Circle of the West

To invest or not to invest - that is the question. I'm going to share with you something someone told me about the cycle of booms in the West. It seems to be true, although I can't prove it. It's only an observation.

After California experiences a boom cycle people are flush with money and we seem to "export" the boom to the east, Arizona and Nevada. After prices rise there, the boom "spills over" to the neighboring states of Utah and Idaho. Then the market takes off in Oregon and Washington. Finally, growth returns to California and the cycle begins again.

I know it sounds wierd, but it seems to track. The boom that began in California moved to Arizona and Nevada a few years ago and those markets have now cooled. It's currently a seller's market in Salt Lake City and Seattle. Boise had a run-up a couple of years ago and has now settled down into a normal market. Oregon is starting to see some good appreciation.

So if the pattern holds, we'll be seeing California rebound in the next year or two. Those who left California seeking lower house prices have now made some money, and as our prices drop they will be looking to return. It happens every generation in the great "Circle of the West".

Agua Hedionda Lagoon

What a great day for a walk with my granddaughter Grace! It was clear and sunny, with crisp clean air after yesterday's storm blew through. The Agua Hedionda Lagoon is one of three lagoons in Carlsbad, and this one is walking distance from my house. I've been walking or running there recently and enjoying the early morning quiet. Just the sounds of the sea birds and the smells of rushes, mustard, and salt air. This is a part of the trail along the lagoon.

Down by the water many folks let their dogs run.

Grace made a new friend!

Investment Update

So where are the Kaisers investing these days?

Since the first of the year we have sold houses in Indio, CA and Brooksville, FL. We are currently trying to sell one in Cape Coral, FL. We have purchased a pre-construction lot in North Carolina and are in a contract for a new construction duplex in Mississippi.

We have our own reasons for each one of these moves, and it does not mean that it is the right thing to do for all people. Obviously, there must be a willing buyer and a willing seller for a transaction to occur - if people didn't have their own agendas then you would have to say that either the seller or the buyer is making a stupid move. The reality is that the seller might be making a smart move based on his situation, and the buyer might also be making a smart move based on his own goals.

We sold Indio not because we think California real estate is no good, but because we are building a second home in Idyllwild, CA and we needed the money. You see, our original goal all along was to have a fantastic mountain home that was totally paid for by profit from real estate investments. So Indio fit the bill - it went up in value and we sold it to take the gains and spend them on the Idyllwild project.

In Florida, our investments have gone backwards. We always go into an investment with a break-even cash flow in order to weather any storm that may arise. But in Florida, we have the "perfect storm". Taxes have shot way up, insurance premiums are outrageous (if you can even get insurance) and to top it off, rents are plummeting. So our numbers really didn't work out as planned. Last year we sold some FL properties with a substantial gain - this year we are just getting our investment back in Brooksville (no profit) and will probably take a small loss in Cape Coral.

The question is, to you face the pain all at once or endure death by a thousand cuts? The negative in Cape Coral is awful and it will be years before the situation turns itself around. In other words, we feel that if we were to sell a few years from now, the price we would have to get to overcome 3 years of negative cash flow would be unlikely. So the risk is probably greater than the reward.

Nevertheless, we have the cheapest house on the market and still no bites. So if I have to lower the price even further, than I will have to recalculate this and may decide to rent the place out instead.

The purchase in NC is a calculated 2 year investment. It cost $15K to buy in, and we hope to turn that into $50K in 2 years. The builder was pre-selling some lots in a new upscale development in order to raise quick cash to build the common facilities. Once the project is launched and the clubhouse and roads are in place, the builder will then sell our lots at the going rate at that time. Based on the success of similar developments in the area, we feel that there is a good chance for a profit.

As for MS, that is in the Katrina GO Zone, which I've talked about in other posts. I would get a 50% bonus depreciation on this property, which breaks even at 10% down. The strategy here is the shelter some of the gain from the sale of Indio. Remember I said we sold it, a taxabe event. We could not 1031 exchange it, because we needed the money to build the second home. You can't 1031 exchange into a second home, especially one that isn't even built yet.

So how to get the money for our use, and not pay taxes on it? We can wash away the gain with paper losses by buying property in the GO Zone! So we found an investment that would make sense even without the bonus depreciation, but we limited our search to the GO Zone, because our goal was to wash away the Indio gains.

See how all this works together to move me towards my ultimate objectives? See how tough it is when someone send me an email and says "where should I invest now?" How I can I possible answer that for another person unless I have a really good understanding of that persons finances, goals, investment experience, risk tolerance, etc? I'm happy to talk with anyone about real estate investing, because that is my passion, but true investors always talk in possibilities, never certainties. If someone says "buy this pre-construction condo for $500K because it will be worth $700K when it's done" you know you are dealing with someone trying to sell you something and not an investor.

