House Values 2020 BEWARE- COVID

House values in pocketed areas are strong again. Interest is LOW, however the economy is trending downward as we wait for the solutions to the virus. Watch/ wait 6 months from now to see the real affects on the housing market. If you study it you will see lumber, materials, copper, and building are lagging,
Home depot and Lowes are doing well- why you ask? Because people are staying put, repairing and updating because the economy needs to rebalance. Houses may drop, if demand goes soft- it is, relatively speaking, soft now. Beware when buying , get the house you want at the price you want, don’t be emotional, don’t over buy.
This is a difficult time in the market for appraisers too.
We know our market, however open houses, market demand, viewing, and tours are down now because of COVID. It has become another market consideration, it has taken over home buying.
Buyer beware, and educated- watch the sunset a little bit longer right where you are!

Is the Housing Market approaching a Crossroad?

Investors will be watching the markets for signs that the housing market is cooling-there are signs appearing.  Data on existing homes and new homes , have showed evidence of  slumping. Existing home sales slumped in June, for the fifth time in the first six months of the year, while new-home sales fell in June to the weakest pace in eight months.  Those worrying  see trends appearing, these are critical indicators of the overall health of the economy, tied into the housing markets.

Home builders have higher costs of materials and labor.  Mortgage rates have edged higher- these push some buyers to wait and push first time buyers out of the markets.  Home builders are  raising  costs, but demand MAY go down as prices go up.   Existing homes are slowing, even though they offer a better value. There are fewer available homes to purchase as owners stay. Home improvement chains like Home Depot and Lowes are  busy as owners upgrade instead of moving.

The projections seem to be an overall slowing market. Inflation will cause your home to go up, but remember you still need to have demand, a buyer that can qualify for a  mortgage, and be in an upward mobility community.

This may be the beginning of a slowing housing market, however pricing may continue to climb for a year or two especially if interest goes up slowly.  Remember market segments vary from area to area, and city to city due to local demands.

Be an educated buyer!

Ten years ago the worst housing crisis occurred. About 2.5 million American buyers  still owe homes worth less than their mortgages. That is about double  what a normal housing market carries.  Many housing markets around the country  are now close to their 2006 values,housing markets however,are hard to image as cyclical.  The market timing is everything, be aware of the patterns that happen in your area and how fast and long they occur.  Usually they are within 7-8 years.

Each cycle will be affected by the relativity within the particular area- ie, jobs, general economy, government regulations, cost of money, building cycles (different) and area of demand. You can’t  control outside factors that control the values of housing only the intrinsic value.  Remember when you buy a property it is a huge investment that affects many aspects of your money.  The costs of housing often goes up as your mortgage may go down- taxes, insurance, utilities, repairs.  Sometimes ownership is NOT always positive , even rentals.  The costs outweigh the value.   It is  a good idea to buy the smallest house in a stable neighborhood, than the biggest house in a declining neighborhood. Be aware of how much money you reinvest in your house- not all of it returns. For instance new windows; no value there, however, cooling costs maybe lower, view better and quieter it makes for a quicker sale.  A pool will return 75%, a kitchen 89% and so on. Sweat equity is always a way to big value.

Another words home ownership has changed in the US.  Many people like to rent  rather than buy, they expect gardeners, midnight keys replacements, plumbing repairs at a phone call, and ften pay late. Many people ARE NOT great tenants or have any pride of ownership. These are the tenants that cost you money- often big money.

Be educated when you buy , keep a reserve of cash for repairs, chose your realtor carefully.  The internet is not the place to research, walking the neighborhood is, talking to neighbors, sitting in car and watching what goes on.  Understand all the complications of ownership and property management. Understand your escrow, watch the adjustments, and understand your local market and the local economy.

What about University RENTALS?

The rental market has been a tough one in the University of Arizona’s  targeted area. Several large high rise towers have been built over the last 5 years and MANY Mom and Pops have gone in purchasing a couple units, especially since interest has been so low. Now we are going through absorption and rents have dropped, this in turn LOWERS resale value too. If cap rate is affected the sales price is affected too- beware- selling isn’t always a good idea when units are hard to rent. Many people both in 2005-2006 and now can barely cash flow, between insurance, taxes, water, maintenance, security, and several other costs it has been growing harder and harder. Properties begin to look poorly maintained, , neighborhoods go downhill, crime increases-

I decided to drive around the U of A area to see really what was going on- on every block there is at least 2-3 rental signs- not good! Now the prices are by the bedroom, when did that start? With the towers $600- $800 a bedroom, sounds like California pricing to me.

