Markets on the Rise

It has been said that in real estate investing, you can become a millionaire working with one square mile of properties. This is true in virtually every medium to large market in the country. A small market may require a larger area due to minimal population density.
The intelligent investor will realize that some microcosms within a marketplace are going to be gold or diamond mines compared to copper mines in other neighborhoods, and that selection of these mini-markets within a market can accelerate your success. I liked Matt's quotation above from Doug Clark, that "many of the hot spots such as Los Angeles have many areas in disrepair with low-priced inventory, making flipping an attractive option.”
It's time to become more of a detective and to track down the areas where the low hanging fruit lies. This is especially true in the areas that are most competitive. Do not complain about the challenges in finding property opportunities or negotiating discounted prices, dig a little deeper and find that diamond mine in your backyard. For suggestions on non-mainstream ways of finding properties, see my Post Thread called "51 Ways to Find Properties" and the growing list of methods that is included in that series.

Thx matt n Dallin, I'm glad I have buyers in California, I live in San Diego and am in the middle of calling all of my buyers to follow up with them and stay in touch. I have done 3 deals 1 here in san diego and 2 in KC MO but now want to find those diamonds in my own backyard, yea!

So am pushing to make more offers in Los Angeles where I'm from, encouraging.

Having lived in SoCal twice (Simi Valley and Vista/San Diego), and done some real estate investing there, I have come to one conclusion--California always does things bigger, wilder, more extreme, and sometimes crazier than anywhere else.
That translates to opportunity for those who will simply recognize it. You may need to turn over more stones to find properties, but solid deals in California are not difficult to market, and there are ALWAYS going to be lots of deals waiting to be made. Anyone who claims otherwise simply needs to learn to think outside the box a little and get out there and find deals. If a person simply went to everyone they know, or from door to door offering a decent referral fee for any property where you are able to put together a transaction, with the fact that the average person knows about 500 people, and 20% of those people are going to move in the next year, there should be enough referrals to properties that have not yet been placed on the market to keep a person busy.
The challenge for most investors is that they either: A)Only use one or two ways of finding properties and spend the rest of the time complaining that they do not have enough properties, or 2) Expect a realtor to do all the work while they passively sit back with their calculator waiting for the deals to roll in. In every market it is necessary to FULLY engage in the marketplace, develop 15 to 25 regularly producing sources of property leads, and work the business daily.
Tony, I know you are an active go-getter investor, thanks for providing me the opportunity to comment further on the California market, and please don't think I was referring to you with the above comments. Just giving a little tough love to a few people who need it.

I always enjoy reviewing market predictions. It's always interesting to see how many people pull out their crystal balls, and the fact that not all crystal balls seem to be tuned in to the same future (maybe there are parallel universes after all?).
I was reviewing some predictions for the US National market on Zillow for the years 2014 through 2018. There is a great chart with some accompanying information that you can find at the following link:

http://www.zillow.com/blog/research/2013/11/12/zillow-home-price-expecta...

One of the things that I suggest you look at on this chart/graph is the blue line that shows the progress of appreciation prior to the housing bubble that started about 1999, and the rise and subsequent decline in prices from 2000 to 2013. To me, this explains why the crash had to happen. Markets, whether regulated or not, will tend to course-correct over time. The short term shows the roller coaster effect, but the long-term trend line shows how property values increase realistically.
There are three predictor lines, which we could call optimistic, pessimistic, and median. While I hope that the line followed is the median line, it is my expectation that people are slow to learn, and that both domestic and international investors are creating an unnatural demand on the market that will result in another bubble-like result. People who do not learn from the past, as they say, are doomed to repeat it.
Another look at the blue line on the chart shows that the 2007 drop in home values, while it was substantial, did not drop values significantly below the trend line, and the rebound since the 2011 trough, has now basically returned home values to the trend line.
My crystal ball may not be any better than anyone else's, and I am not a market analyst, but based on human nature, and the unnatural demands from international and domestic buyer consortia, it looks like the appreciation lines will more than likely follow the optimistic green line initially, with some bubble like adjustments taking place along the way. Unless you have pots of money to play with and are not terribly concerned about losses, I'd say run your numbers between the black median and red pessimistic lines, and you will be conservatively safe with your investments. Note that even if you do, you can expect reasonable appreciation moving forward for the next few years. Beware of the short term fluctuations, and make all your plans based on a 3 to 5 year plan, NOT shorter, and not longer unless you buy very low. Unless politicians and other market manipulators do some pretty stupid things in the near future, the market will essentially revert to its cycles of approximately 6 to 7 years, and we can expect some continued growth in the market until around 2017 or 2018.