Snow on April 15th!

Today in Idyllwild we were treated to a bit of the white stuff, rare for this time of year. Idyllwild is a small town in the San Bernardino mountains at 5500 feet above sea level.

My neighbor's tulip garden topped with snow.



Here's our small cabin during the snowfall.

Sub-prime Loan Woes Pushing Statistical Prices Higher

The problems in the sub-prime mortgage market have had some unintended consequences. Demand and sales in the entry-level segment of the real estate market have fallen as lending requirements have tightened. Coupled with a strong million dollar plus market, we have the illusion of higher prices because high-end sales are a larger portion of all sales. That is one of the inherent problems with statistical analysis.

The median price for re-sale, single-family homes in San Diego County rose 3.6% in March from February. Year-over-year, the median price was flat. This broke eight months in a row the year-over-year median price has been negative. The median price is now off only 3% from the high of $598,000 set in November 2005. The average price for single-family gained 6.4% from the month before, and was up 4.3% year-over-year. (Read the first paragraph again.)

Home sales rose 36.7% from February. Year-over-year, sales were down 20.8%.
The median price for condos rose 0.8% to $375,000, month-over-month, down 1.3% compared to last March. This is the first time the median price for condos has been positive, year-over-year, since last March. The median price is now 4.3% below the high of $392,000 set in November 2005. Condo sales were up 29.4% from February, off 9.5% year-over-year.

My advice? Prime property in the best school districts is selling quickly and, in some instances, with multiple offers. Buyers need to be prepared to make an offer immediately on prime property. That means you need to have a loan in place. For more information about buying in a multiple offer situation, call me.

For sellers, where your home is, the condition and what segment of the market it's in, entry-level, move-up or million plus, are the determining factors in whether or not you will be able to sell your home quickly and for a good price. Demand in the entry-level market has fallen, which will impact the move-up market. The million dollar plus market is pretty much immune to the sub-prime mortgage tightening.

The real estate market is very hard to generalize. It is a market made up of many micro markets. For complete information on a particular neighborhood or for an evaluation of your home's worth, call.

Fastest Growing Metro Areas

According to population estimates released today for all metro areas by the U.S. Census Bureau, the Atlanta metro area gained 890,000 residents from April 1, 2000, to July 1, 2006, the largest numerical gain of the nation’s 361 metro areas.

This Georgia metro area (Atlanta-Sandy Springs-Marietta) was the nation’s ninth largest as of July 1, 2006 with a population of 5.1 million. Overall, six metro areas each gained at least 500,000 people between 2000 and 2006.

Dallas-Fort Worth had the second largest numeric increase at 842,000, and totaled about 6 million people. Houston (with an increase of 825,000), Phoenix (787,000) and Riverside-San Bernardino-Ontario, Calif. (771,000) rounded out the top five metro area gainers over the time period. The five metro areas experiencing the greatest numeric change between 2000 and 2006 were in the South or West.

The Northeast metro area with the greatest numeric change between 2000 and 2006 was New York (seventh overall nationally), while the Midwest metro area with the greatest numeric change over the same period was Chicago (10th overall nationally).

New York was the most populous metro area on July 1, 2006, with 18.8 million people, followed by Los Angeles (13 million) and Chicago (9.5 million). Fourteen metro areas had populations of 4 million or more.

The New Orleans metro area experienced the greatest numeric loss from April 1, 2000, to July 1, 2006, declining 292,000 since 2000 to 1 million on July 1, 2006. It was followed by Pittsburgh (a loss of 60,000) and Cleveland (a loss of 34,000). The New Orleans-Metairie-Kenner, La., metro area also had the biggest percentage loss during the same time period at 22.2 percent. It was followed by Gulfport-Biloxi, Miss. (a loss of 7.4 percent) and Weirton- Steubenville, W.Va.-Ohio (a loss of 5.2 percent).

St. George, in the southwestern part of Utah, was the fastest-growing metro area between 2000 and 2006, with a growth of 39.8 percent to total 126,000 on July 1, 2006. Rounding out the top five were Greeley, Colo. (31 percent); Cape Coral-Fort Myers, Fla. (29.6 percent); Bend, Ore. (29.3 percent); and Las Vegas (29.2 percent).

The 50 fastest-growing metro areas were almost evenly distributed between just two regions — 23 in the West and 25 in the South. One metro area, Fayetteville-Springdale-Rogers, Ark.-Mo., straddled both the South and Midwest regions. Sioux Falls, S.D., was the lone metro area among the top 50 fastest-growing located completely in the Midwest. Of the 50 fastest-growing metro areas, none were in the Northeast. York-Hanover, Pa., the fastest-growing metro area in the Northeast, ranked 95th.