When did college kids get so rich?  We have managed units for 30 years,  and it has become BIG business, it is tough if you have 2 or 3 units and hope to compete. Vacancy rates are high, college kids are hard on the property , turnover rates are high too, on top of that utility rates keep going up- sewer, water, electric. Good luck for the next couple of year while absorption happens.

Buy in  a GROWING part of the city, watch the price factor, cash flow, and location. Northwest might be a good place. Remember single family homes for middle class people is a good category. ONE refrigerator, stove, oven, AC unit, is cheaper to repair. Make a lease that protects you , check out your prospective tenants very thoroughly. You don’t always make monthly money owning a rental, however, for now, you get a tax right off. You may not make appreciation owning rentals a long time either, costs are high and so is management. Sometimes I think equities are better, ha, ha, ha, at least over 25 years they tend to average 6%.

Just remember it has turned into a BIG business in University areas! Be prepared to wait it out and lower your rents, fix up properties that are empty, or sell at a loss. Be prepared to compete with commercial management teams and  facilities that offer swimming pools, bus pick up, game rooms, happy hours/bars, weight rooms and A LOT more.

Supporting Market Conditions, it is harder than you think!

Supporting market conditions is a very important part of the appraiser’s job- it is mostly misunderstood by sellers, and often miscalculated by realtors. It takes many  years to understand the foundational  value of a home.

It is time to understand the appraisal and the job of the appraiser.  The appraiser must support the current market conditions. This has always been a Fannie Mae requirement.  It is also a Collateral Underwriters(CU), and  Uniform Standards of Professional Appraisal Practice (USPAP) requirements. These requirements satisfy the most demanding reviewer.(AMCs, lenders, and underwriters)

Data is from local MLS markets, however back up data is  graphed and calculated  for specific requirements. This takes very specific information compiled from  the appraiser.  The extra work (and your costs) money, is  well spent- it saves the  reviewers time- enough exhibits to establish the current market value.  The analysis uses median prices rather than average or modal prices.  The Appraiser uses the one that makes the most sense in that particular market area. This requires analyzing information and comparing several things. All three factors- mean, mode, median,  are reviewed then the most accurate information, or the most reflective, is used.  This is not the price  the seller may want- he only understand his value, not the markets fluctuating value. Remember a seller can put any PRICE on his home, it isn’t a VALUE.

MARKET INFLUENCES

SR 1-2(3) (requirements)  – requirse the appraiser to identify the “physical, legal, and economic attributes…” which influence a properties value and current marketability. Part of the analyses behind this is the study of marketability, submarkets, and how the market changes, is  its current  influences.  The market is always under influences related to supply and demand, the buyers ability to pay and a sellers ability to sell.  Even in a stable market( Tucson is not) there are forces at work that could unsettle the market any a moment.  Increase in interest is one of these forces- sometimes it becomes cheaper to remodel, stay, or do nothing.  Moving costs money, moving up costs money, and selling a property costs money. Often consumers are unaware of all the costs to sell a property and are shocked at how little they really get to keep!  When markets have a lot of buyers – buyers are at a disadvantage, finding themselves in bidding wars. The only way to get a property is to overpay- in markets like these the price is clearly the issue, the value is another! It doesn’t mean the price is equal to the value- it means YOU paid too much!  The buyer is bidding to overcome the real estate shortage in THAT particular submarket, at that particular time. Be aware!  Your bid(price) represents a non-real estate component.

Buy or Sale? and rent? Where are the buyers?

It may be time for many of you to think about buying or selling, the national markets are busy- however, be careful of how and what you buy in Tucson. It is a different market all together. Tucson tends to be affected by employment, Tucson lacks the availability of good paying jobs. Tucson has a low resale market value, in fact many cities are experiencing this- an increase in the rental markets, less interests in purchasing.

