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Understanding Real Estate Appreciation Part 2

Back on May 2 I did a post entitled “Understanding Real Estate Appreciation”.  I think I need to spend some time and elaborate on that further.  There are two types of appreciation:  gradual, natural appreciation and forced appreciation.  Natural appreciation occurs when you buy a home and over time economic and social factors gradually drive the price of your home up.  This is the topic we primarily focused on in our previous post.  Click here to view that post.

Forced appreciation is actually done by someone or something and can occur very quickly.  Forced appreciation can occur in many different ways.  The home can be just cleaned up and picked up.  A home can be updated to increase the value.  This usually occurs in older homes that are dated and suffer from “functional obsolescence” which really just means that they really don’t function to meet people’s lifestyle anymore.  The home may be a small two bedroom home in an older established neighborhood of three bedroom homes.  An addition to this home to add an extra bedroom could make this home greatly appreciate in value.  Forced appreciation can occur by a possible rezoning if the property is better suited for commercial or industrial use. 

 Updating a home can range from a complete renovation or just some touch ups such as fresh paint, new carpet, appliances and fixtures.  You don’t have to know a lot about renovating and you don’t necessarily need to hire a contractor to achieve forced appreciation.  It is a good idea to try to find comps in the area to see what those other properties have and feature.  It would be really good if you could find “sold” ones so that you may see the difference and compare the two.  If you are looking to buy, renovate and resell, you want to do a thorough inspection of the home as well as other ones in the area and use the phrase K.I.S.S. (keep it simple stupid).  If you are buying in an area that houses are a 3/2 with Formica counter tops you don’t need a 5/3 with granite.  Keep things in tune with the rest of the neighborhood.   

Obviously the biggest and best improvements you can make are to bathrooms and kitchens.  Updating these generally give you the best return on your money and are huge selling features.  A surprising feature that is an unexpected selling feature is outdoor living space.  Buyers love patios, decks and ways to extend their living space outside.

107 Seagrass Way Panama City Beach

This charming home is centrally located in Panama City Beach in the popular Palm Cove subdivision.  The home is a Panama City Beach Foreclosure. Built in 2005, it is approximately 1200SF with 3 bedrooms and 2 baths. The interior has a cathedral ceiling in the living room and kitchen areas providing a spacious feel. This is one subdivisions that includes lawn maintenance in the HOA dues so you can enjoy the Beach instead of mowing the grass on your time off. There is a community pool and you don’t have to worry about cleaning it. Currently priced to sell at $114k.

LOCAL Foreclosure Statistics are HIGHER than 26%

Last week I published the post “Foreclosures Made Up 26% of Properties Sold in 2010”.  That 26% figure is a national average.  You’ve probably heard me say before that real estate is local.  Whatever happens in Los Angeles may not be happening in New York and whatever happens in Miami, may not be happening in Tampa, ect.  Real estate is extremely local and varies tremendously and can even vary by neighborhood.  Some neighborhoods may thrive while others decline. 

Last week I told you I would investigate our “local” market to determine foreclosure statistics.  According to the Bay County Association of Realtors and the Bay County MLS there were 2,721 SOLD residential transactions in 2010 for the entire MLS coverage areas.  Out of the 2,721 transactions 1,100 of them were categorized as foreclosures.  This includes, short sales, reos, pre-foreclosure and in-foreclosure categories.  That is 40%, 14% higher than the national average.  Surprisingly enough only 374 of the 849 condos sold were foreclosures which are 44%, 102 of 259 townhomes were foreclosures which are 39%.  The bulk of the properties were detached single family homes at 539 of 1421 were foreclosures which are 38%. 

The MLS covers Bay, Calhoun, Escambia, Franklin, Gulf, Holmes, Jackson, Liberty, Okaloosa, Santa Rosa, Walton and Washington Counties.

