Economic Update ~ Week of January 23

Employment news was a headline maker last week with first-time claims for jobless benefits at their lowest level since April 2008, according to data from the Employment and Training Administration. Initial claims for the week ending January 14 dropped to 352,000, a whopping 50,000 claims down from the previous week’s revised figure of 402,000. The four-week moving average was 379,000, a decrease of 3,500 from the previous week’s revised average of 382,500.

The administration also reported that the total number of insured unemployed workers during the week ending January 7 was 3,432,000, a decrease of 215,000 from the preceding week’s revised level of 3,647,000. The four-week moving average was 3,576,250, a decrease of 34,000 from the preceding week’s revised average of 3,610,250. All in all, while jobless claims tend to vary from week to week, they have been on a steady downward trend.

In real estate news, existing home sales were on their third month of an upswing, reaching a seasonally adjusted annual rate of 4.61 million in December from a downwardly revised 4.39 million in November. Existing-home sales are 3.6 percent higher than December 2010′s 4.45 million-unit level. Overall in 2011, existing-home sales rose 1.7 percent to 4.26 million, topping sales of 4.19 million in 2010.

Building permits issued during December for private housing dropped to an annual rate of 679,000, marking a 0.1 percent drop from November’s revised rate of 680,000, the Census Bureau reported last week. That said, December’s performance was 7.8 percent above December 2010′s estimated rate of 630,000. Permits for construction of single-family homes in December were at a rate of 444,000, which was 1.8 percent above November’s revised rate of 436,000.

Construction starts on private housing in December dropped to an annual rate of 657,000, which was 4.1 percent below November’s revised estimate of 685,000, but was 24.9 percent over December 2010′s rate of 526,000. Starts on single-family housing in December were at a rate of 470,000, which was 4.4 percent over November’s revised rate of 450,000.

Completed private housing construction in December hit an annual rate of 605,000, which was 9.2 percent over November’s revised estimate of 554,000 and 7.1 percent above December 2010′s rate of 565,000. Completions of single-family homes in December were at a rate of 448,000, which was 0.9 percent below November’s revised rate of 452,000. Overall, an estimated 583,900 housing units were completed in 2011. This was 10.4 percent below the 2010 figure of 651,700.

The Consumer Price Index for All Urban Consumers (CPI-U) was unchanged in December, the Bureau of Labor Statistics reported today. Over the last 12 months, the all-items index increased 3 percent before seasonal adjustment.

Similar to November’s CPI-U, the energy index declined in December and offset increases in other indexes. The gasoline index declined for the third month in a row and the household energy index declined as well. The food index rose in December, with the index for food at home moving up after declining last month.

The Bureau’s Producer Price Index for finished goods declined 0.1 percent in December. Prices for finished goods moved up 0.3 percent in November and fell 0.3 percent in October. At the earlier stages of processing, the index for intermediate goods decreased 0.5 percent in December, and crude goods prices moved down 1.1 percent.

The Federal Reserve reported last week that industrial production for December increased 0.4 percent after having fallen 0.3 percent in November. For the fourth quarter as a whole, industrial production rose at an annual rate of 3.1 percent, its 10th consecutive quarterly gain.

This week will see a relatively light financial calendar, starting late on Thursday with initial jobless claims for last week from the Employment and Training Administration. Also on Thursday, the Census Bureau will release durable goods orders for December, as well as new home sales for the month. Thursday finishes up with December’s leading economic indicators from The Conference Board.

PHOENIX RESIDENTIAL MARKET REPORT ~ DECEMBER 2011

This data includes single family detached homes, patio homes, condos, and townhomes provided by the Arizona Multiple Listing Service. The monthly charts above are based on trailing twelve monthly averages from January 2011 to December 2011 which shows the total activity in the Phoenix Metropolitan real estate market over a twelve month period. The yearly charts above are based on a yearly average for 2005 to 2011.

