NEWS FLASH

For the longest time you could not get a loan on about 90% of the condos out there.

It looks like that is about to change, at least for the condos here where I live.

Check this out. You could get a 2br/1.75 bath, totally renovated condo here for a principle and interest payment for under $300 per month (assuming 5% loan). There is one on the market right now. Click here to see what’s available.

Naturally, you will have HOA fees and insurance on top of that, but you are still living large for under $600 per month.

I met a woman who bought one of the condos here with a normal good old fashioned loan. I spoke to her lender and we think we could do it again, due to changes in the way FHA views some condos now.

This is a HUGE development.

If you want to find out more, please call me at 602-456-9388.

Remember Econ 101?

When the supply of something goes down, prices go up.

So we are sitting on the crest of a wave. It won’t be a massive wave, but this is where it turns around. Those who are fully employed are sitting on more savings than they have had in decades (about 6% versus 1%, usually). They are not spending because they are watching for good economic news, which is starting to trickle in.

These people have been very attracted to the market (lowest prices in decades and lowest interest rates in centuries), but they are just waiting for good news. Then they will act and act quickly.

The following is the news they are waiting for. Watch as people trying to get the best deals before prices go up actually help drive prices up.

1) Days on Market.  You are seeing here that homes are not staying on the market quite as long. In fact, quite dramatically. Just look at the drop since December. Simply put, as soon as the good homes come on, they are getting snapped up! The properties that need a little work or that are not priced right will stay on a little longer. This will drive down inventory.

2) Active listings –watch that pink line! What you are seeing here is the number of active listings starting to shrink again. Two reasons, (1) people are already starting to snap up the best homes and (2) the foreclosures and short sales are going away. It won’t happen over night and it won’t be extreme. But prices will increase. An increase in prices by 10% combined with increased interest rates can mean over $100 per month more on a $150,000 home.

My colleague Leif Swanson came out with his annual Good News Bad News analysis for the 2010 real estate market.

The take-away:

Good — The media only reports on the low prices. They don’t tell you that sales are at an all-time high. That means other people are scooping up the great deals! See below.

Bad — Homes priced above $350,000 remained hard to sell.

Call me today if you want to grab the deals before they are gone.

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The Good News:

• Property prices overall for Maricopa County went UP just a tiny bit higher than 2009 (by less than $600).  Some cities had increases in average sold prices in 2010 while others still suffered.  See the attached “MLS Sales Per City 2009-2010” sheet to see how your city performed.
• 2010 was the 4th best sales year ever.  Almost 90,500 were sold in 2010.
• December 2010 had the most sales of any December in history:  8,435.
• April 29, 2010 had the all-time highest number of properties under contract:  23,630!
• Interest rates dropped below 5% for most of 2010.  I had a client get 4.33%!
• Low property prices combined with low interest rates make this an incredible time to buy.
• Investors gobbled up bank-owned foreclosure properties.  Over 40% of all sales in 2010 were cash sales.  Two years ago people were asking about the second wave of foreclosures (aka shadow inventory); it never happened.  Nearly 53,000 active listings in January 2009, but less than 40,000 active listings at 2010’s peak in November 2010.  We’re down to 37,350 active listings in January ’11.  This is the lowest level of inventory since 2005.  Over 4,000 bank-owned properties were sold in December 2010; thank goodness for investors.
• Hardly any new homes were built in 2010, which helps keep inventory down.

The Bad News:

• April 2009 was the bottom of the current bad real estate market or so we thought.  After the first-time homebuyer tax credit program expired this summer, sales dropped off significantly for “regular” buyers (investors carried the load for the rest of the year).  Because cash investors replaced regular buyers, the average and median sales prices dropped.  We hit bottom in November 2010 with average sales price and price per square foot.  We hit bottom with median sales price in December 2010.
• Foreclosures dominated the real estate market, accounting for 41% of 2010, but down from 55% of 2009’s sales.  Short sales accounted for 21% of all sales in 2010.  Combined, bank-owned and short sales were 62% of all sales.
• Homes priced above $350,000 remained hard to sell.
• Vacant properties accounted for 76% of all sales in 2010.
• Loan modification programs failed to help struggling homeowners.
• Job loss and job fears are keeping people from buying despite low prices & interest rates.
• People can’t sell their homes in other states in order to move here.
• Short sales did better in 2010 as banks increased staffing.  However, there are still fears of banks coming after “forgiven” loans.  If you are considering doing a short sale or foreclosure, please check out the Short Sale Advisory at www.AARonline.com (the AZ Assoc. of Realtor’s website).

I just read a very interesting article from MSN Money describing how the end of cheap money is coming soon.

Not tomorrow soon, but in the next few years soon.

Basically, it breaks down like this.

1) Over the past decades large countries have been saving less money and investing less money in infrastructure. So, since they are not spending the money on infrastructure, the pool of cash that they borrow from (people’s savings) is not needed. So the price to borrow money (interest rates) drops.