Understanding Real Estate Appreciation

Panama City Beach real estate appreciation refers to an increase in value of your Panama City Beach Home and the property. When your property “appreciates” you have greater equity against which to borrow, and you realize a greater profit when you sell. Property values fluctuate regularly for many different reasons, so how do you know the home you’re buying is going to appreciate over the years?

The economy is the driving factor of real estate appreciation in the Panama City Beach as well as in the entire U.S. That includes interest rates as well as the current employment rate, business growth in the area, housing supply and demand and affordability.

Regional economic and social factors also affect Panama City Beach Real Estate appreciation. Many homebuyers choose to live in areas with the best and most convenient features for households to thrive, such as a close proximity to schools, jobs and commerce.

A good school district can also be an indicator of good home appreciation. It is believed that good schools help foster lifestyles associated with high levels of attainment at the individual, household and community level. However, because of Panama City Beach Real Estate is mostly purchased by vacationers some factors are not as important to others as a lot of people are temporary residents.

Demographics also play a role in real estate appreciation. For example, during the 1980s, much of the baby boomer generation (People born between 1946 – 1964) was buying real estate, causing homes to appreciate at a faster rate than inflation and made real estate a profitable investment. The group referred to as Generation Y – born roughly between 1980 and now – is the biggest generation since the baby boomers. Their contribution to real estate is expected to be far greater than their older siblings of Generation X (born between 1965 and 1979).

There are some aspects that significantly contribute to real estate appreciation, which you may want to ask your agent about when shopping for a home:

Recent sales. Performance Realty will retrieve public records on Panama City Beach Real Estate sales in the neighborhood you wish to live in. How many home sales have there been in the past year? What are the asking prices? Do the final sales exceed the asking prices?

Appreciation history. Have home prices risen or declined over the past 5 to 10 years? Is the neighborhood considered desirable because of its location, amenities or affordability?

Panama City Beach business economy. Is there a good mixture of business or does the area rely on one industry? Have any new industries moved into or out of the area? Is there a lot of new development nearby? Economic changes such as a large factory going out of business can dramatically affect demand for housing in a particular area.

It is important to note that while appreciation is nice to have, it should not be the reason you decide to buy a home in a particular area. Even if you buy a house in a rapidly appreciating area, there is not a guarantee that its value will rise by the time you want to sell it. That’s why it’s best to pick a neighborhood – and a home – in an area that suits your own needs.

Foreclosures made up 26% of Properties Sold in 2010

While browsing the internet the other day, I found an article that I found extremely interesting and thought I should share it.  The article is from back in February and is titled Discounts for Foreclosed Homes Widened in 2010.  The article was put out by the Florida Association of Realtors.    

Last year, the gap between the sales price of foreclosed homes and regular “arm’s length” transactions widened than in previous years.  There is also more good news for buyers.  According to RealtyTrac, more homes were taken back by banks than were purchased by buyers.  This means that buyers will continue to get good deals and foreclosed homes at a discount. 

On national average buyers who purchased a foreclosed home in 2010 received a 28% discount from those that purchased a traditional non-foreclosed home.   Foreclosed homes made up nearly 26% of all home sales last year.  Although that number is down from the 29% in 2009, it’s up from 23% in 2008 and traditionally, foreclosures only make up 10% of homes sold.

There were a total of 831,574 foreclosed properties that were sold last year.  That figure is down 31% from 2009.  Sales of homes outside the foreclosed category declined 19% in 2010. 

Although it appears that the pace of foreclosed homes have slowed down, actually, lenders increased their repossessions by taking back nearly 1 million homes in 2010.  This increased the inventory of foreclosed homes that have yet hit the market.  In order for the market to fully recover, this inventory must be absorbed.  The part of the article I found most interesting is that typically only 30% of a banks foreclosure inventory is on the market.

So, keeping the above discount numbers in mind, more foreclosure sales means banks are taking more losses.  This would single handedly decrease property values more than what they already are.  Therefore banks are slowly releasing their inventory.