As you can see from the first chart above, Position Realty Market Index, the first time home buyer tax credit created a great deal of demand in the market similar to the real estate boom from 2004 to 2006. When the government withdrew the first time home buyer tax credit on April 30, 2010, the average sold price and number of transactions decreased and the average days on market increased. Currently, the residential real estate market is experiences another buying frenzy that is caused without government intervention or relaxed mortgage underwriting standards. Consumers are jumping into the real estate market because market statistics are indicating the market has hit bottom and investors can purchase homes at rock bottom prices where they can rent the homes out to receive a 10% to 15% or more return on investment. In addition, the number of people losing their homes to foreclosure has caused an increase in the demand for rental properties, as can be seen in Chart #2.

Due to the current oversupply of homes on the market, real estate prices have not increased significantly but as you can see from Chart #3 real estate prices have started to increase since October 2011. Once the supply of homes is purchased, real estate prices will start to increase at a faster pace and then it will be too late to buy. Since January 2011, the average sold price has increased approximately +3.7% (up from last month), the average days on market have decreased approximately -17.1% (down from last month) and the number of transaction has increased approximately +18.4% (up from last month). It should be noted that approximately +35% of all transaction are cash purchases either by investors or homeowners due to tighter lending requirements. The volume of REO purchases since January is down -22.9% and the volume of short sale is up +64.9%. The volume of REO purchases are shrinking due to the increased volume of trustee sales and existing supply of inventory is getting absorbed at a faster rate.

The real estate market has reached a level of equilibrium where demand is equal to supply and all buyers are rushing into the market to take advantage of low prices. Once the supply of residential homes is exhausted and demand continues to increase, real estate prices will begin to rise (depends on the sustained level of demand). Trying to “time the market” for the perfect time to buy is nearly impossible but there is no better time than now to purchase. Real estate prices are at an all time low, mortgage rates are at a historical low and the market appears to be improving both in terms of prices and the overall economy. Time to buy is NOW!! Give us a call to discuss your best buying strategy, TODAY!!

More Cities Join ‘Improving’ Housing Market List

The National Association of Home Builders’ list of improving housing markets nearly doubled this month, as more cities showed signs of a rebound with their real estate markets.

The list now contains 76 improving markets, up from 41 in December, according to NAHB’s and First American’s Improving Markets Index, a monthly gauge that measures a city’s improvements in housing permits, employment, and housing prices for at least six months.

“The fact that the list of improving housing markets nearly doubled this month shows that a significant, positive trend is developing, and is even more relevant when you consider the expanding geographic distribution of the list — which now includes 31 states and the District of Columbia,” NAHB Chairman Bob Nielsen said in a statement.

These cities were added to the list in January:

Florence, Ala.
Tuscaloosa, Ala.
Fayetteville, Ark.
Denver, Col.
Greeley, Col.
Bridgeport, Conn.
New Haven, Conn.
Cape Coral, Fla.
Jacksonville, Fla.
Punta Gorda, Fla.
Honolulu, Hawaii
Ames, Iowa
Des Moines, Iowa
Dubuque, Iowa
Elkhart, Ind.
Indianapolis, Ind.
Lafayette, Ind.
Lake Charles, La.
Worcester, Mass.
Grand Rapids, Mich.
Lansing, Mich.
Monroe, Mich.
Minneapolis, Minn.
Columbia, Mo.
Joplin, Mo.
Fargo, N.D.
Manchester, N.H.
Cincinnati, Ohio
Oklahoma City, Okla.
Tulsa, Okla.
Corvallis, Ore.
Erie, Pa.
Philadelphia, Pa.
Chattanooga, Tenn.
Clarksville, Tenn.
Nashville, Tenn.
College Station, Texas
Dallas, Texas
Victoria, Texas
Madison, Wisc.