2) Because there are so many emerging countries (China, Chile and others) that will soon be adding billions of miles of housing, roads and infrastructure, they will need to borrow money to invest. They will come to that same pool of money, which won’t cover all of the need. So, the cost of borrowing money will go up.

He is optimistic about the result of all this: “So while the end of the era of cheap money will make it harder for households and governments to live beyond their means, it will usher in a new age of global prosperity and stability while putting an end to the risky, yield-seeking behavior that inflated the housing bubble.”

That’s the long term.

In the short term, we will also see the cost of borrowing money go up because governments will have to spend less in order to get out of debt, leaving less money in circulation. As the author says, “This will mean the end of 0% credit cards, 0% auto loans, interest-only mortgages and low-cost auto leases. If you need to borrow money for something, now’s the time.”

In the long term, he actually suggests getting away from real estate and going to stocks. By long term he means by 2030. In any case, I would never put all my eggs in one basket. I’ll keep a diversified portfolio between real estate and other options, thanks.

What does this mean for you?

Well, first, put it all in perspective. Don’t get stressed out over the difference of half a percentage point if you are buying a house today. Ten years from today you will marvel at how good you got it.

Second, if you are thinking of buying now, buy now. These rates are not going to hold!

For those of you new to Phoenix, you may not know that just about this time of year you can get all the free grapefruit and oranges you want over in the Arcadia neighborhood.

Some of the owners of these massive, lush properties have more fruit than they know what to do with. Many of these trees are left over from when this area was all orchards. Some are newer.

Had you driven last weekend along Exeter or Lafayette Boulevards between 44th and 64th Streets and you would have seen many massive boxes on palettes full of fruit, or just piles of fruit along the side of the street.

I was showing properties along there this weekend and we stopped to pick up about 30 grapefruit for my clients.

The idea here is to get the fruit off the ground so the roof rats don’t have anything to eat.  But it is a wonderful way to provide food and beauty at the same time.

Which brings me to my rant for the day.

We waste millions of gallons of water per year on decorative orange trees in Phoenix, as well as trees that could produce dates, figs, pecans and olives. Instead of just tossing these in the landfill, we could produce a millions tons of food for people to, you know, actually eat!

People have said to me that we don’t want more fruit trees because it will encourage roof rats. Well, decorative orange trees attract roof rats, we have to clean them up and we don’t get any benefit from them.

We just have to handle the edible fruit wisely: harvest it and get it picked up right away.

I think we should encourage a culture of urban harvesting in Phoenix. We are not talking about a massive undertaking here. Just a change in awareness.

I’ve harvested about 20 pounds of pecans from the two trees here at my condo complex. That, my friends, is a lot of pies.

You might recall a few months ago that I predicted how the historically huge savings rate in America is going to drive the real estate recovery.

In short, Americans are saving an average of 6% of their income every month. Over the last three decades, we have typically hovered closer to around 1-2%. So, this means that the 80%+ of the job market that is fully employed is sitting on a lot of savings. They have not spent it because they are waiting for signs that the economy will recover; specifically that they will not lose their jobs, too.

So, read the article in the Financial Times (which I can’t link to) today: “Jobs data increase confidence in recovery.” Basically, job growth over the last quarter was higher than economists predicted and the Institute for Supply Management (which tracks manufacturing) was reporting encouraging news.

So, back to my prediction. I said that as soon as those folks who are sitting on wealth start hearing sustained good news about the economy, they will begin to spend.

So, guess what I’m seeing this week? I’m getting more and more phone calls from people who are interested in buying a house. Many of whom are looking for investment properties to spend their excess savings on.

We won’t get out of our troubles tomorrow, but you read it here. This is where it starts. Next, as those folks start buying, watch prices start to edge upward in the housing market again.

Every so often some incredibly inexpensive properties come open at my condo complex here in CenPho.

See here for three of them. Two are 1br, 1ba and one is a totally renovated 2br, 1.75ba.

The reality of most condos is that you probably won’t be able to get financing for them. However, if you are in the market to pay cash, or can work out a private loan with a family member, the world is your oyster.

The $55,000 property would cost $260 to live in per month in HOA fees (which covers water, exterior maintenance and structural insurance).

Figure you borrowed money at 5% from a family member, and you can get a 2br/1.75ba, 1,100 square foot condo for about $560 per month. The 1br/1ba units would be as low as $343 per month under those conditions.

Oh, and by the way, I think that $55,000 price tag is too high. I would work to lower that.

My condo complex is shady, retro, built like a tank, with a groovy pool and a huge back yard where you can harvest pecans, dates or figs.

I’d really love to see some more owner-occupants here. Investors are great, but I would love to see us preserve the balance between investors and owner-occupants.

