Looking Out From the Garage: December 2007

Earlier I ran across a post on the official A/R blog wondering about our predictions for the next year.  Well, I had already been in a prognosticating mood, since I was actually grading some of my predictions from earlier this year. 

I also ran across a post by Jim Crawford looking for specific answers to 10 real estate questions.  I figured I'd bite on that as well.  So, here they are:

1. Mortgage Rates Lower or Higher?
   
2. Credit Loosen or Tighten?
3. Numbers of Agents in Your Market Up or Down?
4. Real Estate Inventory Levels in Your Market Increase, or Decrease?
5. Better Real Estate Market or Worse?
6. Buyer's Market or Seller's Market?
7. More Foreclosures or Less?
8. Homes Sales Prices Flat, Rise, or Fall?
9. Condo Sales Prices Flat, Rise, or Fall?
10. Commercial Real Estate Stay Strong or Start to Soften?

So, let me go after my views on these questions, and then I'll toss out a few others. 

1.  Mortgage Rate Lower or Higher?  Both.  I think that rates will go down a little more for well-qualified buyers.  High credit scores will yield low rates.  But, those with lower scores will see rates a little higher than what they could find this year... if they can get a loan.

2.  Credit Loosen or Tighten?  I think that it needs to be tighter than it has been over the last couple of years... and that will still be looser than it was a few years ago.  So, I guess I will say that credit will tighten a bit more.  

3.  Number of Agents in Your Market Up or Down?  I think that there will be a 20% erosion in the number of agents in this market.  Active agents might even be more eroded than that.  And the 80/20 rule will still be in effect.

4.  Real Estate Inventory Levels in Your Market Increase, or Decrease?  I think the inventory will top out in the spring, and by the end of the year be slightly below this years levels.  

5.  Better Real Estate Market or Worse?  Worse at the beginning of the year, flat by mid-year (compared to this year) and up by the end of the year.  It will come in slightly better than this year... or really close. 

6.  Buyer's Market or Seller's Market?  Most of the time it will be a buyer's market.  But, I think that when the recovery starts some of the pent up demand will push the market... or some sub-markets... to the seller's side of the market.

7.  More Foreclosures or Less?  I think that there needs to be more, but that they will top out around the end of the 1st quarter.  It will be a plateau until the end of the year.  Compared to this year there will be more.  

8.  Home Sales Prices Flat, Rise, or Fall?  Overall, I think they will be flat.  I'd like to see them fall just a bit to get buyers off of the sidelines, and they may do that... but overall I still think it will be flat.  

9.  Condo Sales Prices Flat, Rise, or Fall?  The recovery for condos will be at least a few quarters behind the home recovery.  I think there will still be a drop because of the excess inventory. 

10.  Commercial Real Estate Stay Strong or Start to Soften?  I don't think start to soften will cover it.  I think that in Atlanta we are WAY over-built.  There are miles and miles of commercial footage sitting vacant... and no real slowdown in building.  Somebody is going to figure out that there isn't that much wrong with 20 year old buildings, and then the prices will have to adjust downward.  Since the supply is SO high, there is no way the demand can hold the line on prices.  

I promised a little more than that...

One party will NOT control the White House and both houses of Congress.  If one party does, it will be the Republicans, but my guess is that the Senate and and Presidency will go to the GOP, with the Democrats keeping a slim majority in the House.  Lieberman will join the GOP...

Look for the Democrat ticket to be Clinton/Edwards... unless Hillary has a meltdown.  If that happens, Obama will get the nod.  Edwards isn't Presidential.  On the GOP side, look for a late surge by Huckabee, but he will end up as second banana to Romney.  Again, Guliani might beat out Romney, but they won't be on the same ticket. 

