It is definitely in the air! Read this excerpt from Forbes.com...

Subprime still matters, as do the concentration of adjustable rate mortgages. Transaction volume, however, especially over the next 12 months is becoming an increasingly important gauge of a market's health. This month the National Association of Realtors reported that sales volume of existing homes was up 2.9%, the first such month-to-month rise since July.

In cities like San Diego, one of five major metros where transactions rose, that's good news, assuming it's sustained. What makes transaction volume a good indicator is that it shows how easy it is for people to get loans and how much confidence there is in the market. If mortgages are available and buyers have some faith in the value of the home, they're more likely to buy.
San Diego's present conditions suggest that over the next half-year, prices may start to rise. That's because "there's usually a three- to six-month lag between when transactions go up and prices go up," says Jonathan Miller, president of Miller Samuel, a Manhattan real estate appraisal firm.

Another good sign for the coming year? Increased credit availability.

We took into account increased Fannie Mae and Freddie Mac (GSE) loan limits. The new legislation will open up credit in markets such as Sacramento and San Diego by boosting the GSE loan limit by 125% of the median price. That's a huge deal for San Diego, where 18% of the market will see improved lending conditions, based on projections by Radar Logic, a New York-based real estate research firm.

http://www.forbes.com/2008/03/31/homes-risky-property-forbeslife-cx_mw_0331realestate.html?partner=email

And the Survey Said...!

Standard & Poor's announced: Shiller home price index for 20 cities fell a record 2.4 percent between December and January and has dropped a record 10.7 percent from the same period a year ago, according to January figures released Tuesday. Of the 20 cities studied, all posted declines year-over-year except Charlotte, N.C., which rose 1.8 percent. All 20 cities posted month-to-month declines.

What does that mean to you?


National surveys such as these are useful in measuring broad macroeconomic trends but are of marginal value to the individual consumer in the process of buying or selling a home. That’s because real estate prices are set at the local level and can vary dramatically from market to market, neighborhood to neighborhood, and home to home based on a variety of factors.

NAR on Tuesday reported an increase in sales nationally for the first time in seven months. This gain is encouraging because increases in sales were not expected until the second half of the year.

According to a C.A.R. report, February sales volume in California was up 9.5 percent compared with January, marking the fourth month in a row that figure inched higher

In the market here in East County, falling prices have recently stimulated sales as buyers (including us!) take advantage of the downturn. As inventories of homes are drawn down, prices should begin to stabilize.