To view a complete list of all 76 metro areas on the Improving Markets Index

Mortgage Applications Soar 4.5%

Mortgage applications for purchase — a gauge of future home buying — increased 8.1 percent last week, the Mortgage Bankers Association reports. The purchase index on an unadjusted basis now stands at 41.9 percent higher than last year, signaling more people taking out loans to buy homes.

More home owners are also taking advantage of low interest rates. Refinance activity last week also increased, inching up 3.3 percent from a week earlier. Overall, mortgage applications were up 4.5 percent last week.

For the fifth consecutive week, 30-year fixed-rate mortgages have averaged at historical lows below 4 percent, Freddie Mac reported last week. For the week ending Jan. 5, 30-year fixed-rate mortgages averaged 3.91 percent, with an average 0.8 point, matching the previous record low set a few weeks ago.

Foreign Buyers See Big Bargains in U.S. Real Estate

Foreign investors are finding plenty of deals in the U.S. when it comes to real estate, and, as such, more international investors are flocking to key states to buy their piece of the American Dream.

Mexico is the top country of origin for foreign buyers purchasing U.S. homes, according to a recent study by Credit Sesame, which used National Association of REALTORS® data for its findings.

“In this period of tremendous uncertainly globally, real estate here is a safe haven,” Susan Wachter, professor of real estate and finance at University of Pennsylvania, told MSNBC.com.

The top destinations of foreign investors for U.S. real estate purchases are:

1. Florida: 31 percent of all home purchases in that state are made by foreign buyers, with most coming from Cuba, Haiti, and Colombia.

2. California: 12 percent of all home purchases (most coming from Mexico, the Philippines, China, India, and Vietnam)

3. Texas: 9 percent of all home purchases (most coming from Mexico, India, Vietnam, China, and the Philippines)

4. Arizona: 10 percent of all home purchases (most coming from Mexico, India, China and Canada)

4 Ways to ID Borrower Assistance Scammers

Scammers have targeted delinquent borrowers during the past few years, hoping to take advantage of their desperation and financial inexperience. Their approach typically involves posing as a representative of a nonprofit or government agency who can help with a loan modification or some other form of assistance.

Sheri Stuart, education manager at Springboard Nonprofit Consumer Counseling, says she frequently encounters consumers at courses offered by her organization who have been victimized by these scams. Stuart says she recently met a couple from Southern California at one of these events who’d paid $3,000 to a fraudulent company in an attempt to keep their home out of foreclosure.

“It’s disconcerting,” she says. “It has a ripple effect. It not only affects the home owners, it affects the communities as well.”

To keep more consumers from being taken in by these scams, Stuart offers the following four red flags to help determine whether borrowers’ knight in shining armor is actually a swindler on the make:

1. They ask for money up front. “That’s usually an indication that someone has an ulterior motive,” Stuart says.

2. “Phantom help” appears out of nowhere. If a consumer hasn’t proactively contacted anyone about missed mortgage payments, but suddenly gets calls and mail about getting help for missed mortgage payments, it’s probably a scammer.

3. They present phony credentials. Many companies that claim to offer assistance will have official-looking seals from credentialing institutions on paperwork, promotional materials, and Web sites. Research those organizations to make sure they actually exist.

4. They make promises they can’t deliver. If they make ambitious guarantees about being able to modify loans or halt foreclosures, that should set off alarm bells. “Nobody can promise you a loan mod,” Stuart says.

If your you suspect you have been targeted, contact Loanscamalert.org to get more information and report the scammers.

Demand For Rental Properties – Are There Too Many Rentals

Since January 2011, investors have been purchasing rental properties in the Phoenix market like crazy! The price of single family homes, condos, townhouses and patio homes have reached a level where an investor can purchase these properties, rent them out and receive a 10% or more return on their investment per year. Investors will continue purchasing properties until they are no longer able to receive this kind of high return on investment. There is still a great deal of properties for sale on the market and in certain areas prices have gone up. Below is a chart showing the number of landlord purchases within in the market:

In addition to real estate investors, many homeowner have decided to rent their homes instead of letting them go into foreclosure. Many people have let their homes go into foreclosure and these people still need a place to live. These people will more than likely want to stay in the same area where their children are going to school. There is a great deal of demand for rental properties but supply could exceed demand in 2012.