The match-ups (going WAY out on a limb) Guliani/Clinton or Romney/Obama... (no inside info, I'm just guessing)

Here is the BIG one.  Global temperatures have peaked.  Try as they might, there will be a paper that the Anthropomorphic Global Warming crowd will not be able to refute.  Al Gore will say the debate is over, but will again be proven wrong.  The AGW crowd will again claim that cooling temps are a sign of Global Climate change.  

It's going to rain in north Georgia...  

I'm going to hire an assistant. 

I'm going to finish my Jeepster... kinda... enough to take out and play with it.   

Is It Time to Buy? Revisited... 

Back in June I reprinted an article that I actually wrote just over a year ago.  I originally wrote it in November 2006, and republished it here and on my blog in June 2007. 

Here is a link to Is It Time To Buy?

Well, if you had taken my advice and purchased, let's see how I would have done...  Just as a note, I am using the S&P/Case-Shiller Indices for historic averages and appreciation (or depreciation) rates. 

• Had you purchased in November... we'll use $300,000 as a value... and closed in December the property would be worth about $299,500 as of October (the latest data available).
• Had you purchased in June, the $300,000 property would be worth about $294,100.
  
• In June when I re-printed the post, the $300,000 home was worth $305,500.  (June was also the peak month in the Atlanta market)
  

I'll have to revisit these predictions again in the future. 

June Market Predictions...

Back in June, I predicted an increase in foreclosures due to ARMs and people buying more property than they could reasonably afford.  

I think this increase will be more pronounced on the middle and higher end of the market. Many of these properties were financed with ARMs that were tied to volatile indexes such as the LIBOR. Owners may be faced with substantial increases in the housing costs leading to foreclosure. There has been a lot of activity in the market over the last couple of years, and so there are a lot of recent properties that could become troubled.

I hit that one pretty well right on the head...

I made a couple of other statements about the market that stand up a little less...  The first was about stabilization at the lower end of the market.  The sub-prime mortgage meltdown tossed that one into the can.  It was the first and possibly most affected sector in the market.  I also said that I thought there were opportunities in higher priced homes for investors.  I might try to make an argument that it could still be plausible... but I'm not trying to tell investors that they should be speculating right now... not on flips.  It is the time to buy to hold.  

Interest rate predictions... 

The 5.5% I was predicting for 2009 is getting terribly close.  I looked at the rates yesterday and they were at 5.62%.  Here is the post.   

I didn't really add anything earth shattering in August or September.  I did say that I thought investors should be looking at properties to buy and hold.

Here is the prediction today...

I think that we are going to have a strong showing here in Gwinnett County late in the spring (2nd quarter).  I think that the absolute bottom will be more like WWWWW from February until May or June.  The year over year numbers might start to trend from there.  But, any of those little bounces could be the ONE... or it could bounce longer.  I just think that by next summer there will be ready buyers that feel like they've waited long enough.

Of course there is one little hitch…  You have to be from outside the United States.

I just ran some numbers, and the US Dollar is at it’s lowest level in at least the last five years against both the Euro and the Pound.

For the Euro:

• In January of 2003, the Euro was worth about $1.05.
• As of Friday, it is worth about $1.47

For the Pound:

• In January of 2003, the Pound was worth about $1.60.
• As of Friday, it is worth about $1.99

Let’s put this into some real numbers.  We’ll assume that you were thinking of a home here in Atlanta to stay in while traveling for business or pleasure.  We’ll showcase a $300,000 home (in 2003):

• In 2003, the home would have cost £187,500.
• Or, it would have been €285,714.

The current value of the home (using averages) would be about $348,654… a gain of 16% over 5 years.  But:

• It would only be worth £175,203 (a loss of 7%)
• Or, it would be worth  €237179 (a loss of 17%)

However, there are two things to keep in mind.  the Atlanta market is different from some of the more popular markets with international buyers.  It hasn’t had the dramatic price appreciation of Los Angeles (73% increase), Miami (70%), Las Vegas (71%) or New York City (40%) during the same period.

