OfflineAs we approach the mid-point of 2013, market circumstances have changed from downturn to upturn through much of the country. Certain areas, most notably those that were disproportionately affected by the downturn like Detroit, Phoenix, and Las Vegas are seeing some impressive increases, along with several areas in California, such as the Bay area, SoCal, and Sacramento.
Investors in the hot areas are troubled that they are having difficulty getting sellers to accept reduced prices, investors in slower areas are troubled that their areas are not showing big gains. It seems that once again, many people would rather complain rather than finding a way to work with the marketplace.
There is an important principle in Real Estate Investing--"Opportunity never leaves, it just changes appearance." Investors who are in it for the long term recognize this early on, and when something in the marketplace changes, they will work to find the solution, to recognize the new opportunities.
Expectations for real estate growth nationwide show an overall growth rate of about 2.5% to 3% from 2nd quarter 2013 to 2nd quarter 2014, with continued gains in the areas that are showing the greatest appreciation. Other markets will be moving ahead more strongly as well. I've seen projections that show a few particularly strong markets gaining as much as 17% in value during this time period, but most areas will be in the mid-single digits.
For the longer term, it appears that gains will continue, and more and more areas will show greater strength. Five year projections appear to be backed by other economic factors showing recovery, and should result in more universal gains around the country.
There are a couple of factors that I'm going to call "hiccup" factors that can affect these gains, but should not be perceived as reasons to panic.
1) As real estate markets show greater strength, interest rates will rise from the lows that we have seen over the past couple of years. Increases in the cost of money can slow surges, and it is likely that we will see those increases happening gradually, but steadily over the next couple of years.
2) There are a number of people who are still upside down with their mortgages, but because they still have jobs, have been struggling to keep their mortgages paid, and retain their properties. As some of the property values begin to rise above the payoff balances, we will see a fairly substantial flood of these properties coming on the market, and as supply shifts upward to meet demand, prices will plateau, and potentially dip a bit.
As investors we still need to play by the numbers, not the emotions. Expect some plateaus and some dips, run your numbers conservatively, and make sure that you are capable of supporting any speculative plays that you make. In other words, if you want to invest top dollar today into a property that is anticipated to grow 17% in the next year, be prepared to support that property if it does not.
My first mentor in Real Estate investing started investing in 1945, and during his career saw many up and down cycles. He indicated that cycles typically last around 5 to 6 years because people have short memories, and cannot seem to remember beyond that length of time.
For most of the U.S., we have seen properties bottom out in the last 1 to 2 years, or a little more. If we are in the first years of an up-cycle that will last 5 to 6 years, then we need to find solid appreciating long-term properties that remain fairly stable when the next down-cycle begins, and we need to turn over a lot of rocks to find properties with outstanding short-term gains.
I've identified in other posts some of the ways of turning over these rocks. Calling on rentals, getting lists of properties with exceptionally long DOM, expired listings, working with marketing directors and administrators of assisted living facilities and nursing homes, researching properties that are coming out of Chapter 13 protection due to default on payment plans--all are ways of finding properties that are not in the mainstream of properties being researched by other investors.
After all, as my first mentor used to say: Deals are like buses, if you miss one, wait 15 minutes and the next one will come around the corner. You do, however, have to be at the bus stop--you cannot catch a bus from your living room.
Dallin Wall
Real Estate Training Team
Forum Blog Location--A collection of my
"Best of" posts:
http://www.deangraziosi.com/blogs/dwall
Love the bus stop analogy -- how true.
This a very good advice for a newbie like me. Looking forward to more of your posts.
Thanks for sharing this information
Reynold Orozco
Have listen to his webnar on doom and gloom of the ma-pa real estate bus. What is your take on this?
I'm glad you mentioned this, because there is a very big move toward large companies handling real estate in this country--buying in bulk and reselling individually at huge profits. This is absolutely a concern for anyone who is not willing to adapt.
The same thing has happened in many other industries. Food conglomerates may have moved the traditional family farm practically to non-existence, but many farmers exist around the country who have applied themselves to food niches, marketing organic foods, and doing start-to-finish boutique style packaged food products, etc.