Taking the plunge requires stability, jobs, good increases in home values, and disposable income. Some people who have lost their homes, went through short sales or foreclosures are now able to buy. They have repaired their credit, saved money, have the capability of getting(or got already) a good job.  Foreclosures that occurred between 2006-2010 may be able to buy now- but what is happening – few are interested in a purchase. They are happy to rent, save money and NOT spend income on repairs.  Boomerang buyers are a strong part of some national markets,but participating in Tucson in smaller numbers. WHY, because jobs are narrow and limited in Tucson.

The Tucson rental market has changed serving a variety of tenant needs by increasing  small upscale individual houses, with amenities,  building more apartment  complexes, and becoming family and pet friendly. Many people have stayed in the rental markets. Eliminating  expensive costs of utilities, repairs and taxes. This type of market is here to stay- so it puts pressure on the pricing of the resale housing market. Tucson is a less sophisticated market with downward resale pressure and upward housing costs.  It is unrealistic to maintain this type of environment without good increasing jobs.  This market in Tucson is under pressure and still has areas that are considered downward trending.  The prices in Tucson WILL NEVER be as high as 2005-2006 again. Values can’t be compared to those prices any more- they are off the radar as comparable sales. Realize the new  resale prices are your neighborhood comparables. You can list your house for whatever you believe your house is worth, but consumers are wise careful buyers, they now judge the market in new ways and have everything at their fingertips to compare old  prices, interest costs, and taxes. Buyers can check the property histories- see your loan balances, know what the old house looked like. They know if it is a quick fix up or a careful remodel.  Sixty days is the average selling time for most homes (depending on price). If you don’t get an offer within six months , you are over priced- lower it. Keep lowering your house until you begin to see interest, don’t waste time and money. The market dictates the price of your house, NOT your realtor.  Sometimes you will get a great salesman, but not a SALE.  Remember with many people continuing to rent, you still have to be proactive to sale your house. At strong rental market is here to stay.  This is the last componet of the 7 year real estate cycle.

The REAL price and value of owning a rental!

A lot of people in 2005, 2006, 2007 bought rentals and thought it was the way to get rich fast. Realtors were fast talkers, everyone thought it was easy money. Now people are struggling to pay their first mortgage, and their second, their rental mortgage and second home, ouch! The reality is it takes many years to really accumulate money and wealth from rentals. It is a balancing act most people don’t understand.
First the high cost of the loan, depreciation, taxes, interest, insurance, utilities and then the dreaded turnover. If you don’t accumulate reserves early you will never be able to balance the cash in and out.
Rentals are meant for people that understand how money really works. It costs money to make money, or it takes careful budgeting and allowances to manage the property. It takes a specific type of personality to collect the rents each month, call tenants, check the property, understand needed and timely repairs. Besides the Arizona Landlord laws, a lot of legal issues can occur with a poorly managed rental.
For an average $200,000 property you need to understand what CASH FLOW really is…After paying the mortgage, insurance, taxes, and maybe utilities you better have money left over. Money in case the tenant splits and leaves the house a mess: $130.00 cleaning, couple new blinds, a little paint here and there,new refrigerator, landscaping, maybe carpet, seasonal maintenance, water and utilities. Wow, you could be out $3000.00 and now your paying the mortgage until ( say a month and a half) a new tenant comes along you trust! Out $4200.00.
-repairs and two payments. Fortunately, rents are stable and have gone up , but so has utilities, taxes, insurance. That may mean no extra money in your pocket. Don’t ever buy a property without cash flow, check all the continued costs, don’t assume the previous rents are now current rents. Make calls yourself, call
talk to a real estate accountant, understand the real costs. After owning a rental 10 years and stocks ten years you are more likely to have made MORE money in a stock fund than owning a piece of property- dollar for dollar rentals eat money. Make a big down payment, (or pay cash), make the tenants pay all costs, water, gas, electric, get a big security deposit (one and a half rents as allowed). Write a careful lease that requires some small repairs be done by the tenants. Screen your tenants carefully.
There are good reasons to own property- It’s a negative bond- pay down your mortgage- you earn money, it gives you leverage, it could be back up emergency funds(if you have equity),it makes inflation your friend, you profit from falling interest rates, it can build wealth, building equity builds financial security.
Building equity in property takes buying the property at the right time! Timing IS everything in this market!