Atlanta is also one of the best connected cities in the world, with Hartsfield-Jackson International Airport (code ATL) having connections just about everywhere in the world.  In fact, ATL is one of the busiest airports in the world.

Finally, Atlanta has an incredible list of international businesses that conduct major operations here.  Aside from Delta, Coca-Cola and Home Depot; companies like UPS, Newell-Rubbermaid, FedEx, Siemens AG and Philips have major operations here.  Atlanta is a logistical and transportation hub for the eastern United States.  Another side benefit, it locating an office here, is that lease rates for office and warehouse space are both more plentiful, and cheaper than other eastern cities like Boston and New York City.

The case for the value of future investment.

Atlanta didn’t have the big run up in property values other major US cities experienced.  While jobs and population here DID grow… often at rates higher than cites with higher property appreciation, the geographic boundaries (or lack of impediments to growth) allowed housing to keep up and keep prices reasonable.  The benefit now is that while many other major US cities are poised to have property values decline, Atlanta should be able to maintain a more stable value going forward.

So, if the exchange rates of the US Dollar v. the Pound and/or the Euro return to historical norms, while the US Dollar value of the real estate remains stable or grows even slightly, the gains may be pretty substantial.  Returning to the 2003 exchange rate, without a increase in the US Dollar value of the property would yield:

• a 24% increase in the Pound value  (£217,908)
• a 40% increase in the Euro value (€332,051)

Imagine if the real estate market continues to chug along at even a modest increase…

Sources for this post include Forbes Magazine, Yahoo, Yahoo, S&P/Case-Shiller indices for statistics and background information.

If you are interested in other US cities, I call offer referrals to agents anywhere in the US.  I have access to an incredible database of high performance agents.

I look forward to helping you with your property needs in the US.

Part of my daily reading ritual includes Seth Godin’s blog.  He is often described as a marketing genius.  I think that well might be true.  But, his blog isn’t just about marketing, but also often touches on greater issues.  This one certainly did.  Although, he actually wrote it four years ago… still rings true.  Did you go read it?  I’ll wait…    …   … … .. .

Ok, now we’re on the same footing.  I think that much of what Seth mentioned can apply to real estate today.

• Interest rates are low.  I just looked and good credit ratings are pulling in 5.62%… the average over the last 44 years is 8.22%.
• Inventory is high… Just over 9600 homes in Gwinnett County, GA on the MLS.
• Sellers are motivated, it is a buyer’s market.
• Rents are rising.

If you are a first time home buyer, this might be a great time to move.  I am still looking for a change in the market around spring, and the best deals will be gone before we know the market has turned.   A couple of months before we figure out the market has turned.

If you are a move-up buyer, look to see what sort of deals you might be able to find.  If you take a 5% hit on your current home, but get a 5% hit off of the more expensive move-up home, you are in good shape… especially with the great rates.

If you are an investor, this might be a VERY good time to pick up inventory.  get it on sale, while the choices are plentiful and much of the competition is still nervous.   First movers are going to be the winners.  Also, rents are rising… more on that in a moment.

Who shouldn’t make a move?

Downsizers.  This isn’t your day.  If you can hold off, you probably should.  The hit on your current house may outpace the savings on a new house.

Those with bad credit.  Work on getting your ducks lined up.  Fix your credit, and you will find good rates.  I know that rents are rising, and I really want you to be able to get out of the rent trap, but don’t jump before you have the landing bag in place.

Mistakes…

Right now, we are in the closing chapters of the first book of the sub-prime mortgage meltdown.  I have already written a few posts about how this happened, but to re-state it quickly…  People bought homes that they couldn’t afford… and lenders let them.  The bubble popped, and the bills came due.

Don’t do it.  that is why I am counseling the credit challenged to fix that first.  I know that it isn’t fun to rent, not knowing what you will have to pay next year, but you need to get your financial house in order.

I’m starting to go off topic… and I don’t want to do that.  So, back to the show…

The point. 