Manufacturing for clothing, tools, electronics, and many other products has moved to industrialized countries internationally, but local small producers have found areas to specialize and created niche and boutique operations in the U.S.
Opportunities, in my estimation, are what you make of them. I was mentored originally by a man who started investing in 1945 at the end of World War I, and he always stressed that he had not seen a time in over 60 years of investing when it was a bad time to be an investor. His comment, which I will stand by for the rest of my life is: "Deals abound in good times, bad times, and in-between times."
As long as there are people and properties and problems, you can be the solution for those problems and help move properties from one person to another. I am a realist, yet I am hugely optimistic about the future of Real Estate Investing--another old saying about real estate is: "They ain't makin' any more of it." That limitation alone provides opportunities for the big and the small investor. Best wishes, and I'll see you on the road to success.
Dallin Wall
Real Estate Training Team
Forum Blog Location--A collection of my
"Best of" posts:
http://www.deangraziosi.com/blogs/dwall
I really just wanted to thank each of you for adding your posts here. Comments and questions are always welcome, and don't hesitate to add your own viewpoints and knowledge. If I have learned anything from being involved in coaching/training/mentoring for a number of years, it is that we all have brilliant minds with something to share. I will continue to research particularly strong markets and those that look like they are poised for strong growth, and add to the posted information here.
Dallin Wall
Real Estate Training Team
Forum Blog Location--A collection of my
"Best of" posts:
http://www.deangraziosi.com/blogs/dwall
I found an interesting article that listed the top 9 Cities where you don't want to rent. From an investor's standpoint, it is important to realize that the reason it is imprudent to rent in these areas is the low cost of buying compared to high rental rates.
Kansas City, MO -60%
The obvious message for us, as investors, is that we WOULD want to own properties in these areas since the rents are very high in comparison to the purchase price of the property. Obviously, it is critical to also research vacancy rates and to do the other due diligence on the property. But the countdown of the best rental rates to monthly ownership costs (PITI) on a property, here are the top 9 cities:
9) Birmingham, AL -59% (indicates how much less it costs to own than rent)
7) Toledo, OH -62%
6) Memphis, TN -62%
5) Warren/Troy/Farmington Hills, MI -63%
4) Gary, IN -63%
3) Dayton, OH -63%
2) Cleveland, OH -63%
1) Detroit, MI -70%
To use Detroit to give some actual numbers comparisons, average monthly cost to own is $338, and average cost to rent is $1138. This data was supplied by 24/7 Wall St.
Dallin Wall
Real Estate Training Team
Forum Blog Location--A collection of my
"Best of" posts:
http://www.deangraziosi.com/blogs/dwall
October 15, 2013 – The REAL Trends Housing Market Report for October 2013 shows that the rate of housing sales increased strongly in September 2013 growing 20.9 percent from September 2012, a continuation of the powerful surge in housing sales that started in October 2011. The annual rate of new and existing home sales for September 2013 was 6.228 million up from 5.153 million recorded in September 2012 but down slightly from the rate in August 2013.
The average price of homes sold increased by 5.5 percent in September 2013 compared to September 2012.
Housing unit sales for September 2013 were up 24.4 percent in the Midwest, the strongest showing in the country. The next highest region was in the South region at 23.3 percent, the Northeast region was up 21.5 percent and the West was up 14.2 percent.
The average price of homes sold in September 2013 increased 5.5 percent across the country, down measurably from the results in August 2013. The West had the best results with the average price of homes sold increasing 10.2 percent followed by the South region at 7.3 percent and the Midwest at 7.0 percent. The Northeast region saw prices move downward by 0.3 percent.
“September 2013 sales of new and existing homes were surprisingly strong, especially in view of the rise of mortgage rates over the past few months,” said Steve Murray, editor of the REAL Trends Housing Market Report. “Historically when a recovery starts to drive rates up buyers increase their buying activity to beat the rise in rates and we saw that in the July 2013 results. September results showed a small decrease in the annualized rate of homes sales from the prior month which was also expected. Inventories continue to constrain sales as well and although homes available for sale have increased they remain below historical levels of balanced housing markets.”Travis Saxton
Thanks to Randy for some really valuable information.
