Things I Like About the Current Market

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The current market in Salt Lake is this;

Lots of inventory, some people are watching to see what’s going on, lenders are beginning to realize they don’t have to completely shut down all loans to stay profitable, and lots of people are buying and selling houses still.

Still, regardless of the good and bad and everything- there are hundreds of people buying and selling homes every week in Salt lake county. And of course hundreds more are being bought and sold in surrounding counties as well.

Here are some of the things I like about the current market…

Everyone I talk to is not an “investor”. It drove me crazy the last couple years that everyone I spoke to claimed to be a real estate investor. Whether they had purchased rentals or flipped any houses or not- they all fancied themselves as an investor because they all wanted to be one. And they all thought they knew everything about real estate. They didn’t, they still don’t and now they can finally shut up and go back to being accountants and store clerks and fireman and whatever else they do for a career. They can let the real estate professionals be real estate professionals.

Far fewer For Sale By Owner’s. Not that there is anything wrong with trying to sell your house without an agent, but many of these people (because the market was so hot) were just a bit mean about their views toward agents. Some people will always be mean about agents, just as some people hate attorneys or think paying someone to change your oil is a waste of money. That’s just human nature- there will always be the fringe minority that has opposing views toward any given thing. Now that sellers need more help selling it’s nice for agents to be wanted more. We mostly work with buyers anyway.

Buyers market= Good for buyers. Most of our clients are buyers so this market is great for our clients. There is a great selection of homes on the market, interest rates are fantastic, prices are reasonable, and indicators show it’s a good time to buy and that prices will continue to increase so buying will be a solid investment. Sellers are still getting good prices for their homes and buyers are getting to choose from more inventory.

Many agents are leaving the industry. This is great news for everyone. Many of the part-time and new agents are leaving, which means they won’t be around to hurt any clients and give the real professionals a bad name. There are simply too many people in the business- real estate agents, lenders, title people, etc. This should be a great time to trim some of the fat from the business and allow the best to do their business. Of course there will still be far too many in the industry next year and the year after, but that’s just how it is. Many people who have gotten into the business the last few years really never should have. They chased dreams of riches and easy money and now many are seeing that this business is about clients and working your butt off for those clients. It’s working every day of the week, not being able to take vacations because your clients need you, stressing about deals, dealing with ungrateful people sometimes and rude people on the other side of the transaction that you have to deal with for the sake of the client’s best interest. It’s late nights and a lot of humility, starting out in this business and it’s not for everyone- in fact over 90% of the people who get a license- fail.

Two people can see the same experience very differently. A basketball goes into the basket as the clock ticks to zero- One team screams with excitement as they win and the other team sobs about their loss. A ball went into a basket, but different people feel very differently about that. Many people don’t like this market, but many people do- including me.

Fed Chops Half-Percent Off Rates/ Utah Job Market Still Strong

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Pick up a copy of the Tribune today and the whole front page talks about the .5% rate cut the fed just announced and how Utah’s job growth represents 5% of the entire country’s job growth. What does this mean for our local real estate market? Not much, actually. People with adjustable-rate mortgages will have some relief and people will get lower rates on home-equity loans and, but our job growth has been leading the nation for over a year, interest rates are a very low 6.25% right now (locally) and our local economy has been super strong for a while now. Local unemployment is still at all-time record lows for the state and people are moving into the area. But none of that really matters because many people need to sit and wait, wait and see, see and watch, watch and wait…

Our challenges are not interest rates- it’s inventory levels, lender restrictions, and the overall “Chicken Little” message the media is pumping out about the sky falling. Every factor is strong for our economy and real estate market, but these thiree things are causing people to stall. So it will take a few months of the media shutting up and things to calm down until people will be able to see how great a time this is to buy.

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About the news today;

Ben Bernanke, of the Federal Reserve, cut its benchmark interest rate by a half point, which caused the Dow to shoot up more than 300 points (it’s biggest one-day jump in over five years).

Last year 54,500 jobs were created in Utah, representing 5% of all jobs created in the country. Not bad for a state that only has 1% of the total US job force. When jobs are created and unemployment is 3-4% how do you fill all these jobs? People move into the area. And where do these people buy homes? Locally of course. So if people are moving into the area to fill tens of thousands of jobs that are being created, do we have a housing slump?

Just because every listing isn’t flying off the shelves the first few days they are on the market doesn’t mean everything is bad. It’s not supposed to take two days to sell a house. In “normal” healthy real estate markets it takes 30-90 days to sell good homes. What is our “average” time on market right now? It’s 36 days- not exactly sky-is-falling, but up ten days from the beginning of the year when things were crazy. 