Wishing you'd left the game earlier is a time-honored Las Vegas tradition. Today, that's true not only for gamblers but for homeowners there. The last time Las Vegas properties were worth more than the average mortgage? August 2003.

Blame overbuilding and risky loans, a gambling mentality or even the desert sun, but based on today's results from the S&P/Case-Shiller home price index, which measures metro home prices in 20 cities through December 2008, Las Vegas is the weakest market in the country. Prices are dropping quickly (down 4.81% since last month and 33% in the last year); the pace of decline is accelerating at the third-fastest rate in the nation; and based on lost equity, homeowners are out 65 months of mortgage payments.

All signals that things aren't likely getting better any time soon.

"Vegas is a market unto its own," says Steve Cesinger, chief financial officer at Dewberry Capital, an Atlanta-based real-estate investment firm. "I don't know what those guys were drinking when they thought all this building made sense. If it does work out soon, then there's some force out there in the universe that I'm not aware of."
What's your home worth?

The S&P/Case-Shiller home price index, released monthly, examines repeat home sales in 20 metro markets, including the city core and surrounding suburbs. This means that while prices in the tony San Francisco neighborhood of Pacific Heights might be holding up, the net effect of including a bankrupt suburb like Vallejo brings down the metro area's score. Each city's score is assigned based on the price difference from 2000, which is scored as 100. So San Francisco's score of 130.12 means prices are up 30.12% from 2000. It still has the potential for a further fall, given the 31% year-over-year drop.

Forbes also analyzed monthly declines and year-over-year declines in home prices to determine where prices were falling fastest and where those drops were picking up momentum. It's not a good thing for San Diego that prices from November 2008 to December 2008 fell 2.13%, but as prices declined by 2.29%from October to November, and 2.44% from September to October, the speed with which prices are falling is slowing.

That slowing rate of decline — also seen in places such as Denver, Washington, D.C. and Boston — helped rank those cities as some of the stronger markets in the country.
Home-price indices fall like a rock

Contrast that with Minneapolis, where prices fell just 0.96% from September to October, but by December, the rate of month-to-month declines had jumped to 4.6%, an unwelcome acceleration.

Next, to rule out places in complete depression, we looked at how many months of equity homeowners have lost. Places like Detroit (-2.98%) and Cleveland (-2.07%) haven't declined as quickly over the last month as Seattle (-3.63%) or Charlotte, N.C. (-2.55%), but that's because prices in those two Rust Belt cities are so depressed it's difficult for them to fall any further. Detroit and Cleveland homeowners have lost 141 and 92 months of equity, respectively, whereas Seattle and Charlotte prices have declined only for the last 39 and 33 months, respectively.

One other factor to consider with the Case-Shiller numbers is that the index tracks repeat home sales. That means cities like Tampa and Miami — which are notorious for overbuilt new inventory and high numbers of foreclosures — perform better on the index than they ought to, as those two factors are not tracked.

"Case-Shiller doesn't take into account new construction or foreclosure sales," says Jonathan Miller, president of Miller Samuel, a Manhattan residential appraisal firm. "In some of these markets, I'm not sure how you can ignore new construction or foreclosures."Forbes

Looking at some of the information in Randy's post above, it occurred to me that one of the reasons some areas can be volatile is the diversity of industry located in the area. Detroit is synonymous in most people's minds with auto industry, Las Vegas with tourism. Areas that have such predominant major industries, and not a great deal else to create their claim to fame are vastly dependent on economic factors that affect that industry.
Some areas are more insular in this regard, having a diversity of industry and opportunity. These areas are less likely to have their legs knocked out from under them.
In the final summation on any marketplace, it remains the responsibility of the investor to look at the overall factors that affect growth and decline in their intended marketplace and make decisions according to the overall stability of the area.

