The property dilemma — to sit tight or cut your losses?

It’s a dilemma hitting thousands — especially young couples living in apartments. What do they do — sell now or hold on?

Many of them were frightened on to the bottom rung of the property ladder and now find themselves in a home which is too small for their needs.

They are asking themselves if they should take the hit on negative equity, and buy a house which can accommodate a growing family.

And even if they do, where will they get the money to buy another property?

A few years ago, many had held on in the hope of a soft landing, but now are wondering whether they should bite the bullet and jump.

Already price falls of 40pc to 50pc have made family houses much more affordable.

However, many couples who sell an apartment that they bought in the boom could find that the sale price is far less than the amount they owe to the bank.

Banks are slow to allow them to sell, trade up and carry over the negative equity.

However, with the ESRI predicting further price falls, and with apartments falling more sharply than houses, the longer a family delays the less return they are likely to achieve from the sale.

Furthermore, NAMA has about 8,000 homes around the country, including about 6,000 apartments, which it may offload at some stage.

While it has promised to hold on to about 6,000 of these for renting out, it has already been selling some of them, including apartments.

This makes the market even more challenging for private homeowners who want to sell.

NAMA will also make the market even more difficult for private sellers when it brings in the price guarantee. This will guarantee that buyers of NAMA properties will effectively get some of their money back if house prices are lower after five years.

How can private home sellers compete with such a guarantee?

Recently two citizens, Paddy Monaghan and Basil Good, put proposals to Government suggesting that such a guarantee should be available to all buyers.

The Government, the banks and the vendors would share the cost and risk of such a guarantee.

Such a deal would make it easier to compete with NAMA.

But the market may become even more difficult after the Budget as sellers may also have to compete with investors trying to offload rental properties.

Investors who bought in the boom are not alone in suffering negative equity but are also being lumbered with increased taxes and higher charges for a range of services.

In addition, the Government is expected to cut back on the rent it will pay landlords who accommodate social-welfare tenants.

At the same time, it will introduce a new household charge as well as other charges which the management companies in apartment complexes will have to pass on to apartment owners.

Buyers are also facing difficulties getting mortgage approval.

On the bright side, interest rates are on the way down.

So, for those who have saved a sizeable 10pc-plus deposit, the cost of a mortgage has fallen.

Falling house prices together with low-interest rates have meant that the cost of housing is now reckoned to be at its lowest level for more than 11 years.

Now an average first-time buyer working couple need devote only 12.4pc of their joint income towards paying an average mortgage.

Next month they will find it easier still, at only 12.1pc, according to the latest EBS / DKM Affordability Index.

In 2006, at the peak of the market it would have cost them more than double that — or 26.4pc of their income.

Those buying in Dublin are benefiting from an even greater improvement in buying power as the amount such a couple need to devote has fallen from 32.5pc to only 14.7pc of their joint income.

Today’s Allsop Space auction will provide a good gauge of house price trends.

For the third time they are selling properties in developments where they sold earlier this year, and it will be interesting to see how the prices compare.

They have already dropped their guide price for two-bedroom apartments in Castleforbes Square in Dublin’s north docklands.

In April, four of these sold for between €161,000 and €190,000. In the July auction, two of them sold for €145,000 and €148,000.

Today they dropped their guide by €5,000 to €135,000.

When launched at the peak of the market these two-bedroom flats were selling for almost three times Allsop levels, with prices in 2005 starting at €370,000. So they have fallen by 60pc.

This is a sharper drop than the 55pc fall which ESRI is forecasting from peak.

So the market may already be close to the bottom — and there are some commentators who believe that some segments, such as apartments in the more sought-after areas of Dublin, might go lower than the bottom average — but bounce back quicker.

So the future in the housing market is not all doom and gloom, and could yet look brighter — if the banks give out more mortgages.

Report – Irish Independent

Ireland Property – Daft Property – http://daftproperty.blogspot.com

The Arizona Regional MLS is coming out with some nice data lately. It’s about time, even though we have the venerable Cromford reports to rely on for well scrubbed data. The newest addition is a monthly report of distress in Greater Phoenix. Here is the intro from the ARMLS, “Gathering intelligence on Short Sales and Foreclosures is now easier with the Distressed Property Report. This report contains three interactive maps: short sales, foreclosures and a map of all distressed properties. Each map is a snapshot of the active distressed property aggregated by ZIP Code. Clicking a dot on the map will display more information. Each map is displayed below”:  I like it visually.