So, if you have any questions, please give me a call. I don’t represent these listings, but I can help you grab them before they are gone. 602-456-9388.

Please see this link to learn more about the property. This is from an old listing, but the price is the same and the house is still great.

So, I bought a house a few years ago and renovated it. It is a 1925 Bungalow with a new bathroom, kitchen, laundry room, paint and landscaping. It also includes an ADT security system.

People on this block actual, you know, TALK to each other. Can you believe it?

It is a work of art, if I do say so myself.

It is also walking distance to pretty much everything in our newly vibrant downtown. I always liked walking over to Matt’s Big Breakfast, or to First Friday activities.

So, I’ve had wonderful tenants here for the last few years and I’ve had good feedback.

Please see this link to learn more about the property. Please give me a call at 602-456-9388 if you are interested to rent. I’m looking for renters who respect historic and love downtown.

Photos!

I’ve reported in the past that we as a society have so many choices that we don’t know what to do.

There was a book that came out a couple years ago called The Paradox of Choice by Barry Schwartz. The author spoke about how our multitude of choices actually stresses us out, rather than add convenience. It used to be that we had 5 watches to choose from at the department store. We pick one that is not perfect, but over time it becomes us. Now we have thousands to choose from and the moment we pick one we think that perhaps we picked the wrong one. The author also suggested that this might apply to our love lives, too. But, I’m not going there.

But I do believe that this is the same with real estate.

There are tens of thousands of homes out there and if you look on line its overwhelming. What do you do?

When confronted by so many choices, the first reaction may be to put off the decision. After all, interest rates are really low and you keep hearing that there are more homes ready to “flood” the market.

Well, interest rates just started to move up last week and I’ve covered previously in my blog why you won’t see a flood of new foreclosures in the market.

But, as for the process of choosing the best house when confronted by seemingly unlimited choice, my suggestions:

1) Before you look at even one listing, write your priorities on a piece of paper. Don’t want to renovate? Don’t want to live next to a school? Then refer to that later in the process. You list need not be unchanging, but it should serve as a guide.

2) Weed out the ones that are unacceptable, put them in a pile and don’t look at them again. They won’t get any better.

3) Split the rest among those that you really love and those that you think have some good features, but which are not perfect. Save that “imperfect” list for later.

4) As you go and see the properties in person, take lots of notes. If you are looking at homes with me, I’ll give you a clipboard with all of your listings. Make lots of notes to trigger your memory. It is easy to forget all of the details and you first impressions. After about the 5th house you see, they all blend in to one blur.

5) Don’t let the perfect be the enemy of the good. Once you’ve looked through your favorites in person and if you are not finding what you want, consider seeing ones from your “imperfect” list. The experience of looking and what you’ve learned about the neighborhoods might actually change what you consider perfect and imperfect.

6) Don’t procrastinate. Once you are in the market, see it through. If you hold off your purchase, you risk seeing the inventory of homes shrink and the interest rates go up.  An imperfect house that you passed up could have been the perfect house with a little work. Or the price could have been negotiated. Then all that work will be wasted and you won’t find the house that fits your needs, despite all the choice. Now, that is irony.

I love me some contradictions.

Any time you hear somebody telling you that there is a massive wave of foreclosures coming down the pipe, or that everything will be rosy tomorrow, just remember: it will be a mix of good and bad. As a home buyer or a home seller, your best option is to make plans as you normally would and to your best to mitigate any negatives.

In other words, find the opportunities regardless of the market.

Take a look at these stories:

1)  Forbes: Phoenix housing prices falling dangerously. There are obvious problems with this story. First, Zillow is far from accurate about home prices. and trends. Second, the market softens near the end of any year. Third, and most important, this is an opportunity if you are looking to buy, regardless of whether the market remains flat next year or not. Negative, positive!

2) Real estate opportunities starting to grow. Here is a story of how people are finding huge opportunities in this market. They are going in together on investment properties, forming Real Estate Investment Trusts (REET). They are buying homes at historically low cost, which will pay off even if prices dip a little in 2011 –they will probably start coming back in the next year and savvy long-term investors will reap the reward.

What is the problem with this story? Maybe it is a bit too rosy if you are a first time home buyer and don’t have access to quick capital. How do you fix that? Make a plan and save every month so you can act as soon as you can build up enough for 3.5% down and get a FICO score over 700.

Maybe its time to talk to people in your family about getting together to do some investing. It is not as difficult as it sounds.

I just heard today that manufacturers are sitting on $2 trillion dollars of cash, just waiting for people to start spending. Add that to the fact that the savings rate in America is now over 6%, average, and you see that there is starting to build a pent-up demand. Will that express itself in terms of home purchases or product purchases? I think both. As soon as people hear some good economic news, they are going to spend.

So, you have a choice. See the opportunity in the market while prices are low, or let that dam of pent-up savings break and watch prices go up.

To me, that is not a contradiction.