The residential real estate market has been improving slowly over the past three years, and it's only going to get better, according to Rob Hale, president of MarketGraphics Southeast.
Hale gave the keynote presentation on Wednesday morning, which kicked off the home development company Blake Southern Homes.
“The recession officially ended in 2009,” Hale said. “It didn't feel like it did it?”
Hale says that things have improved since that time, varying from place-to-place, but according to data gathered by his company during that time, the recession ended several hours to the south of Birmingham.
“The recession first ended in Jacksonville, Fla.,” he said. “It (the end of the recession) began to spread north, and now it's arriving in Birmingham.”
MarketGraphics counts housing lot permits and closing rates in the markets that it covers once every four months. The last data recorded by the research group showed Birmingham had 2,700 housing lot permits issued, and the closing rate was 2,000.
“That trend is there in just about every market we cover,” Hale said.
In Memphis, Hale said, the amount of permits issued was at 7,600 at last count with a closing rate of 5,000.
“We see a small increase in the closing rate each time we count the market,” Hale said of Birmingham. “Guys, that's a lot better than a big tumble.”
Related: The largest residential real estate sales of 2013
Hale's five-year projection for Birmingham housing lots was positive as well.
“In five years, we believe we'll use up 20,000 lots in the Birmingham area,” he said, adding that based upon the number of lots available right now, thousands will need to be developed. “We need 14,000 lots developed in Birmingham in the next five years. That's very encouraging.”bdavis

I have been to Birmingham many times, they have the Granddaddy of NASCAR there in Taledega, as well as Barber Motorsports Park. One of my investors lives there and pretty much buys up multi family units. It has always amazed me at the opportunities in real estate this city provides.So here we go again.......

Birmingham is expected to see a large increase in home prices this year, according to a CNN Money report.
The Magic City is one of the "10 hottest housing markets for 2014," in the report, which is based on data from the CoreLogic Case-Schiller home price forecast.

"After years of investing in revitalization efforts -- turning old warehouses into offices, opening new parks, building a minor league baseball stadium -- Birmingham is finally seeing the big payoff," the report says. "People are no longer fleeing from the inner city, new businesses are moving in and home prices are actually on the rise. In the 12 months ended September, home prices climbed 6 percent, bringing the median home price in the metro area to $174,000. And CoreLogic expects above-average returns again this year, forecasting a 7.8 percent increase in the 12 months ending in September."
These are the 10 hottest housing markets:
10.) Memphis
9.) New York City
8.) Birmingham
7.) Baltimore
6.) Tampa, Fla.
5.) Hartford, Conn.
4.) Richmond, Va.
3.) New Orleans
2.) Fort Worth
1.) Oakland, Calif.
bgoodwin/rbailiff

While residential sales in Alabama were up just slightly in the last month of 2013, they showed healthy gains compared to a year ago, according to new data from RealtyTrac.
Annualized sales in December totaled nearly 44,000, which were up 1 percent from November, but up 21 percent compared to a year ago.
The median price of those sales was $115,000.
Birmingham had a 3 percent increase in November and an 88 percent jump from the annualized total in December 2012, according to RealtyTrac.
Once again, the median sales price for Birmingham stood at $139,000 over the past 12 months, $24,000 more than the state average.
Here's how Birmingham's picture stacks up against others in the region:
The city of Atlanta finished the year with a median sales price just $1,000 higher than the city of Birmingham.
Memphis recorded 18,366 sales with zero growth from November and a 14 percent jump from the previous December numbers.
Nashville tripled Birmingham's sales at 34,146, a 10 percent annual growth rate with a $155,000 median sales price.bdavis

Reading Randy's comments above, which, by the way, are outstanding as usual, got me thinking about the value of watch lists to investors. Many investors focus on their home market and are successful working with their own local area, which is great. There are opportunities and fortunes to be made in good times, bad times, and in between times.
Other people choose a remote market, or straddle between the home market and a remote market. Another valuable way to invest.
Whether you are focusing local or remote, or both, the value of a watch list is to see trends as they begin or transform. We live in a world that has become closely connected so that what happens in one area impacts other areas.
Watch lists offer an opportunity to learn, and to become good at evaluating trends. View watch lists as the extremes that demonstrate what is going on in all markets to a lesser degree. Use them to help you make wise and informed decisions. Study the trends and the articles you can find online about these areas to understand the underlying components that make markets change and grow.

