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.

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.

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.

NEW HOUSING tax laws-ouch!

When Obama care was upheld a tiny secret little tax law will also go into effect Jan 2013- a 3.8 % “real estate tax” on the sale of your home. The Health care bill targets capital gains. Yes it is true, here is how you may be affected:
Adjusted gross income of more than $200,000 as a single, and $250,000 married(joint)
Dividends,interest, net capital gains and net rental income may be taxed
Solely earned income -salary no tax
Still tax exclusions apply first $500,000(joint), $250,000 (single) of gain you make on the sale of your principal home in not taxed.
Any profits above those limits is subject to federal capital gains taxation.
The 3.8 % percent levy can be larger than expected when you sell a rental property, a vacation home, where all the profits could subject you to the investment surtax.
Talk to a tax attorney/ professional for advise on your new tax liabilities.
Keep all documentations of home repairs and capital improvements-that increase your tax basis.

Ok, ok, ok, it is time to buy!!

Lucky you, it is finally a good time to buy. If you HAVE cash, patience, and a super stable job- go ahead buy. Don’t necessarily listen to an agent,do your own homework. The best way to buy is to be educated and not rely on anyone to give you a false information. The market has flat lined, that means, you won’t get alot of appreciation, but you will get a good deal and know you are almost or, at the borttom of the market. Plain old ordinary people can make money timing the market, buying low and selling high, but it isn’t as easy as that. The market is still scared, buyers are scared and the economy still plays the largest part of the movement in the market.
Housing trends tend to be 7 years well we starting (offically) in 2008, California 2005, and other parts of the country followed a slightly different pattern, but the majority of the country is trending upward- Yea for us who waited it out…
That doesn’t mean housing is going up, however, it means we are stablizing and that alone is something new. The inflationary positive values upward should begin in 2015, (3% a year average).
Most people who are in the Real Estate industry realize interest has not been so low since the 60′s. We get to go back in time now for buyers- First time home buyers, people with great credit waiting to move up, people who have been renters ,waiting cash buyers, investors, and others who have been patient. The market is till tough to get a loan, so check with several banks and credit unions push hard to get a good loan. The laws have once again changed, and will change again in July.
Purchasing a home NOW offers the reassurance of buying low, chosing from a decent inventory, and buying at a low, low interest rate. Don’t get emotional involved, don’t get in a bidding war, and don’t think you lost something GREAT! There are alot of great homes out there. If you are flexible, certains areas are still lagging and or depressed area ( moving slowly). Be carefull when using zillow or other web sites for a basis on property values, they CAN NOT consider all options as would an appraiser, because they are NOT familiar with the specifics of the house. Appraisers consider views(how could zillow consider that????) interior finishes(not track upgrades necessary) lot orientation, fireplaces, neighboring communities, foreclosures in the areas, specifics from the part of town,(buses, shopping, rural) and specific distances from/ to the home. SO the appraiser gets the best information from his data, education, local market trends, and national/local effects of economies. The value of appraisers in the market will return once the economic values of real estate return to normal levels.
We still have shadow inventories,( houses to be put up for sale from the banks or homeowners), however the inventories are dropping to normal levels. Homes have traditonally given value to people who own their homes for many years, cash out and have some money for retirement, however with many values back to 2004 ,many retirees have no equity and will hold as long as possible- look for a long slow market improvement. With all negative considerations the market has improved just because of time , not any thing anyone has done(infact mostly the markets have improved JUST BECAUSE nothing goes down forever). Interesting fact, remember all markets are cyclical. Always do what others aren’t doing, run against the trend at the time!