The fundamentals are sound for Gwinnett Count, GA and the surrounding areas.  Atlanta and Georgia both have solid job growth, and haven’t had the huge run-ups in prices that are unwinding in other markets.  The variables are great on the buyer side, prices, interest rates and inventory.

So, instead of looking at the negatives as portrayed in the national media, we need to look at our own market.  When the world is “zigging” it is often time to zag.  it isn’t the right strategy for everyone, but for some it is a GREAT way to position for the coming market.

If you are looking for real estate, especially real estate for auto enthusiasts in Gwinnett County, GA, give me a buzz.

While researching yesterday’s blog entry, I ran across this little tidbit.  Frankly, it p***es me off.  I am proud to be a member of the NAR.  I think that there is a place for a strong voice both for real estate professionals, and to champion the issues for increasing home ownership for consumers.

But this is downright stupid.  Whistling past the graveyard.  Spinning… without anything to spin.

Just as I will call the bubbleheads to task for making blanket predictions with no sort of timeline, I will call the NAR to task for making flat out bad predictions that they should have known to be wrong as they were making them.

• 12/11/06, Lereah predicts most of the correction is behind us, and we should sell 6.4 million units nationwide.
• 1/10/07, ups the sales forecast to 6.42 million.
• 2/7/07, ups it again to 6.44 million.
• Starting in March, downgrades the sales prediction every month until November hits 5.5 million… scrubbing almost a million homes from the beginning of the year.  Each time there is a statement saying something to the effect of the worst is past.
• Beginning in May, Yun is doing the predicting… Lereah is at Move . com…  Same stuff going on.
• In December, Yun revises sales for 2007 to be up slightly from the previous month’s prediction to 5.67 million units.

In what I hope to be a final bit of honesty, Yun states that 2008 may only be slightly better than 2007.  But, after 12 consecutive downgrades, while each was accompanied by a statement about the worst being past, I have my doubts.

Despite what I think is an attempt by the NAR to buoy consumer confidence in the housing market, the result is exactly the opposite, with the added issue of making the NAR seem unwilling to level with the public.  Real estate agents already have less statue in the community that used car salesmen and lawyers… spinning bad numbers and trying to pull one over on the public is not a way to fix that.

I get a bit tweaked when the media seems to fail to recognize that there are markets in this country that are doing quite well.  I get MORE tweaked when my own trade organization tries to hide reality from our consumers… my clients, customers, friends and even me.

NAR, this is why you are sliding into irrelevance.

I ran across a post on Active Rain that pointed me to an outside article that talks about the need for at least a 20% reduction in home prices in order for families to be able to afford to buy. Well, I love it when there are specific claims and statistics. I can usually verify and refute or support specifics. When someone tosses out some general and off the cuff stats, they can’t be verified.

So, I ran into one problem, there was an affordability index that was quoted, and I couldn’t find it in order to check the methodology. But, my son took a long nap (wiped out by Christmas present opening) and so I made my own. Here is a quote from the article:

Today, median home prices are 3.5 times the size of median annual family incomes. This may be down from the recent peak of 4.2 times incomes reached last year, but it’s way above the 2.8 times that home prices averaged during 1984-2000, when lots of homes were bought, sold and built.

And if you think 2.8 is low, check out the early 1970s. That was when home prices were only 2.3 times median family incomes, and housing was selling like gangbusters.

One major homebuilder recently proved that people will buy if the price is right. The firm slashed prices by 20-30% one recent weekend - and wound up selling more than nine times as many homes as it did on previous weekends.

To get prices back to 2.8 times family incomes would require a drop of 20% from today’s levels - and this does not take into account interest rates and lending standards.

To equal the affordability of the early 1970s, prices would have to fall a whopping 38%.

Well, that didn’t seem right to me (BTW, I added the bold). I know that the interest rates haven’t been this low in decades, and they would have a serious impact on affordability. I also know that lending standards were tighter in the 1970s than they were a couple of years ago, and even with the tightening, standards are still pretty open by historical comparison.