Many housing experts have predicted a slowdown in investor activity this year, but investors don’t appear to be fading away from the market. They might just be shifting their focus to different types of properties, as distressed inventories dry up in many markets.

“There has been a clear rebound in investor participation in the housing market,” says Thomas Popik, research director for the Campbell/Inside Mortgage Finance HousingPulse Tracking Survey, which showed strong activity among investors in December 2013. “The statistics for the housing market, particularly the non-distressed segment, remain generally strong, but investors still are increasing their activity.”

Investors are increasingly targeting non-distressed properties.

In November, investors accounted for 13.2 percent of purchases of non-distressed properties based on a three-month moving average. That's up from 10.5 percent in August, marking a seven-month market share high for investors, according to the HousingPulse survey.

Investors had started pulling away from the market in March 2013 as home prices soared, with their overall market share dropping to 16 percent, according to a survey by the National Association of REALTORS®. But by December, they bounced back, ending the year strong with a 21 percent market share — about the same level at which investors’ presence peaked during the foreclosure crisis. anthony

It is senseless to invest in a property that is too far away from where you are currently staying. It may become a problem when situations occur that need your assistance and you have to travel long distances to get to your property. It is better to invest in a property that is reasonably close to where you are staying yourself. In the city area less than one hour’s drive, but in the areas outside the city it maybe a little further. All of this is something that you must decide for yourself you might like long drives. However, when you have to drive that distance regularly, it might become a hassle. It may also happen that your lifestyle changes, and long drives, becomes a severe problem, which you no longer want to do. When everything is considered investing in a property that is close to where you are staying is preferable over the long run.

Choose carefully where you would like to invest.

Some areas, are more lucrative to invest in, this is typically the areas where the upper middle-class are staying. These homes typically provide the best return on investment. The next sector is those that are slightly cheaper, followed by those that are considered bottom of the range homes. You will have to decide where you would like to invest. Often it comes down to how much available capital you have. Nevertheless, if you are serious about investing, you will eventually find something that will be suitable to your needs. If you do decide to invest in the lower value areas, just keep in mind that these areas are often associated with severe social economical problems, which may become troublesome. Carefully consider this before making a final decision.

Choose wisely, and avoid common errors.

If you do decide to invest in the low-cost areas, where there are identified social economical issues, make sure that you are properly insured. In this case, it is advisable that you stay reasonably close to your investment. This will make it easier to respond to possible trouble some situations. If you plan well, and know what you are looking for, and what you would like to do with the property, you just need to be patient and you will eventually find the right property. Remember, property investment is a long-term investment. It often pays the best dividends over a decade or two. So, if you are into it for a quick buck, think again for in that case, maybe you should consider some other investment. "L"

Randy has supplied some valuable information above, I wanted to comment on investor activity with respect to non-distressed properties. The distressed property in particular appeals to the fix and resell buyer, as their profits stem from two areas:
1) Buying the property at a reduced rate;
2) Adding value to the property through rehab work.

These areas combined with the fact that a fix and resell buyer reinserts the property back into the market typically between 60 and 120 days following purchase mean that there is no substantial appreciation during their hold period and their profits are limited to what they can negotiate or build into the property.

A higher participation in non-distressed properties by investors is indicative of a change in personality of these buyers. They fall into the category either of speculator, who buys with intent to hold and resell in one to two years, or landlord, who is buying the property for long-term rental usage.

I've been encouraging wholesalers to shift their buyers lists to include speculative and landlord buyers for about 8 months--particularly landlord buyers. As a landlord myself, I know that the landlord buyer bases decisions on cash flow, CAP and ROI. This can easily mean that a good deal can be found at 80% to 90% of listing price. And that opens the way for non-distressed properties.

Landlords are not usually the ones who jump on a new market trend, but as they see money loosening up, they begin to buy. It is encouraging to see this type of activity as it tends to bring additional stability to a marketplace.

Without intent to be derogatory, fix and resell is a kind of hit and run strategy. It definitely provides a service to the community, but tends to come on the forefront of market increases, whereas buy and hold creates an ongoing supply of rental properties for those with lower incomes.