The first map shows short sales. Notice where the concentrations are: on the outer areas of Metro Phoenix rather then Central Phoenix. These are all newer area developed heavily post 2000.

 The same holds true for Phoenix foreclosure shown below. Now notice that the concentration of short sales is different from the concentration of foreclosures. Much of the market has moved to short sales. Overall bank owned homes have been on the decline in total numbers and as a percentage of the inventory active and sold, but short sales are holding steady and taking over foreclosures in particular areas.

Foreclosures are more heavily concentrated in the west valley, both in the North-west and South-west regions with a heavy dose in the North-west: in Glendale, Surprise, Peoria and Anthem in the north. Short sales on the other hand seem to have more play in the South-east where it’s rather difficult to find bank owned homes.

I don’t really know the reasons. Maybe after I have some time to review things and think then I’ll get back to this.

Interactive map on the ARMLS website.

Since many of our clients are investors the state of the rental market is fairly important as it will influence not only the price you pay, but also the return on the investment.

The most recent data via the newely formed Rent Check by the ARMLS shows the following:

Median Lease Price: ,099

Average Lease Price: ,271

Average Days On The Market: 41

Below is the partial data from July to December for each year from 2008 to 2011 with the number of units leased.

Jul Aug Sep Oct Nov Dec 2008 2,517 2,154 1,890 2,115 1,835 1,780 2009 2,530 2,535 2,324 2,529 2,290 2,156 2010 2,613 2,567 2,447 2,541 2,407 2,235 2011 3,050 3,005 2,774 3,146

The high number of properties leased is a result of higher demand from people unable and unwilling to buy, many of whom have made the choice to rent.

If you would like the who chart with data from January to December from 2001 to Current, just shoot me over an email.

It’s simply inventory is down for most price segments, yet demand remains high. At last look the Greater Phoenix residential inventory stood at 3.5 months for all residential properties, the weak and strong, under-priced and over-priced,  homes and condos.

3.5 months is quite low, but we need to look deeper to see where all the action is and how little there really is in some segments. Keep in mind two things. The overall consensus is that about 4-5 months is a balanced market and the higher the price bracket the higher the months of supply is normal.

There is lots of activity in the price brackets under 0,000 and especially under 0,000 where plenty of home buyers and investors are present and that’s why inventory there is just over 2 months or well in favor of the seller. This is the price bracket where buyer compete against each other, against multiple offers for the same home and many of the buyer are cash.

Even the 0,000-0,000 price ranges are seeing good demand and competition. It’s only once you go over 0,000 where the months of inventory go in favor of the buyer, where demand is small and supply still ample.

Bulldozers send boomtime buildings crashing down…

TWO unfinished houses that would have fetched €200,000 each during the boom have been bulldozed because of public safety fears.

The unoccupied houses — and foundations for three more — were levelled at Church View in Clongeen, Co Wexford, at a cost to the taxpayer of €28,000.

Other residents of the estate last night said they were relieved that Wexford County Council had taken action against the developers, Impulse Construction Ltd, by knocking down the houses.

They said the unfinished houses had attracted vandals and encouraged anti-social behaviour for some time, and were unsightly at the entrance to the estate. This was the first time houses had been demolished in a new estate in Wexford, but the Department of the Environment confirmed other houses had been demolished on a small number of occasions.

Wexford County Council confirmed it has more plans in the pipeline to carry out “public safety works which may involve some demolition”. Chairman Oliver Walsh said the demolition was a “sign of the times”.

Unfinished housing estates are a nationwide problem since the property bubble burst, particularly in the midlands and the north-west. The Department of the Environment assesses applications for demolitions on a “case-by-case basis”.

In some cases, it is cheaper to bulldoze a house than to fence it off.

Report by Eimear Ni Bhraonain – Irish Independent

Ireland Property – Daft Property – http://daftproperty.blogspot.com

Many real estate investors gloss over some of the most profitable real estate investment properties simply because they don’t understand them. The either hit the single family home route or just go big, but many times some of the most profitable properties are right in the middle. You don’t have to get the 50, 100, or 150 unit properties to start reaping nice return.