The piece that I found most interesting was the units sold by region. Areas like the midwest and south are typically strong for rental properties due to low purchase prices and high rents, while the west is more challenging to establish a positive cash flow.
So a reasonable interpretation of this is that there is a domestic and international move toward strong rental areas. As investors, there is some solid opportunity in these areas by wholesaling them to landlord buyers, and with trends supporting this, some investors may wish to straddle more than one market with their investing activity.
Dallin Wall
Real Estate Training Team
Forum Blog Location--A collection of my
"Best of" posts:
http://www.deangraziosi.com/blogs/dwall
"The important thing in this world is not so much where we stand, as in what direction we are moving." Oliver Wendell Holmes. With several disappointing economic reports of late, the question remains whether our economy is moving in the right direction.
There was a disappointing read on January's retail sales, as they fell by 0.4 percent versus the 0.0 percent expected. This was the second straight monthly decline and retailers cited the harsh January weather as the reason.
There was also some disappointing news in the labor market, as weekly Initial Jobless Claims rose by 8,000 in the latest week to 339,000. In addition, the four-week average, which irons out seasonal abnormalities, also increased. The labor market has been muddling along for the past two months, especially given December's and January's weaker than expected job creations.
There was some good news on the housing front, as RealtyTac reported that January marked the fortieth consecutive month where U.S. foreclosure activity declined on an annual basis. Filings are down 18 percent from January 2013 to January 2014, but the annual decline of 18 percent was the smallest annual decline since September 2012.
What does this mean for home loan rates? Remember that the Fed is now purchasing $35 billion in Treasuries and $30 billion in Mortgage Bonds (the type of Bonds on which home loan rates are based) to help stimulate the economy and housing market. This figure is down from the $85 billion in Bonds and Treasuries the Fed had been purchasing last year. If economic reports continue to be weak, the Fed will have to decide whether it will continue to taper its Bond purchases. This will surely have an impact on the markets and home loan rates in the weeks and months to come.
The bottom line is that now remains a great time to consider a home purchase or refinance, as home loan rates remain attractive compared to historical levels. Let me know if I can answer any questions at all for you or your clients.
Forecast for the Week:
The markets are closed Monday for the Presidents Day holiday. The rest of the week will be busy, with key housing, inflation, and manufacturing news.
Manufacturing data from the Empire State Index on Tuesday and the Philadelphia Fed Index on Thursday will give investors a look at two of the major regions in the nation.
Housing dominates the week with the National Association of Home Builders Housing Market Index on Tuesday, Housing Starts and Building Permits on Wednesday, and Existing Home Sales on Friday.
We'll get a read on inflation with the wholesale-measuring Producer Price Index on Wednesday, followed by the Consumer Price Index on Thursday.
Also on Thursday, Weekly Initial Jobless Claims will be reported as usual.
In addition, the minutes from the January 28-29 Federal Open Market Committee meeting will be released on Wednesday, and this could provide some volatility this week. Investors will be looking for additional information about tapering when the minutes are released. Will the minutes hint toward ending the Fed's Bond purchase program sooner rather than later?
Remember: Weak economic news normally causes money to flow out of Stocks and into Bonds, helping Bonds and home loan rates improve, while strong economic news normally has the opposite result. The chart below shows Mortgage Backed Securities (MBS), which are the type of Bond on which home loan rates are based.
When you see these Bond prices moving higher, it means home loan rates are improving — and when they are moving lower, home loan rates are getting worse.
To go one step further — a red "candle" means that MBS worsened during the day, while a green "candle" means MBS improved during the day. Depending on how dramatic the changes were on any given day, this can cause rate changes throughout the day, as well as on the rate sheets we start with each morning.
As you can see in the chart below, it was a volatile week for Bonds, but home loan rates are still attractive. I'll be watching the markets closely for all the latest developments. emitchell