The early portion of Randy's post relate to investing in your home market. While there are certainly some conveniences to investing locally, the solution to successful remote investing is team. Having a solid team to work with can resolve any issues created by distance.
I would not want to invest remotely without having an agent(s) to assist in finding properties, providing comps, giving reactions to specific neighborhoods, etc.
Nor would I want to invest remotely without someone to be my eyes and ears on the ground. For this I have a trusted handyman, who is a retired contractor, who can view properties, provide bid estimates, comment on neighborhoods, and fix things if needed.
Property management is a necessity if you plan to own properties long-term. A local title company or attorney's office for closings, a property inspector, an appraiser, and any other specialties like a carpet installer, etc., are helpful as well.
Beyond these things, if you have a phone and the internet, you can find whatever you need.
Now I personally have one other preference in choosing a remote area. I like to have someone that I know who lives in the area, who has been a close friend or associate, and who, if needed, could assist me with something. I don't use them very often, but I make sure they are willing to help me out for a fee if I need them.
In summary, I am an advocate of remote investing if it helps you to fulfill your investing goals, provided you go into it in an organized and businesslike way.

What’s in store for the Phoenix real estate sector in 2014? Experts say the housing market should see less dramatic price gains, higher interest rates and dissipating interest from Wall Street investors. Meanwhile in the commercial sector, a we’re likely a few years away from a healthy recovery. Here’s a closer look at what to expect in 2014:

Prediction No. 1: The housing market keeps recovering, but at a slower rate.

The metro Phoenix housing market has been in recovery mode for two years, and it’s been a roller coaster every step of the way. Local real estate experts are confident the rebound will continue in 2014, but at a much slower, and even more “normal,” pace than we’ve been experiencing lately.

Experts say the 25 to 30 percent year-over-year price spikes Phoenix saw consistently throughout 2013 will look more like 6 or 8 percent in 2014. We’re already seeing signs of this too; according to Arizona State University last week, October’s median price — $200,000 — was 27 percent higher than a year earlier, but up by only one-half percent, or $1,000, from September. Last year, the median price climbed 4.6 percent between September and October.

The other thing to watch for next year will be in the mortgage sector. Experts agree that the days of 3.5 percent interest rates are long gone, but it’s unclear how much higher they’ll climb in 2014. The Federal Reserve said last week it will begin to wean the economy off of its $85 billion monthly bond buying program next year in an attempt to lure private capital back to the mortgage sector, but it’s unclear how investors and the financial markets will react.

The potential upside to higher interest rates, some experts say, is looser underwriting standards for potential borrowers, which we’ve already been seeing in the jumbo-loan market.

Local housing experts are also expecting continued improvement in the home-building sector, although the degree of optimism varies. Growth in the new-home market this year was far below everyone’s expectations as land prices skyrocketed to what many describe as unreasonable heights. Analysts had predicted roughly 17,000 new-home permits for the Phoenix area in 2013, but it looks like we’ll end the year with less than 13,000. Next year’s predictions are as buoyant as 20,000 permits and as conservative as 14,700 — which, either way, still is a fraction of the 60,000 or so issued during the housing boom — while some expect land prices to come down.

Prediction No. 2: Wall Street’s home-buying binge passes

It’s been about two years since Wall Street got into the home-buying and renting business, and metro Phoenix — once plush with foreclosures and bargain deals — was among its top targets. (Note: Institutional investors generally are defined as larger firms, many of which are publicly-traded hedge funds or real estate investment trusts, that own more than 200 single-family homes in the Valley.)

The institutional investor buying spree in the Valley peaked in July 2012 with the acquisition of 831 single-family homes. Today, the nine firms that fit into the “institutional investor” category own roughly 13,400 rental homes across Maricopa County — which may sound like a lot, but it’s really only 5 percent of all single-family rental inventory and less than one-half percent of the Valley’s total housing stock. Additionally, Wall Street’s buying activities in Phoenix have slowed to a trickle this fall, netting a record-low 63 home purchases in October.

With foreclosures and short sales now extremely hard to come by and Valley home prices up dramatically this past year, Wall Street investors are setting their sights on other markets, and local real estate experts predict this will continue through 2014.

With the buying spree winding down, there are fears these groups will soon see dollar signs in the recent price increases and thus dump their portfolios all at once. Many local experts say that’s highly unlikely, but if it were to happen, the impact would be minimal given their small market share and 2014 won’t be the year.