So, I knew that a simple multiplier would not give a true picture of affordability. I also knew that I couldn’t give any meaningful and measurable comparison to lending standards, so I left that alone. But, this is what I found.

In the Lane’s Affordability Index:

• 2005, the peak of the bubble yielded a LA of 3.0. Median Price was $319k (all dollars are 2007 constant dollars), but the interest rate was only around 5.85%. Median family income was a touch over $60k.
• From 1963 to 2006, the average was 2.8.
• The ugliest years for the LA were 1981 and 1982. Interest rates hovered around 14%-15% (I know there were higher rates, but these are as reported by the FHFB), and prices were around $173K. Payments on the median homes were about $1700/mo. and the median family income was around $49k.
• From 1984-2000, the average of the LA was 2.9.
• In the 1970s, the average was 2.6. The same as 2003.
• In 2003, the median price was $278k, and the interest rate was 5.67% and the median family income was about $60k.

What I take away from that is that IF one removes interest rates, the numbers given by Dr. Kellner would not be off-base. However, interest rates ARE a very important component in affordability. Using a simple multiplier of income to home price is disingenuous at best. When some points of the measurement the interest rate is triple the rate at other times, and during the target periods it is from 50-100% higher, not including it is just irresponsible.

When factoring interest rates, in order to reach the affordability of the 1984-2000 period, prices would need to drop by about 4% from 2005 levels. To hit that magical average af 2.6 from 1970-1979, prices could drop by 10% from 2005 levels (not far to go, BTW) and interest rates would need to be around 5.75%… there was a slight increase in income.

Let me explain what I did…

• I took the average price of conventional homes purchased as well as annual average interest rates from the Federal Housing Finance Board.
• For the average family income, I hit up the US Census Bureau.
• This is the constant dollar calculator I used.
• Using this data, I crunched numbers. I figured out the payment with 20% down for the median house, and then took it as a percentage of the median income and multiplied the percentage by 10. (eg. 31% = 3.1).

These numbers ARE NOT directly comparable to the numbers from Dr. Kellner’s article. However, the time periods he mentions obviously are, and my numbers are just as valid comparing them to each other as his are.

So, Dr. Kellner, please feel free to give out your methodology. I would be glad to take a look. I shoot straight. I can be wrong.

If this post was interesting to you, you might read these other posts I wrote previously:

Are we on the edge of a calamitous housing bubble?  The Gwinnett county, GA, perspective.

The sky is falling… and the bubble is coming…

I just thought I'd pass along something I've been playing with on my blog for a couple of days (which is why you may have seen it appear or disappear on the site).

It's called Plugoo.

It is a plug-in that let's me chat you a viewer on my blog.  It will send a message from my website, as you view it, to me via Yahoo IM.  The nice thing is that you get to keep your anonymity.  I don't get your Yahoo ID, unless you choose to share.  

But, if you have any questions or need any further information, and I'm online, I can answer you directly.  Also, if you are surfing the site while we are chatting, you can disconnect the chat window from the site to make it easier to surf around. 

Hopefully I'll be able to deploy this on GarageHomesUSA.com soon as well.   

For my friends here on Active Rain, feel free to visit Plugoo to get one for your site.  It's pretty cool... now we need to see if it works to increase conversions from the site.

I have been quite happy with the change to WordPress. One of the great things is the level of control I can have over the presentation of the site. It is a lot of fun to try to make the site more user friendly, as well as deliver better content and entertainment. So, feel free to wander over and take a look.

On Thanksgiving morning, the whole family sat down to watch the Macy's Thanksgiving Day Parade. Talk about a disappointment... Each network seemed to use the entire parade as an excuse to promote their line-ups, rather than actually showing the parade. BTW, congrats to Stephenson High School in Stone Mountain for being selected to the big show.