10 U.S. Metro Areas With Highest Numerical Growth: April 1, 2000-July 1, 2006
Atlanta-Sandy Springs-Marietta, Ga.
890,211
Dallas-Fort Worth-Arlington, Texas
842,449
Houston-Sugar Land-Baytown, Texas
824,547
Phoenix-Mesa-Scottsdale, Ariz.
787,306
Riverside-San Bernardino-Ontario, Calif.
771,314
Los Angeles-Long Beach-Santa Ana, Calif.
584,510
New York-Northern New Jersey-Long Island, N.Y.-N.J.-Pa.
495,154
Washington-Arlington-Alexandria, D.C.-Va.-Md.-W.Va.
494,220
Miami-Fort Lauderdale-Miami Beach, Fla.
455,869
Chicago-Naperville-Joliet, Ill.-Ind.-Wis.
407,133

10 Fastest-Growing U.S. Metro Areas: April 1, 2000- July 1, 2006
St. George, Utah
39.8%
Greeley, Colo.
31.0%
Cape Coral-Fort Myers, Fla.
29.6%
Bend, Ore.
29.3%
Las Vegas-Paradise, Nev.
29.2%
Provo-Orem, Utah
25.9%
Naples-Marco Island, Fla.
25.2%
Raleigh-Cary, N.C.
24.8%
Gainesville, Ga.
24.4%
Phoenix-Mesa-Scottsdale, Ariz.
24.2%

More than four-fifths of all U.S. metro areas (305 out of 361) had a larger population on July 1, 2006, than on April 1, 2000. The 50 fastest-growing metro areas between April 1, 2000, and July 1, 2006, all grew by at least 13.8 percent, which is more than double the nation’s total population gain of 6.4 percent during the same time period. As of July 1, 2006, the 361 metro areas in the United States contained 249.2 million people — 83.2 percent of the nation’s population.

The New "Comps"

Here's an email I recieved today from a troubled seller and my answers to his questions.

Dear Dennis,

I came across your website while doing real estate research on the web and enjoyed the information you shared regarding pricing and marketing. Unfortunately, I am on the east coast (Virginia) and you are on the west, so I don’t suppose we will be doing any business. I would however like to pick your brain for a second.

You mentioned some techniques you utilized to create an “auction” environment for properties you have listed. I would be interested to know what these ideas are – if you have a moment to briefly share them. Then I can perhaps pass them along to the agent who has my listing.

I have a home listed – and have gone ahead and bought another one too – so I’m about to be the proud owner of not one, but count ‘em, two houses. Happy, happy, joy, joy.

In case you’re really bored and want to read about the specifics of my home selling situation, I’ve copied below a posting a placed on a real estate agent online forum – asking for suggestions from the agents who post on that message board.

Thanks for any suggestions.

Best Regards,

Rob


Greetings. Forgive my intrusion into the agents section of the forum, but I wanted to have this request read and commented upon. And this is the happening joint. Although the questions relate directly to my own home/listing, I would imagine that the questions posed and the situation I am facing will be seen more and more as this real estate slowdown runs its course. So perhaps the answers given will help some of you as well.

First, my agent team is really good and I have worked with them several other times. No real complaints. It is just that I am looking for ideas and suggestions that I might make to them about how to shake things up a bit and think outside the box so as to get my house sold. Sometimes I think there is the tendency to follow a routine and fall into a house marketing rut: "We do A, then we do B, then we do C" etc., with A, B, and C being the regular old stuff. My house has been on the market for about 6 weeks. Not a long, long time I recognize, but the traffic has been very slow. 3 showings, a bit of a yawn in terms of agent previews, no offers.

A few details:
1. The location is very good - best section of town.
2. It is a townhouse condo, not a single family home - which I recognize will eliminate some buyers.
3. It is a unique floor plan - which will rule out some buyers but hopefully intrique others. A multi-level condo - 3 1/2 stories, with (believe it or not) 8 different levels (lots of half-story levels, lofts, etc.) Lots of steps (bad for some but they are part of the open/charming layout - 17 foot ceilings, rooms overlooking rooms, and so forth.) 4 BR,4.5 BA, 2300 sq. ft. No garage - which will throw some people off - but instead we have the 4th bedroom and bath.
4. Condition: excellent. We did a big makeover with granite, stainless, Italian terracotta tile, wide plank floors, designer accent paint, new fixtures, carpet, etc. etc.
5. One other location detail - it is within walking distance of a hospital, medical center, lots of doctors offices, an upcoming medical school, etc. So - should be great for medical people.
6. Price - a touch on the "ambitious/aggressive" side, but not way out of line. Priced at the higher end of what should be considered the market range.
7. The market here: a little sluggish, but not awful. A bit more inventory than normal, listings taking longer to sell, prices fairly steady.
8. We're selling for health reasons. We planned to be here for the next 20-30 years, but we now need a 1-level.My agent team has done the normal round of advertisements: newspaper, real estate magazines, TV homes show. At my gentle insistence (I'm such a pain) they did an open house (18 showed - 10 were neighbors)and an agent lunch (25 came, I provided an iPod and a $50 restaurant certificate as door prizes and my agent team paid for the lunch.)