Smaller multifamily properties can be very accessible and very profitable, they are essentially everywhere, they are easier to purchase and sell for that matter.

So let’s define small and medium multifamily properties. Small would be 2-4 units and would even fit into the realm of residential financing which is often easier to get then commercial money with lower down payment requirements and more lenient rules, enough so that some use the owner occupied option to purchase them with down-payments as low as 3.5% with an FHA loan or in some cases with 0 down in the case of VA loan.  Medium sized properties would be 5-50 units and maybe a bit more, but not much.

The advantages of investing in smaller multifamily properties include:

Small multifamily properties have less competition than larger properties. Buying smaller properties means you usually avoid institutional buyers who are more apt to pay a higher premium for a property than individual investors.

Small multifamily properties often have a higher cash on cash return. Often you can purchase smaller real estate that has a higher overall IRR and cash on cash return.

These properties require less equity to purchase. Because they are smaller and often considered just larger home you can buy them with a lower equity input. 25-30% is common and 10% is also available in some cases. You don’t need millions of dollars to buy them so they become much more accessible to those just starting off or expanding their portfolio.

Often these properties provide more of a profit per unit then larger properties.

There are more of these to choose from. It depends on your market and the market, but there are many more smaller properties to choose from then larger ones and they can be closer to where you are too.

Because these properties are easier to purchase and own they are attractive to more investors so your pool of buyers is larger allowing you to implement some strategies to sell for more.

They are commonly managed or mis-managed by less sophisticated investors who are afraid to raise rents or don’t track the market or just don’t know how to manage properly. This presents a great opportunity for repositioning and management improvements to increase income and return.

These are just some of the advantages of investing in smaller multifamily properties. You can easily keep yourself waiting for the big catch, or  you can start reaping nice profits by getting in the market and pursuing smaller properties, because it’s all about the return on your investment, not the size of  your portfolio.

The success rate is an important measure. It gauges how many of the listings that exit the active market actually sell versus simply being taken of the market for multiple reasons,  amongst them failure to sell.

Below is chart showing the success rate of normal listings – normal meaning traditionally sold homes, i.e. not REO or short sale properties. Remember those? 

These are making a comeback in a big way. They are slowly replacing distressed properties which is a sign of a return to a normal market, one with only a small percentage of distressed properties. 

A higher success rate of normal homes means buyers are willing to buy these homes instead of bank owned and short sale homes. In order to do that they have to see value in this and they do. Pretty much all price ranges have seen a steady improvement in success, and especially the luxury market. Try to ignore the first few month of 2009. Just remember that the 4th quarter of 2008 was devastating for the economy so it’s only natural that everything would be down after that.  

We’ve been selling more and more traditionally sold homes for both sellers and buyers and often for both.

For anyone in the market right now it’s very obvious that there are fewer bank owned homes to purchase and those left have just as many buyers pursuing them. As I noted in the October Phoenix housing review, the percentage of REO active properties has dropped to 10% from 19% last year and sales have dropped as well to 35% versus 48% last year.

At this point in the market there are really only 2,400 active REO residential properties with last month’s sales at 2,623 that means inventory is less than a month. 

So it’s no wonder prices are on the rise. Take a look at active price per square foot at .65 versus .64 last year and sales at .33 per square foot versus .21 last year.

Some still have concerns about shadow inventory. I say it’s negligible. Sure it’s there, but demand outpaces supply ad there has been a fundamental shift in the market and how banks process distressed properties. For one, there is a diminishing supply of trustee deeds. That means less properties are selling at the trustee sale or in other word less homes are being foreclosed with foreclosure being the sale at the trustee sale or the completion of the cycle. The result is less REO inventory. Many more of these homes are picked up by investors at the trustee sale and will more likely hit the market as flipped home versus bank owned home, though these are still foreclosed homes and count in the trustee deeds numbers.

Secondly, not only are there less notices of trustee sale, or notices to owners that they are delinquent and the home will be foreclosed on, but many banks prefer the short sale process to the foreclosure. Expect this trend to continue as banks shift from foreclosing to processing short sales which overall tend to move rather well through the system despite the many hitches that still plague the process.