Could the rental market in Phoenix become over supplied with rentals? It is possible if investor continue to purchase properties at the same level they have in 2011. Currently, the commercial office market is experiencing decreasing rental rates due to the over supply of offices build in the market. The same thing could happen with the residential markets if investors don’t stop buying.

Once rental rates start dropping, then these investors will not receive the same kind of returns they originally hoped for in the Phoenix Market. Also, the people trying to hold on to their homes will be forced to lower their rents and eventually have to let the home go into foreclosure.

Hiring a competent property management to make sure you are receiving the highest amount of rental income for your property and making sure the tenant will take good care of your property before you give them your keys is very important. Give us a call TODAY to discover how we can help you SAVE money!!

Understanding Commercial Real Estate Investments

Purchasing commercial real estate as an investments is different than purchasing residential properties. The current or future income derived from the commercial building determines if the property is a good investment or not. Typically there are three commercial real estate investors that have different objectives; therefore, they will look at the building differently. The following are the three investment objectives an investor might consider:

Rehab Investors: This type of investor is looking for a property that is run down and is in need of repairs. They want to purchase the property at a low price, rehab the property and bring the property to full occupancy or with a low vacancy rate.
Management Investor: This type of investor purchases a property that currently has a decent occupancy rate and has little to no deferred maintenance. The currently owner is not running the property at it’s full occupancy due to poor management of the building. This investor will purchase the property and increases it’s cash flow by managing the property better than the previous owner.
Buy and Hold Investor: This type of investor will purchase a property that currently has a high occupancy rate and has no deferred maintenance. The investors watches the trends in the market and will purchase when he knows rental rates are low. Once the market rental rates increase the investor will raise the rates which will increase its value of the building.

Once an investor has located a commercial building to purchase based on location and price range, the investor will want to review the current financial history of the building to determine a pro-forma financial statement for the next year of operation. Also, the investor will want to determine what similar buildings (Class A, B or C) in a same condition are currently renting for in the market. Furthermore, an investor will want to determine a market cap rate base on what similar buildings recently sold for in the markets.

Most seller will try to inflate the income or deflate the expenses provided in the historical financial statements. You should request up to three years of historical financial so that you can determine any trends in income or expenses. If you are dealing with a “Mom and Pop” type of operation, then the historical financial statements might portray an inaccurate picture of the financial ability of the building. Furthermore, if the building is currently in foreclosure or owned by a bank, then the historical financials for the building might not be available.

If you are provided with any historical financials, then you will want to determine a trend in the income and expenses to use this information for your proforma. Also, you can obtain expense comparables from a real estate broker or appraiser that has data on the same property type you are purchasing. With the expense comparables you can determine if the expense for the building are higher or lower than other buildings and determine if there is room for improvement with the property once your purchase.

Next, you will want to survey similar property types in the area to determine a market rental rate for your building. If you are purchasing a multifamily property, then you will want to find similar buildings with the same number of bedrooms, bathrooms square footage, amenities, etc. If you are purchasing an office building or retail property, then you will want to determine a rental rate based on price per square foot and with similar lease types (Full service, Gross, percentage, modified gross, etc.).

The final step is to determine a market cap rate that you should use for the valuation of your building. Of course you will have your own cap rate (yield rate) that you desire but if you know what similar buildings are selling for, then you will have more negotiation room with the seller. To determine a market cap rate you will find similar buildings that sold and compile the cap rates from those buildings to determine your market cap rate. You should have about four to five arms length comparable sales for this analysis.

Once you have compiled all of this information, then you are ready to determine a market value for the property you intend to purchase and to start preparing your offer to the seller. If you and the seller are unable to come to an agreement on a purchase price, then you will repeat the process with your next offer.