The agent feedback sheet comments from the lunch were generally very positive (who knows if people really say what they mean I guess though) with positives noting the condition, room, multiple master suites, decorating, cleanness, interesting layout. Negatives were noted as stairs and no garage. As to pricing, most thought the price was in line, some commented that it was a little on the high side (It's at $319,950 btw)and answer to the "best price to sell in 30 days" question seemed to mostly be in the $299,950 to $309,950 range.

And still .... no showings to speak of. My quandary is trying to assess whether it's price, a-specialty-property-just-waiting-for-the-right-buyer, the lukewarm market, the nuclear reactor I keep in the basement, or a voodoo curse that someone put on the place.

The home is one of those "surprise" properties. A row of similar (from the outside) condos - all nice enough - with ours being the "wow" one. I have been of the opinion that if you get enough people inside it is inevitable that someone will fall in love. (People seriously do almost always say "wow" when they visit.)

So in a nutshell, my question to you fine folks is this: How do you generate some "buzz" and get people in? I think it's a numbers game - it will take "X" number of showings before the right buyer sees it. But how to get them in? Do you have any advertising ideas for my agents - catchy, unique, eye-catching ideas? Thoughts on target marketing? Shall I hire a stripper to stand outside the house? Resort to kidnapping anyone I see looking at other houses and force them to see mine?

Sometimes the knee-jerk reaction is "lower the price" and that might well be the answer. But prior to taking the "easy way out" I wanted to ask for suggestions and creativity from you folks. And if price is the answer, would you suggest simply lowering it, or offering some more creative cash-at-closing type incentives: $X dollars toward closing, pay the property owners association dues for year, pay real estate taxes for a year, pay $X toward the down payment (if their loan allows), offer to personally mow their lawn and clean their garage (Ha! Fooled 'em. It doesn't have a lawn or a garage!)

Thanks in advance for any thoughts, suggestions, wisdom, noggin-thumping, or raspberries.
Rob

---

Hi Rob,
Yes, you are correct in that you are not alone in your plight. Even us marketing wizards sometimes are scratching our heads when trying to sell our own properties in this buyer's market.

You can create an auction effect by having several people in the house at once oohing and aahing over it. One way to accomplish this is to do 1/2 hour open houses which jams everyone in the place at the same time.

Another way (and this takes guts) is to lower the price below where you expect it to sell. Say something like "we will respond to all offers on such and such a date", say a week after you lowered the price. What will probably happen is that you have multiple offers. Then you multiple counter them all with your hoped-for price and see who wants it enough to meet your price. When people know that others want the place too, they will pay more than they otherwise would. So lowering the price in this way is not taking the "easy way out" as you described it, but a thought-out marketing strategy. We just sold a house that was very unique and had a limited market (as it sounds like yours is) using this very strategy.

NAR says it takes 20 showings on average to generate an offer. Based on your numbers so far, it will take 40 weeks for you to get an offer, if the market remains stable. If the market falls during that time, you may never get an offer.

In this market, you should not be on the "ambitious/aggressive" side, even by a little. You cannot use comparable sales to decide your price, because those sales were in the past. You must look at current homes on the market that are competition for you, and you must be priced below them. These days "comps" means "competing properties" not "comparable sold properties". And in my experience, gimmicks such as paying HOA dues do not work.

Hope this helps,
--
Dennis Kaiser, ABR,CRS,SRES
Real Estate and Investments
RE/MAX Associates, 6994 El Camino Real, Carlsbad, CA 92009
(760) 730-1310 or (800) 469-6391(760) 683-3500 FAX
Email - dkaiser@realestatelibrary.com
Website - http://www.realestatelibrary.com
55+ - www.seniorsandiego.com
Blog - http://www.realestatelibrary.com/blog

Modular Homes Multiply

The latest trend is modular construction, also known as UBC construction. UBC stands for "Uniform Building Code", meaning that these homes are built to the same code as site constructed homes, and usually better. The term UBC is used to distinguish a modular home from the old "manufactured", HUD, or "mobile" homes.

These homes are constructed in pieces in a factory and then assembled on site. All the pieces are mass produced by machine instead of hand measured and hand cut one-by-one at the building site. The result is significant cost and time savings. A typical modular home goes up in one or two days!

Now this isn't something you see every day - a flying dormer!