However, it should be noted that the bulk of these groups’ portfolios are concentrated in select neighborhoods rather than spread out evenly throughout the Valley. Also, some of the early entrants into the rental home business have already begun purging their assets elsewhere in the country. And because this is an untested businesses model, skeptics say only time will tell whether the strategy is successful and what the long-term impact will be for the housing market.

Prediction No. 3: Construction industry still struggling

The multifamily market has been on fire this year, and demand has been driven by the recent housing bust that turned many homeowners into renters. Experts tell me they expect that sector won’t lose any of its momentum until after 2015, and without any threat of overbuilding.

Industrial construction has been doing well in recent years, but the demand has been driven solely by a handful of big users, so experts say that the sector still is two years away from recovery when we start to see the smaller mom-and-pops making a comeback.

Experts also say 2014 won’t be the big rebound year for office and retail construction either. Those two sectors have been hard-hit by advances in technology, whereby employers are shrinking their office footprints with the proliferation of mobile connectivity. Retailers are staying competitive by growing their e-commerce platforms.

Local experts say office construction won’t make a comeback until sometime around 2017, when jobs return and absorb the glut of vacant space still remaining. Retail, which usually follows the other real estate segments, will come thereafter.

The other concern is the shortage of skilled construction workers. The industry has struggled with a shrinking workforce for the past three decades, but the issue was exacerbated by the recession and, in Arizona, immigration reform. The home-building sector has already been feeling the labor crunch as demand has picked up in recent years. Experts say that will continue to be problematic through 2014 and as commercial construction makes a gradual comeback. khansen

As investors, it is important for us not only to understand the current supply of properties, but also to know about any major changes to supply in the near future. Construction of new properties creates competition for existing properties, and for the past several years, the construction industry has been struggling due to low demand. That began to change in 2013, here are the reports for 2014 predictions.

"Dodge Outlook Report Predicts 9% US Construction Starts Growth for 2014"

McGraw Hill Construction, part of McGraw Hill Financial, released its 2014 Dodge Construction Outlook, a mainstay in construction industry forecasting and business planning. The report predicts that total U.S. construction starts for 2014 will rise 9 percent to $555.3 billion, higher than the 5 percent increase to $508 billion estimated for 2013.

“We see 2014 as another year of measured expansion for the construction industry,” said Robert Murray, McGraw Hill Construction’s vice president of economic affairs. “Against the backdrop of elevated uncertainty and federal spending cutbacks, the construction industry should still benefit from several positive factors going into 2014. Job growth, while sluggish, is still taking place. Interest rates remain very low by historical standards, and in the near term the Federal Reserve is likely to take the necessary steps to keep them low. The bank lending environment is showing improvement in terms of both lending standards and the volume of loans. And, the improving fiscal posture of states and localities will help to offset some of the negative impact from decreased federal funding,” Murray said.

Based on research of specific construction market sectors, McGraw Hill Construction’s 2014 Dodge Construction Outlook details the forecast as follows.

Single family housing will grow 26 percent in dollars, corresponding to a 24 percent increase in units to 785,000 (McGraw Hill Construction basis). The positives for single family housing are numerous – the pace of foreclosures has eased, home prices are rising and mortgage rates remain near recent lows. However, the demand for housing will continue to be restrained by careful bank lending practices towards issuing mortgages.

Multifamily housing will rise 11 percent in dollars and 9 percent in units. While growth continues, the percentage gains will be smaller than the previous four years, reflecting a maturing multifamily market. This structure type is still a favored investment target by the real estate finance community, which in the near term should lead to more high-rise residential buildings in major cities.

Commercial building will increase 17 percent, a slightly faster pace than the 15 percent gain estimated for 2013. Both warehouses and hotels will continue to lead the way, while stores and office buildings pick up the pace. The positives for commercial building are improving market fundamentals and more bank lending for commercial development. Next year’s activity in dollar terms will still be 28 percent below the 2007 peak.

Institutional building will edge up 2 percent, turning the corner after five years of decline. For the educational building category, colleges are revisiting capital expansion plans, and passage of recent construction bond measures in several states should help K-12 construction projects. Healthcare construction is expected to remain flat, given continued emphasis on cost containment.

For complete article, go to: http://www.forconstructionpros.com/press_release/11212844/dodge-outlook-...