You’d think the appraisers would take this into account when valuating homes that do not involve banks, but who do you think hires appraisers? Appraisers raised appraisals for banks during the boom and now lowering appraisals in the bust. I don’t know about you, but that’s not exactly a free market system setting prices is it?

I remember the days when home sellers would not accept a price for their home out of concern they would bring the value of their friend’s home down the street. Well, the banks don’t care about this and we’re at their mercy to set home prices.

A significant proportion of home sales in SW Orlando this past year involved banks this past year and their actions will have a significant impact on our home’s value…. not in a good way neither.

For a healthy market to return to our area, artificial manipulations have to cease and that won’t happen until the foreclosures and short sales are mostly gone.

I don’t know when that’ll be, but you can be assured that the worst is over.

A glance at the 2009 real estate statistics for Orange County, FL shows a marked improvement in the market over the past 12 months. Most importantly the supply of homes currently stands at a healthy 6.4 months and the number of sales have hovered around 1,5o0 for the second half of 2009.

There’s still a heck of a lot of short sales and foreclosures on the market and I believe it’s gonna be a part of the real estate landscape for a while. It’s probably the last hurdle to overcome before return to a normal market.

Just a few years ago there was no such thing as foreclosures or short sales. The last time I remember there being a good amount of foreclosures on the market was 1997.

That being said, things are looking up and on progress towards a stable market here in Orange County.

The Case-Shiller Index numbers were released this past week and revealed 4 consecutive months of price increases meaning they’re going back up. We’ve all been so used to seeing this index say decreases that it’s a bit of a shocker.

Blitzer says there’s a real chance that we’ve turned the corner and finally done with price declines.

An interesting fact to note is that 70% of all the sales that took place were priced under $250,000. Do ya think the First Time Home Buyer Tax Credit is having an effect. Sure sounds like it is and I sure hope Congress extends it for a bit longer.

Lawrence Yun, chief economist for the National Association of Realtors, comments in this video that the rise in pending home sales signals a recovery. He also notes that there is a disconnect between pending home sales and existing home sales mainly due to tighter underwriting standards for lenders and stricter appraisal guidelines.

I think he’s overlooking the obvious which is many of these pending home sales fall through because they’re short sales. While more contracts fall apart due to tighter lending standards and more stringent appraisal guidelines, what I’m seeing is that the majority are short sales falling through because they’re not being approved or the typical 3 to 6 month time for a response is not reasonable for most buyers.

While the chief economist for NAR is probably way smarter than I am, actually definitely smarter than I am, he’s probably never practiced a day of real estate in his life so maybe I’m seeing something he can’t see.

Nevertheless, I think we’re seeing a rise in home sales and reduction in inventory which should mean we’re headed for a recovery.

There’s been a lot of talk of a shadow inventory that’s been created by the banks who has been releasing foreclosures at a more measured pace. At some point, these foreclosed properties will have to be sold eventually.

There’s no way of knowing how much shadow inventory is out there, the promising inventory numbers we’ve been seeing lately may be artificial.

Only time will tell if the improvement we’ve been seeing will continue, but this shadow inventory will have a dramatic effect on the market when they hit the market.

I hope there’s not much out there, but the rumblings I’ve been hearing is that there’s quite a bit.

Really, there’s no correlation between temperature and the real estate market. It’s actually because the summer is the easiest time to move for people with kids in school. If you’re gonna change schools or just move to a different home, it’s a heck of a lot easier when school’s out.

If the market continues it’s improvement, Orlando will finally see an end to declining prices by the end of the summer.

We’re currently at around 10 months of inventory of homes for sale and prices will stabilize when we hit 6 months.

So for those who have been waiting to time the market at the very bottom, we’re getting dang close. The end is near my friend, provided we don’t see another influx of new foreclosures coming on the market and the first time home buyer tax credit actually spurs people on to buy before it expires at the end of 2009.

The University of Central Florida’s Institute for Economice Competitiveness recently released their quarterly forecast which surprisingly reveals some promising facts about the housing market. They predict a bottom to the housing market in the second quarter of 2009. Amazingly, housing starts are 87% below the peak levels we experienced just a few years ago. They explain that home prices are now below replacement cost which is a natural floor for prices. There’s sense in building a home to sell if you can’t get more than what you put into it and we’re in that situation today. People have been asking me for quite some time where’s the bottom in the market and I think we’re finally here.

Since we’ve hit bottom, does it mean prices will stop falling? Oh contraire mofraire… they’ll continue to decline until we absorb the excess inventory. The good news is that we’ve finally hit below 12 months of inventory which is about half of what we’ve been hovering around for the past couple of years and normal levels are around 6 to 7 months so we’re not that far off. The number of sales have benefited and currently on a positive trend for 2009 reducing the time needed to absorb the excess inventory.