Although this article had good facts and statistics RealtyTrac works off of national averages and because real estate is local, it got me thinking about our local market.  I wonder what the numbers are for it.  I will publish my findings in the coming days.  Please keep checking back for the latest news, tips and updates.  If you would like, subscribe to my blog to receive the latest information.

Fortune Magazine Cover Story: The Return of Real Estate

It’s great news that somebody other than people in the real estate business thinks it’s a great time to buy.  Last weeks issue of Fortune magazine’s cover story entitled The Return of Real Estate Finally!! After Year of Plummeting Home Prices, The Market is Showing Signs of a Turnaround was a delightful surprise.  The article focuses on five trends that act as justification for the recovery of the housing market. 

1. The steady decline of housing prices since 2006 from a national average of 30% to 55% in the markets hardest hit by the bubble bust.  Because of this decline, in many cities it cost less to own a home than to rent. 
2. The bubble busting left many people unable to pay their mortgage, and therefore foreclosures skyrocketed.  All of those people had to go some where.    Therefore, now there is a steady stream of renters which has caused rental rates to increase rapidly. 
3. Home builders have held off building for several years in hopes that the demand would catch up to the supply.  Now, when demand goes up there will be a slight shortage in new homes.
4. Investors are rapidly responding to the demand for rental units.  They are acquiring the foreclosed homes that have had such a negative impact on the market. 
5. The economy does seem poised for a recovery, although we are still battling high unemployment rates, weaker than normal consumer spending and high fuel prices.  People are spending far less on their housing.  In 2007, during the peak of the bubble, homeowners were spending 17.2% of after tax income on their mortgage, property taxes and insurance.  Today, that number is down to 9.8%.  Less money is being spent on housing allows people to have more disposable income which could increase consumer spending thus helping the economy to recover. 

I know many of you may be saying “but banks still aren’t lending.”  Part of that is correct.  The reality is banks have gone back to the solid fundamentals they had before the boom and those standards didn’t hurt prices and homebuilding in a good economy. 

Another important point to remember is although a lot of real estate statistics are on a national scale, real estate is local.  It varies from state to state and city to city.  Miami real estate values and market trends are different than Panama City Beach real estate values and market trends.  Because of this some markets will bounce back this year while others may still decline slightly.

Buying Foreclosures

In this current Panama City Beach Real Estate market there is a lot of interest in buying bank owned properties (Foreclosures/REOs). There is an abundance of good and bad information out there. More times than not the information offered is for sale, and features a promise that you can make a lot of money with little effort once you know “the secret formula”. These services typically get you to buy a book first and then follow up with you to encourage you to buy a system or a “training program”. These people’s main goal is to not buy and sell real estate but rather sell their programs as you probably will never talk to the person the program is endorsed by (Carlton Sheets, John Alexander, Dean Graziosi). The fact is that there are not any secrets, and to make money does require effort.

Another detail that must be considered is if the property you are buying is really a bargain.  It’s often assumed that any REO must be a bargain and an opportunity for easy money. This simply is NOT true. You have to be very careful about buying a REO if your intent is to flip it. It is true that the bank is typically anxious to sell it quickly however, like any other seller they are strongly motivated to get as much as they can for the property. When considering the value of a REO, you need to look closely at comparable sales in the neighborhood and be sure to take into account the time and cost of any repairs or remodeling needed to prepare the house for resale. This is specifically vital in a declining market. If the Panama City Beach Real Estate market is declining you may be upside down on the property as soon as you close as the market could have declined from the time your offer was accepted and your closing date.  If you still have repairs to do on the property and the market continues to decline you could risk losing a great deal of money if you do not have the resources to carry the Panama City Beach Foreclosure.  The bargains with money making potential exist and many people profit extremely well buying foreclosures.  But there are also many Panama City Beach REOs that are not good buys and not likely to turn a profit.

For exclusive Panama City Beach Foreclosure Listings, just fill out the form below and we will send you a Free Foreclosure List. 

 

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