Appraisal new technologies

Tucson doesn’t create enough good jobs, have a stable influx of new people, or have friendly policies for new business, therefore the housing market is extremely volatile. We rode the wave of increased prices last year as everyone believed the housing market was improving, and indeed several areas of the country saw great gains- however Tucson has remained sluggish and probably will until 2016. The price increase in 2013 has flattened this year and only lower priced homes continue to be in a sellers market range. Still a few investors are buying, but that has slowed also.
Current credit liabilities and banking requirements with loans, documentations, house pricing, have increased the pressure of more accurate valuations. Appraisers have made adjustments to the changing increase of market data using advanced analytics and influencing technology, both having a significant influence on how the appraisers come up with value. The seemingly endless information, facts, figures, numbers, and charts is leading regulators to hold banks to a higher standard thus turning down more individuals for loans. In return they are holding appraisers to more stringent requirements and increased usage of mobile technology for market analysis. Big data is one of the five biggest trends redefining the valuation process. Augmented reality,a virtual layer of data with geographic specificity, will facilitate market analysis. These new technologies will be enhanced by experienced appraisers in your area who understand the value of mega data, and the changing economics of YOUR community. Be aware poor appraisals have become part of the problem in house price devaluation/ fluctuation, banking standards, and government policies, nobody is really winning here. Low values of homes keep people from moving, relocating, fixing up their home, or feeling positive about the economy.
It is a complicated time to buy, buy only if you anticipate staying 5 years. Realize a 3% increase in home values will be the norm. We are finishing up a 7 year downturn in the business/builder cycle, perhaps the model will return in a positive upturn-

Sales are up and stable but…..

The areas within Tucson can lag behind other states , cities and even area to area within the Tucson greater area. Know and review your value, comparables sales, and sales data within your 1 mile range. Remember to compare similar age, square footage, lot views, building materials, updates and so on. The market is narrow right now and buyers can be picky unless you are under $249,999. It is slowly improving, lower range is stable $120,000 and upper $1,000,000.00. Slowly Tucson will improve in different price ranges, locations, and out lying areas, but beware. We are still hanging on- depending on interest rate fluctuations , job creation within Tucson and upward mobility. Yes, we are improving building is beginning to occur, things are selling, improvements can add value to your house, but don’t expect great returns or inflationary pricing just yet, 3% a year is standard here.
Be happy if your house sells, the bank doesn’t call your line of equity due, or you have money to do improvements. Sit tight for two more years, it may be a better time to sell , but remember if your house goes up so does everything else.

Did you miss the upturn?

Now, one year after I originally posted it was time to buy, I can safely say the market is on stable footings. It has been a difficult time, mainly because of the finance. Strong data has helped to stabilize the markets, yet remember data is backgrounds, what we see NOW is old. Rates are going to go up slightly and keep some buyers out, but others will continue if in the process. The market is cooling from the Spring oversell, cash buyers , investors and buyers are slowing also because inventory is low. Tucson’s real estate markets haven’t risen like national levels, D.C., Florida or California but has risen quickly and now is leveling out. Tucson has price increases, but limited buyers, especially in expensive homes. Next comes a normal market as people adjust to slightly higher interest(still historically low). Flippers will slow down, and prices won’t rise with multiple offers. This becomes a normal buying market with average value increases, qualified buyers, and homeowners getting the financing they qualify for. Financing becomes easier to get for the working family and interest won’t really affect the market other than HOW much they can buy. We still need the job market in Tucson the improve to help the sale of homes in Tucson.
The volatility in the equity markets will affect the interests rates off and on, but in the end, the rate makes adjustments from demand and supply. Be careful when you refinance, or hold off for a bit to buy- let the interest market stabilize- it may come down and level out before going up in 2014. The markets equity and housing in combination) are still unstable because of the economy. Interest can go up fast so keep informed, be prepared, what the markets for the best timing to buy or refinance. Watch all market signs, consumer confidence, prime rates, documented positive growth- and remember markets see ahead, economic data reads in arrears. It will be an economic recovery, but slower and with a muted rise in the 10 year bond. It is time to buy, if you catch another dip in rates. In Tucson we are beginning the upturn in the seven year housing market normal cycle.