Every day there is some other news about real estate in mass media and that itself is the problem. The market can’t be normal because it’s getting too much attention. It creates excitement- good and bad, and strong opinions from dads and sisters and uncles and friends who all “know” what they are talking about and all have different opinions they are telling buyers and sellers. “Offer 90% under market-value” or “things are going to get worse” or “Buy anything with at least 8 bedrooms”. This advice makes them feel important as though if not for their input these buyers would make the biggest mistakes of their lives and it’s good thing they get this valuable opinion information.

Those of us who know the market and watch indicators and trends and have been through market cycles know better. We know the stability inherent in housing (everybody needs a place to live) and the appreciation of real estate prices over a sustained period of time (all land in populated areas will go up in value). Real estate is an appreciating asset, and right now buyers can find some great homes with good prices in the Salt Lake area and with such a strong local economy and job growth, it’s a fantastic financial investment to buy right now- just make sure you have a good agent so you buy smart.

Salt Lake City Real Estate Market

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The state of the real estate market in Salt Lake City today is interesting. It’s much tougher to sell a home now and there are three very distinct reasons why;

1. Inventory levels are ridiculously high. Funny how this works (in any market). Prices start to go up, people begin to notice and wait and see, prices continue to go up and people begin to plan selling their homes to take advantage of the rising prices, people begin to list homes for sale and homes sell quickly, market begins to reach critical mass, everyone throws home on the market so they don’t “miss this great opportunity while prices are high”.

Problem is that people begin to think about selling/buying while prices are going up but don’t act. They wait and wait and talk about it while the market is rising and then by the time they decide to do anything the market has begun to slow. Sellers are the last to acknoledge that a seller’s market has turned. It’s truly an amazing thing to witness a seller’s rationalization as to why their home should sell while others are not.

I’m listing a condo next week and the sellers want to list for more than it is worth, and more than it will appraise for and then buy a home for a great price because it’s a buyer’s market. Their rationalization is that homes are in a buyer’s market but condos are still in a seller’s market. This is not the case of course, but this is how sellers think. Another listing I have right now has been on the market for a month and hasn’t sold and today I spent twenty minutes on the phone with the seller hearing why his home should be sold even though not one single house has sold in his city during the last 30 days that are even close to his price range. He still thinks his should should be sold.

2. Lenders have tightened qualifications and taken away many programs. Many deals are failing right now and buyers who were qualified are no longer. Lenders are being very strict- they are looking for reasons to not lend money and the appraisers are following suit- being very conservative with their appraised values. This also causes people to become frustrated and decide to not buy at all, especially for 20% less than could have bought a few months ago.

3. The media declares doom and gloom every day on every channel, all day long. According to the media we should all burn our houses down and live in caves because the fictional “national real estate market” has gone to hell and everyone who owns a home is the devil.

This causes people to sit and wait. Most buyers who want to buy are simply waiting and watching to see what will happen, just like sellers did while the market was going up. Now it’s a buyers market and the best time to buy, so what do buyers do? They sit and wait until the market becomes a seller’s market again- and then they’ll all want to buy and they’ll say it’s still a buyer’s market even when it’s not.

This is the natural order of things. People wait until it’s too late and then demand that things are they way they want them to be. Listen it’s really simple- when lots of people are buying is not the best time to buy. The best time to buy is when not as many people are buying. Supply and demand.

In a buyer’s market buyers need to get a great Realtor and make sure they are buying a solid investment, but they’ll make much more appreciation when the market appreciated rapidly again. If you buy while the market is close to it’s peak you don’t make as much as when you buy while it’s not at it’s peak.

The Salt Lake City market will now remain relatively flat in price appreciation for about 18 months until the cycle comes around again and it begins to grow more rapidly. Question is, will you wait until prices have gone up to buy or will you take advantage of opportunity to buy while you’ll get the best deal?

Renting Costs More Than Owning

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USAToday published an article last week titled Housing Costs Punish Family Budgets. The article spoke of the costs of buying a home and taxes and the rising costs associated with home-ownership. It also discussed how many people are spending so much of their income on their mortgage payments and how that hurts these families.  Aside from the too-easy “Why didn’t you buy a house in your price-range” argument, let’s instead look at an article they published two days later, titled Housing Crunch Hits Renters Hard. This article discusses how rents have gone up so fast that many can’t afford to pay them and are being forced to move.