Also, before you submit your offer you will want to determine if the property will meet your investment objectives. Some most common investment ratios a investor will consider are as follows:

Cash on Cash Return = Annual Before Tax Cash Flow / Cash Down Payment
Rate of Return = Annual Before Tax Cash Flow / Purchase Price
Gross Rent Multiplier = Purchase Price / Annual Before Tax Cash Flow
Internal Rate of Return = This calculation is used for larger buildings or more sophisticated investors. Here it the definition: The internal rate of return on an investment is the “annualized effective compounded return rate” or “rate of return” that makes the net present value (NPV as NET*1/(1+IRR)^year) of all cash flows (both positive and negative) from a particular investment equal to zero.

If you are interested in purchasing commercial real estate investments, then we can help you determine a fair market value and with all the investment ratios. Contact us TODAY!!

Final pending sales report shows 7.3% surge

Pending home sales continued to gain in November and reached its highest level in 19 months, according to the National Association of Realtors® (NAR).

The Pending Home Sales Index, a forward-looking indicator based on contract signings, increased 7.3 percent to 100.1 in November from an upwardly revised 93.3 in October. It’s also 5.9 percent above November 2010 when it stood at 94.5.

The index hasn’t been this high since April 2010 when it reached 111.5 as buyers rushed to beat the deadline for the homebuyer tax credit. The data reflects contracts but not closings.

The gains might result partially from delayed transactions, according to Lawrence Yun, NAR chief economist. “Housing affordability conditions are at a record high, and there is a pent-up demand from buyers who’ve been on the sidelines, but contract failures have been running unusually high. Some of the increase in pending home sales appears to be from buyers recommitting after an initial contract ran into problems, often with the mortgage.”

“November is doing reasonably well in comparison with the past year. The sustained rise in contract activity suggests that closed existing-home sales, which are the important final economic impact figures, should continue to improve in the months ahead,” Yun says.

Pending home sales are not affected by NAR’s recently published rebenchmarking of existing-home sales because the index uses a different methodology based directly on contract signings, and it’s adjusted for seasonality.

The PHSI in the Northeast rose 8.1 percent to 77.1 in November but is 0.3 percent below November 2010. In the Midwest, the index increased 3.3 percent to 91.6 in November and is 9.5 percent above a year ago.

Pending home sales in the South rose 4.3 percent in November to an index of 103.8 and remain 8.7 percent above November 2010. In the West, the index surged 14.9 percent to 121.2 in November and is 2.9 percent higher than a year ago.

Top 10 Cities Foreign Investors Are Targeting

From Chinese investors flocking to California to Canadian snowbirds heading to Arizona, international home buyers are offering a growing niche for more real estate professionals.

But which places are international investors targeting in their home search? Point2Homes.com evaluated where buyers from overseas are looking online to gauge possible current and future home-purchasing patterns.

Canadian investors have a growing appetite for U.S. real estate, Point2 finds. Canadian investors made up 91.89 percent of the overall international traffic to Arizona listings, 75.90 percent to Hawaii, 73.92 percent to Michigan, 70.55 percent to Nevada, and 65.05 percent to California.

Las Vegas had the highest overall international traffic online among U.S. cities, with Canadians serving as the leading source of traffic there at 70.47 percent, followed by 5.28 percent of the traffic coming from UK residents and 2.19 percent from France.

The top 10 cities for international traffic online by international buyers in the third quarter are:

1. Las Vegas, NV.
2. Orlando, FL.
3. Kissimmee, FL.
4. Detroit, MI.
5. Pompano-Beach, FL.
6. Miami, FL.
7. Mesa, AZ.
8. Davenport, FL.
9. Phoenix, AZ
10. Indio, CA.

Overall, Florida emerged as the top state attracting international traffic online for the third-quarter, according to Point2.

Results No Excuses

Monthly Archives: January 2012