So  it looks like we’re at the tail end of was a wild ride, but like a rat’s, this tail is long.

Over the last few months small multifamily pickings have become slim: demand is really high and supply very low, almost nil. So it was fortunate that our client was able to get this little gem under contract in the Coronado Historic district which is a very dynamic and hip neighborhood with lots activity from new local restaurants and plenty of remodeling. It’s a neighborhood where the color beige is rare and each home is unique with decades and in some cases over a 100 years of changes and influence.

The triplex is a combo of two 2 bedroom units and one 1 bedroom unit and fits in nicely with the needs to the current rental market. The 2 to 1 combo is nice indeed. 

While the weather may be cooling down the real estate market in Phoenix continues its hotness, yet the seasonal trend continues: supply increased, demand slowed and prices moved up.

7,436 residential properties sold in October which is awesome good compared to 6,520 last year. I would dismiss 2009 numbers or at least adjust them because there were heavy government incentives to buy at that time. 

Considering how difficult it is to find good homes I think achieving this number is actually amazing. Take away all the over priced homes or homes with unmotivated sellers and the inventory is truly much lower. Just because a home is on the market and even priced properly does not mean it’s going to sell. Case in point: we’ve been trying to get into one home in Central Phoenix for a while now, coming across continued resistance from the seller in terms of timing for showing: they are making it really hard to view this home with statements like maybe next week or giving the buyer a narrow window which usually does not work for them. This is an oddity, but it’s not that uncommon.

So we’ve got 27,063 homes on the market which is not much more than last month nor last quarter, but it is substantially lower than 45,128 last year.  At nearly 46K homes the market was squarely in favor of the buyer with nearly 7 months of inventory. This year inventory is 3.5 months and in favor of the seller, but only to some extent. Buyers are not stupid and greedy like a few years ago, so sellers should not expect ridiculous bidding wars. In fact, many buyers will favor waiting rather than getting into a bidding war. Seller’s still need to be diligent with pricing and preparation to sell: not just anything sells.

Now check out ‘active listings price per square foot’ and notice the gradual increase in price. Sellers are felling more confident and increasing prices. This is followed with higher pending prices and even sold prices are higher, meaning that everyone is on board for a steady recovery and correction of the over correction.

#market-trends-unit-one#

Foreclosures are Declining And Traditional Sales Increasing

Bank owned homes continue to decline both in total numbers and as a percentage of the market. Last year we were looking at over REO properties making up over 19% of the active homes and this year that number is only 10%. This is in part because less homes are going into foreclosure, more homes are being sold to third parties at the auction and many are handled via short sales rather than going into foreclosure. 

In fact, 38% of active homes are short sales. What is interesting is that number has been holding pretty steady over the last two years even though the percentage of sales has increased to 30% this year compared to 21% last year and 19% two years ago. So short sales are commonly accepted as viable options for many people: the short sale process has improved a lot over the years.

30% of sold were short sales and 35% were bank owned homes, leaving 35% of sales for traditionally sold homes. 35% is better than 31% last year. 

Renters Are Buying And Will Become Buyers

Many renters are hoping to buy in the near future. This is what we hear from tenants leasing out the investment properties our clients buy. These are tenants in anything from small apartments to larger home: their ambition is to buy a home once the economy improves, once they save some additional money or once their credit is repaired.  

In fact, we’ve already had clients purchase both homes and income apartments who has short sales 2-3 years ago.

Some of The Issues Preventing Buyers from Entering Market At This Time Include

Home financing is very strict and more difficult to obtain.

Underwriters are overly cautious and take more time to review files.

Appraisals are extremely conservative and indecisive about prices.

Uncertainty about the state of the world and national economy.

Waiting for the bottom, still: despite all the signals that it’s been reached.

Waiting for credit to improve after a foreclosure or short sale.

Pent Up Demand For Good Homes

Get ready for spring 2012, it’s going to get wild. You think it’s hard to get a home now? It will be even more difficult in the spring. I know it’s silly to make predictions, but we can make reasonable ones for the short term, it only gets silly for long term predictions.