From USAToday

The home mortgage crisis has received far more notice, but experts say the ranks of renters with dire housing problems are growing faster than the ranks of defaulting homeowners.

The Center for Housing Policy reports that the number of working-family renters paying more than half their income for housing has soared from 1 million to 2.1 million since 1997. Overall, advocacy groups say there are 9 million low-income renter households and only 6.2 million units they can reasonably afford.”These people spend huge portions of their income on their housing,” said Sheila Crowley, president of the National Low Income Housing Coalition. “They don’t do things that we all would like to do — save money to buy a house, or for college or retirement. It’s a very day-to-day existence.”

So they create news about how it’s too much to buy and then a couple days later say it’s costing too much to rent. Contradictory, of course, but this is what the media does. So what is the reality about buying versus renting?

I live in Cottonwood Heights, a very nice area in the Salt Lake City valley, with “average” home prices around $450-$500,000. Whether that is a lot of money for a house is subjective and depends on where you live now and your point of view. People from Texas may think it’s way too much and others from California may think it’s dirt-cheap. But let’s look at the difference in renting and buying. To make things simpler and easier for me I chose (as always) to use examples closest to my house.

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There is a big apartment complex (photo above) a few blocks from my home called Pinnacle Highlands. This is the largest apartment complex in the valley and it’s a nice community. I called them today and was told their next available 2 bedroom apartment is available in November. It has about 950 square feet and comes with one covered parking space. No utilities are included, but the compex has a pool. This apartment costs $990/month.

Now let’s look at buying a condo in the area and compare. I did a search in the area for a 2 bedroom condo for below with at least 900 square feet and found a few, but chose one I think will work well for my example. It is located in Holladay, which is directly north of Cottonwood Heights and is considered very comparable in house values and stature. This condo has 2 bedrooms, 950 square feet and is priced at $124,000. The HOA fee is $195/month and that includes insurance, exterior maintanence, water, sewer, garbage and gas. The home comes with one covered parking space and the complex also has a pool.

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Total payment on this home with putting no money down should be around $990/month. And that would include all utilities except electricity. Both have the same square footage, one covered parking space, two bedrooms, and both are in good locations.

Difference is, after five years renting you would have gained nothing financially. In five years the condo will be worth $155,000, meaning the owner will have made $31,000 (of course this is my estimate based on my 14 years in real estate selling hundreds of homes in Salt Lake). Not only will the owner of this condo make $31,000 but they will have written off approximately $7000/year from their taxes, totaling about $35,000 in tax write-offs for the five years.

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So which is the better investment? Sure selling the condo, they may pay $11,600 in closing costs (6% commission plus other closing fees) meaning they walk away with only $19,400 and it may take them a few months to sell. But having over $19,000 cash and have written off $35,000 from my taxes, plus having the pride of ownership has got to be a lot better than having nothing. Fact is, renting cost more than buying when you factor in the lost financial gains. Obviously I’m not the first to point all this out, but if renters knew what I know- they would be owners, not renters- and that’s my whole point.

You want to know whether or not owning real estate is better than renting? Look at the wealthy- do they own or rent? People who have made a lot of money in this country very rarely have made it without investing in real estate. Have your money work for you through your investments- specifically through real estate.

Utah Job Growth Shows No Sign of Slowing

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Utah has been atop the country’s lists of states with major job growth for the last couple years and the unemployment rate in Utah has been at record lows. Now local employers are saying that things are only going to get better (or, would that be worse?)

The Manpower Employment Outlook Survey, released on Tuesday, shows that 52% of Utah’s employers plan on adding to their staff during the next six months, while only 3% would be decreasing their numbers. Much of the news surrounding the area’s job growth has centered around certain companies and industries, but this survey is over the breadth of business categories, meaning it will affect most of the population.

In the Orem area, over 60% of employers will be hiring, in the Ogden area 50% will be adding to their ranks and in Salt Lake County 47% will be hiring more people, 53% say they will remain the same, and zero said they plan to reduce staffing levels.

From the Deseret News

The strong Utah figures are in contrast to the national survey results. U.S. fourth-quarter hiring pace is expected to remain unchanged from the July-to-September period but be a little off last year’s fourth-quarter pace. Among the 14,000 U.S. employers surveyed, 27 percent foresee an increase in hiring activity and 9 percent expect a decline in the fourth quarter. Fifty-eight percent expect no change, while 6 percent were undecided.