Still being in the relax mode from Turkey day, the day before, I wrote a post outlining some websites that might be of interest to car people. Welding, shop tools, garage forums, and other enthusiast forums. So, you have a little time, and want to think about garages and garage stuff...

Since I was still in a holiday mode, I got to thinking about tradition. But it's a tradition... ties those thoughts about the way we've always done things back into real estate. I'm a non-traditional agent. It isn't just about technology, but also attitude.

The NAR released some information about housing starts from a third party. The info showed Housing Starts down slightly, but Multi-family are up... Not being one to just pass along the numbers, I also wanted to delve into the regional numbers and figure out what they mean.

Hockey, a three year old, and Twitter is not just about playing floor hockey with my kid, but also about Twitter as a business promotion platform. I'm pretty up-front that I don't "get" Twitter... although Terri Lussier did a great job of outlining how it can be useful over on Bloodhound Blog (a real estate industry blog).

Coming back from a Thrasher's game at Philips Arena in Atlanta, we drove by Fat Matt's Rib Shack. That got me thinking about Good bread, good meat... I just had to write about good southern food that is available around Atlanta, GA. Aside from a couple of BBQ venues, I also mentioned a couple of "meat and three" choices. Read up and eat up...

For years (decades!) we have been the holders of information, the gatekeepers. Real estate agents have always held that information like it was valuable... and, the information does have value. But, in the current age, the information is out there. I am perfectly willing to give away all of the information, and let people work with me because I provide value through helping them filter and translate that information. So, Free Milk... Get your Free Milk!!!

S&P released their survey of home values in different markets across the country. For the Atlanta region, House values UP!?! To find out exactly how much... read the blog. ;^ )

So, I a very willing to admit that I read other real estate agent blogs. It is good to know what others are saying, and to see what sort of reaction they are getting. And, when Jay Thompson had a post about a guy doing 219 mph in Phoenix... Unbelievable!! I had to grab the video and post it. (BTW, I did ask Jay if I could steal it...)

Around the times of the YouTube debates for the Republican candidates, I ran across this video there. I'd almost consider running to answer this question... Ignoring the odd coincidence of Democrat candidate staffers and supporters getting their questions onto the CNN sponsored debate, I wish this one would have made it... of course, no candidate would answer it the way it should have been answered. For the question and answer, follow the link...

Building a better website, part ZCXII is about me crashing my site and then needing several days to get it back online... I hate that I blew it up, but I love the result. Everything works better, and looks better. I'll take the lumps to deliver a better experience to my clients, readers and consumers.

I was having a hard time concentrating on real estate while I was trying to figure out how to fix that which I had broken. So, in Overkill... just about right... I talked a little about technology.

Almost at the end of the long, slow website crash, I tossed up a post explaining what I had managed to do, and how. I also posted a great video to illustrate the point of Just when you think you've got it beat... I try to talk about real estate... really, I do try. Occasionally, I do post about it.

I know... It's officially a rut! I had to talk about crashing the website just one more time. I'm tired of writing about this... I bet you are tired of reading about it...

Finally, a post that isn't about the website! Parkview High School in Lilburn, GA tossed me a little roadblock. Scholarship thwarted, but not abandoned was to let people know that I am still trying to find a way to make this happen. I'm still trying to figure out how to make this a reality. Here is a bonus... I am thinking of opening it to ANY high school senior in Gwinnett County. So, if you are one, or know one... let me know.

I hope that you find a post of interest. Hopefully I'll be back in here next week making another update. When I catch up, I'm going to try to make the updates for the previous week. And, if you need real estate in the Atlanta or Gwinnett County area of Georgia, drop into my website GarageHomesUSA and let me know. Of course, you can find my blog now at LaneBailey.com.

Those of you that know me already are well aware of my sense of humor. Those of you that know me well, know that I love cover music. What better way to combine humor, cover music and Christmas…

Enjoy this Holiday Season. I’ll be back each day with a new post, and I promise that some of them will be real estate related.

;^ )