Fed says business as usual

As many of you have probably heard, the US credit rating has dropped to a AA+ from its AAA rating.  An AA+ rating is a quite a distance from Greece and is still the second highest rating out there.  The credit rating drop is more of a psychological blow than anything.  What I think the S&P thing did was to hit a nerve that there’s something basically bad going on, and it’s hit the self-esteem of the United States, the psyche,” said the former chairman of the Federal Reserve, in an interview with NBC’s Meet the Press on Sunday.

Federal Reserve officials publicly declared that it was business as usual despite S&P’s downgrade of US government debt.

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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.

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.