From the Salt Lake Tribune

“Utah continues to buck the national trend and is even outperforming most of the rest of the West,” said Katz, director of Utah operations for Manpower, a Milwaukee-based global staffing firm. “It’s been that way for about two years, but when you get up around 50 percent of the employers who plan to hire, that’s one of the top rates in the nation. “The state created 57,000 jobs last year and it appears it could create another 57,000 this year so long as there are enough bodies to fill them.”

Strong job growth has been one of the main reasons for the area’s strong real estate market. People moving into the area for jobs and raised income levels help the economy and the real estate market in the area by adding to the demand for homes. Currently the Salt Lake real estate market is stronger for buyers and with high inventory levels, a nation-leading local economy and low interest rates, this is a good time to buy.

Home Builders Now Willing to Play Ball

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Some home builders are very straight-forward with the way they sell homes. They build a product and they market that product at a price they believe is fair in the market and will also bring them a profit.

One example would be Ivory Homes. Ivory has always treated my clients well and my clients have always seemed very pleased with their purchase. Ivory isn’t trying to be the lowest-priced home builder and they don’t compete simply on price- they compete on value and quality. And they tell the buyers this from the beginning. Their product is semi-custom, meaning you choose one of their floor plans but then have a lot of things you can change about the floor plan and layout. And they have always worked well with Realtors and other lenders. All of this may be why they are Utah’s largest home builder.

On the other side, there are home builders who are stubborn in their business practices and only work with consumer’s wants, Realtors and outside lenders when the market is such that they have to. Holmes Homes and is an example of this type of builder. Holmes has a reputation among sub-contractors for not paying on time, they refuse to pay Realtor commission during seller’s markets but completely change their tunes during buyer’s markets, refuse (as much as they feel they legally can) to work with outside lenders, and seem to work only for a profit, not for the consumer.

Oh, and while I’m speaking about builders- I need to mention that one of the worst I have ever worked with locally is Alpine Homes. Once the deal has closed they have been unwilling to fix problems, unwilling to listen to their home buyers, and unworkable. They offer agent incentives and bonuses to buyers, but then their product is less than great and once you close- they are done with you. In one of their communities I sold two homes on the same street and once my clients moved in, both had water drainage issues because the builder had not installed the landscaping properly so that it would run away from the house. With the first rainfall, of course, most every home on the street had flooding in the basements. One of my clients had a lot of valuable posessions in their basement that were damaged. The home owners were all contacting Alpine trying to get the problems corrected but Apline was completely unwilling to do anything about the problems. They would not have their landscapers help and they would not compensate anyone for damages. I was a managing broker for a large Coldwell Banker office at the time and spoke to one of their higher-ups and told them I was planning on letting every agent I came across of the service my clients (and their neighbors) were receiving and I would have our legal counsel advise these home buyers on their rights. Only after weeks of fighting and legal threats did Apline finally have some changes made to the landscaping (although they still would not reimburse for any damages). Okay, had to get that out there…

Now that the market is shifting more to the buyer’s side, most local home builders are more inclined to work with outside lenders, Realtors, and the client’s wants. Many are soliciting agents heavily and some are offering big incentives now for home buyers. Many of the builders who only two years ago would not pay an agent are now offering bonuses, and many who fought against flexibility are now changing their policies to be more consumer-friendly.

I have a lot of experiences with many of the local builders and I always share my experiences, and the experiences of my clients with people I work with who are looking at buying new homes. Some builders have earned solid reputations over the years and many have earned horrible ones. Today they all want to play ball because they have to, but agents know which ones are in it for the money and which ones are in it for the consumer, and now with blogging and social media, hopefully the public will hear more about it…

Utah Foreclosures Rates Far Below National Average

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According to it’s National Delinquency Survey, released today by the Mortgage Bankers Association, the percentage of Utahn’s with loans in foreclosure at the end of the second quarter 2007 dropped from 0.74% (second quarter 2006) to 0.55%. This puts Utah’s foreclosure rate 61% lower than the current national rate of 1.40% for the quarter.

As the Salt Lake Tribune points out, some of the factors include Utah’s economy creating jobs at one of the fastest rates in the nation, local unemployment rates at record lows, and our continued strong housing appreciation, which allows people to sell their homes and pay closing cost before needing to resort to foreclosure.

The strong local economy and job growth are two very important factors here as they help give indication as to where a real estate market is going. The strength of our local market for the last few years has been attributed to a number of factors that go beyond simple investor speculation and home rehabbing. Factors such as the strong local economy, job growth, the influx of people moving into the area, low unemployment, and significant improvements made the area’s infrastructure.

By the way, it’s fun to show all the “Chicken Little’s” how wrong they are… have a nice day.