Copy for Real Estate Guide Column for 6-12-09

REAL ESTATE PATTERNS
By Ken DuVall

MY, HOW THINGS CHANGE

The California entry level housing affordability reached 69% in the 1st quarter of this year compared to 46% a year ago. The minimum household income needed to purchase an entry level median priced home this year was $38,090, based on an interest rate of 4.96% and a 10% down payment. And assuming you’re willing to pledge your first born in the deal! Loans are still very tough to get, especially sans a 20% down payment plus a stellar credit rating.

First time buyers typically purchase a home equal to 85% of the prevailing median price, which is now $215,000. The monthly payment including taxes and insurance would be $1270. At $38,090, the monthly qualifying income was 41% lower than a year ago when households needed $65,030 to qualify for that same entry level home. Recent decreases in home prices and loan rates are what brought affordability into better alignment with the typical California household income, currently $61,030. The California median home price last month was $253,000.

So, we win some, we lose some. It all balances out over the long run. The highest median price in the state is Santa Barbara, perennially at the top rung, even more than the Bay Area, now at $825,000. The Chico area median for our 330 active listings is $379,000 but that includes about 150 homes priced from a half a $1 mil to nearly $3 mil. There are some 156 pending Chico sales in escrow with an average 90 days on the market before selling.

If you kick those high-enders out, that would bring the median way down. Most of our available inventory is priced at and selling between $200,000 and $400,000. And it’s selling again of late. We’re starting to hear “sold before tour” again at our Wednesday Elks Club MLS Tour meetings. Hallelujah! Buyers are definitely getting off the fence. Better hurry as interest rates are rising.

Another positive sign: Single family home starts rose 2.8% in April while building permits increased by 3.6%. When you read the negative media reports saying housing starts are down 12.8%, that figure includes multifamily dwellings, which includes apartments. What with all the vacant homes for rent all over the country, what builder in their right mind would be constructing apartments?! But detached homes, that’s a whole other category. And existing home sales were up 3% in April, another good sign.

This month the National Assn. of Home Builders reported builder sentiment in May rose to its highest level since last fall. Economists continue to see the necessary characteristics for a housing bottom falling into place. What is likely happening is the single family segment is forming a floor while the multifamily segment reflects the impacts of credit market turmoil and the deep recession.

Economists said the fine points of the reports were better than the headlines. Many of them expect the housing sector to continue to improve in the near term. So there, all you sky-is-falling naysayers!! We’re on the comeback trail, folks! Take it from me. I’ve been there, done that, and got all the T-shirts now.

Ken owns Ken DuVall & Associates, REALTORS at 3rd Ave. & Mangrove in Chico. Ken was the 2001 President of the Chico Assn. of Realtors and the 1995 Chico Realtor of the Year. See Chico MLS listings at www.KenDuVall.com and call Ken at 345-3700 for all your real estate needs. Free consulting.

Copy for Real Estate Guide Column for 5-22-09

REAL ESTATE PATTERNS
By Ken DuVall

HOW TO BUILD TRUE WEALTH IN THESE TROUBLED TIMES

There’s no question that America is in a tight spot. It’s not pretty out there. Most days we still get recession related bad news. But tune out the negative chatter for a moment and listen up. All our recent financial and housing crises have in fact led to opportunities for smart investors who want to get rich the right way. Real estate remains the original get rich slow scheme. Visit a casino if you want to gamble.

The reality is our economic collapses have actually created an exceptionally favorable environment for real estate. Some get the elevator, some the shaft! Interest rates are low, property values are depressed, and real estate is still a great long term investment. It’s a smart player that knows where he/she’s at in the game. Doing it the wrong way is what put us in our current jackpot. The right way will lead to great financial gains over the long term. I’ve been doing this since 1963. Nothing’s changed in almost half a century.

You might call this a class in “Real Estate 101”. First of all, you need a nest egg. If you haven’t already got one, save up. Cut every possible expense you can- as I’ve said many times, there’s no free lunch- to build up your savings. No pain, no gain. You will need some cash to close the deal. We got a “G.I.” (generous in-law!) loan for our first house.

Your credit rating must be in order. A low FICO score can cost you a bundle in higher loan costs, or even prevent you from getting a loan at all. The best deals are available to investors who have both cash and sparkling credit.

Buy only properties in the path of progress, where pride of ownership prevails. Those areas will continue to improve in desirability. Call your Realtor for the latest offerings. Look in areas where people really want to live. People make the values. Rentals in Chico are in greater demand than ever.

Look for underachieving properties that are ‘tired’ with deferred maintenance needed. You should be looking for properties that are not already in ‘silver platter’ condition. Why? Because the value added appreciation has already been taken by the current owner. You’re going to create your own new value. Remember: you want properties that need “TLC”- tons of loose cash!

After refurbishing, you will attract tenants who might not have wanted to live there before. And now the rent can be increased because it’s a more attractive place. At a certain point, you can afford to turn it over to professional management, let them deal with your tenants and maintenance while you sit back and enjoy appreciation, tax benefits, and the fruits of your labor.

Successful real estate investors tend to be diligent, conscientious, hard working individuals. They have vision, commitment, personal skills, and resources. You too can acquire unique properties with that all-important value-added potential often missed by others. Take advantage of this buyer’s market. Today’s depressed prices have nowhere to go but up over the long term. Find that diamond in the rough. Be a winner!

Ken owns Ken DuVall & Associates, REALTORS at 3rd Ave. & Mangrove in Chico. Ken was the 2001 President of the Chico Assn. of Realtors and the 1995 Chico Realtor of the Year. See Chico MLS listings at www.KenDuVall.com and call Ken at 345-3700 for all your real estate needs. Free consulting.

Copy for Real Estate Guide Column for 5-15-09

REAL ESTATE PATTERNS
By Ken DuVall

THE OMAHA ORACLE SPEAKS

Berkshire Hathaway Chairman Warren Buffett said last week that he sees some signs of stabilization in housing markets. "In the last few months you've seen a real pickup in activity although at much lower prices," Buffett said, citing data from Berkshire's real estate brokerage business, one of the largest in the U.S. Now nearly every other commentator in the country is parroting his remarks. It looks like we are starting to see the beginning of the bottom of the slump.

Buffett has grown into a cult figure among investors who admire him as much for his homespun aphorisms as for his stock-picking savvy. Visitors from 43 countries filled the arena and the overflow rooms, and students from 45 universities watched from a ballroom in the Omaha Hilton across the street. Buffett’s definitely ‘The Man.’

Buffett spoke at the Berkshire Hathaway annual shareholders meeting in Omaha which drew an estimated huge 35,000 shareholders. In California, medium and lower priced homes have been selling more, although there hasn't been a bounce back in sale prices, Buffett explained. "We see something close to stability at these much-reduced prices in the medium to lower part of the market".

Roughly 1.3 million households are created each year in the U.S., while about 2 million homes were being built a year during the recent boom. At that rate, "You will run into trouble," Buffett said. Now housing starts are running at roughly 500,000 units a year, which means the excess inventory is being absorbed at a rate of about 700,000 to 800,000 units a year. "We're going to eat up existing inventory. That may take a couple of years. When it gets done, you will have stabilization in housing prices," Buffett predicted. "Then you will again have demand for more housing starts."

U.S. metro area home prices are still falling some. However, the rate of decline has slowed as the government tries to keep mortgage rates low to stimulate demand. The Federal Reserve has slashed interest rates and committed to buying hundreds of billions of dollars in mortgages backed by government-controlled housing finance giants like Fannie Mae. That's helped push mortgage rates to record lows, luring buyers and fueling a small refinance boom. A local appraiser told me he did 141 appraisals in April, a huge number comparatively, but many were re-fi’s’.

Buffett warned us about over-valued house prices well before the market collapsed. However, he still kept large stakes in banks such as Wells Fargo, which have huge housing market exposures. He also cautioned the commercial side of the real estate market may be the next to suffer as rising layoffs and corporate bankruptcies increase office vacancy rates along with declines in consumer spending crimp rental income generated by shopping malls. Without a doubt. I mentioned this last year. We will continue to see increasing mall tenant vacancies.

But yet, if he’s got faith, I’ve got faith. Buffett is one of the primary gurus in the world of finance and investments. If you’d invested $10,000 in his Berkshire Hathaway stock in 1965 it’d be worth millions today. I wouldn’t bet against this man. He’s got demonstrated vision, and he puts his money where his mouth is.

Ken owns Ken DuVall & Associates, REALTORS at 3rd Ave. & Mangrove in Chico. Ken was the 2001 President of the Chico Assn. of Realtors and the 1995 Chico Realtor of the Year. See Chico MLS listings at www.KenDuVall.com and call Ken at 345-3700 for all your real estate needs. Free consulting.

Copy for Real Estate Guide Column for 5-8-09

REAL ESTATE PATTERNS
By Ken DuVall

THE PASSING PARADE

All the latest reports from my most trusted and reliable sources seem to indicate we may be on the verge of a return to prosperity once again. Yet the housing market may feel even worse in coming months as foreclosures keep rising and prices continue their downward slide. No doubt the patient is still ill, but there are some positive signs that indicate the fever is finally breaking.

First, prices are still soft but sales are strengthening and we Realtors are starting to see more buyer traffic, lured in part by the various tax credits, historically low interest rates, and other incentives. Two weeks ago in Chico we saw an astonishing 21 offers in 2 days on a short sale listed at $160,000 that ultimately went for $217,000! Investors are aggressively returning to the market, taking advantage of incredible bargains. But this time they’re not in it for the quick buck, buying and flipping homes. They see the solid positive rental cash flow in underpriced homes.

And that kind of activity sops up excess distressed property inventory like the ‘Shamwow’ on TV! The fact is the painful bloodletting is starting to rebalance the market. However, while foreclosures will keep pressure on prices for another year or so, the worst may be over in most places. Sales of existing homes rose for the 2nd month in a row. We will see sales of both existing and new homes pick up further by the end of summer. But the damper is we can count on both taxes and unemployment continuing to rise.

A note on taxes: Louis XIV’s finance minister said it in the 16th century: “The art of taxation consists in so plucking the goose as to obtain the largest amount of feathers with the least amount of hissing”. It used to be that death and taxes alone were inevitable. In today’s world, there's now shipping and handling added!

Encouraged by record low interest rates and the continued decline in prices, motivated home buyers helped California (and Chico) sales improve for the fifth consecutive quarter since bottoming out in the fourth quarter of 2007. Statewide sales of existing single-family homes surged to 590,390 in the first quarter of 2009, an increase of 9.7 percent from the fourth quarter of 2008, and a jump of 82.7 percent from the first quarter of last year. The sales level was the highest since the third quarter of 2005 when sales reached a near-record of 634,090.

Meanwhile, the California median home price continued to decline even as deeply-discounted distressed sales remained at high levels in many parts of the state. The median price for existing home sales dropped 40% (Chico’s was more like 20%) from a year ago to $256,850 in the first quarter of 2009, reaching a level not seen since early 2001. Oh well. You can’t win ‘em all. But no matter. I see housing moving onward and upward little by little from here on out. It’s the key to recovery.

Ken owns Ken DuVall & Associates, REALTORS at 3rd Ave. & Mangrove in Chico. Ken was the 2001 President of the Chico Assn. of Realtors and the 1995 Chico Realtor of the Year. See Chico MLS listings at www.KenDuVall.com and call Ken at 345-3700 for all your real estate needs. Free consulting.