If the banks loosen their lending standards a little bit, we’ll reach equilibrium in no time but that’s what got us into this mess in the first place.

There’s good news about the economy in Orlando as well. Personal income, annual wage, and employment in Orlando are predicted to be the highest in the state. Employment is forecasted to increase 1.5% annually, personal income will increase 4.1% a year, and annual wage is predicted to increase 2.2%. While this sounds great, there are some downside to all this growth. Orlando is no longer an affordable alternative it used to be meaning the population growth we’ve seen in the past is history.

All in all, I’m liking what I’m hearing from this group of supposed experts. Maybe they’ll be better at predicting the bust than the boom.

UCF Institute for Economic Competitiveness: FL Forecast Q1 2009

Part 2

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People ask me all the time when this market will turn around as if I had some crystal ball. I never answer the question, because I honestly have no clue. Any real estate professional who answers otherwise is totally full of it and I’d be vewy careful.

Now chariman Bernake on the hand is probably the guy to ask. Guess what, he shared a bunch of his thoughts on 60 Minutes last week.

The section of the piece covering Bernake’s background was especially compelling to me. He’s the son of first generation immigrants who ran a small business and made sacrifices to afford to be able to provide an Ivey League education for their son. I was never accepted to an Ivey League school and closest I got was a free T shirt, but I can identify with his family background that’s quite similar to mine.

I have lots more confidence in him after seeing this interview.

One of the great ironies in this piece is that the childhood home of Bernake that was purchased from his family years ago is now in foreclosure.

Bernake assures us that the recovery in terms of things stabilizing and not getting worse will happen later this year meaning that financial markets will be stable by then.

He also points out that the government is printing tons of money at the moment and will aim to contract the money supply once they feel things are stable and will raise interest rates at the same time to control inflation which is a tough beast to tame.

That means the market will recover later this year, but expect higher interest rates at the same time.

I think I have a lot more confidence in Bernake as well as the economy from watching this interview and glad he provided such a candid account which is pretty rare for a Fed chairman.

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HUD secretary, Shaun Donovan, was recently interviewed on CNBC about why the Obama administration is proposing to decrease tax credits for mortgages in a time when they need to stimulate demand for housing. I have to agree with Larry Kudlow that they’re making things worse. I’ve been getting this sinking feeling lately whenever I hear more plans for bailouts and economic recovery. The worst part is that I can’t do anything about it.

Donovan points to the new $8,000 tax credit to first time homebuyers which in reality was supposed to be $15,000 as proof they’re stimulating demand for housing, but it’s not gonna make a dent as far as I’m concerned.

The interview also points out that 45% of the sales that occured in December were distressed sales. There’s clearly no slowing of foreclosures and homeowners are now competing against banks to get homes sold. The sad part is that the banks are receiving bailout money from our tax dollars to gain an unfair advantage over the average tax paying citizen.

The stock market is now at a 12 year low and something must done… but definitely not what Obama has in mind. I mean no disrespect to our current president, but I don’t have to agree with his plan to fix housing.

Lisa has been a property manager for commercial properties for about 20 years and she has a pretty grim picture of the commercial market. Tenants are renegotiating their leases. On the one hand, landlords don’t want to give up rent while the tenants want or need the rent reduction so that they can stay in business.

Another prediction she made is that many of the larger commercial brokers in Orlando will go out of business by the end of the year. Certainly sounds like the commercial market is in as bad a shape as the residential stuff

There was another guy who specialized in retail leasing who has been buying up small outparcel buildings adjacent to big shopping centers. He bought an old Pizza Hut building on the outskirts of Florida Mall, converted into a 4 unit strip center, signed up leases, and sold them for a profit in less then a year.

What a great idea, but he says the prices will not allow for this type of investment anymore. Prices will not support it and the banks will not lend the money. He says he did this project without any money out of pocket and it’s quick because the previous building was already zoned for a business.

Remind me to think about this if and when the economy gets good again.

The developer of the Millenia Mall supposedly did the same thing for years prior to developing Millenia Mall.

On a side note, there’s supposedly an old gray haired raggedly looking man that roams the streets of Winter Park. He looks like a bum, but supposedly is heir to the Maytag appliances fortune. There’s also a rumor that he visits the various coffee shops in the area and tips $100 after buying a $5 cup of coffee. There’s some characters out there.

Keeping with the bum theme, there was a guy named Chris in the class who develops and manages properties for ABC Liquor. Surprisingly, unlike most of the people in the class, it sounds like their business is doing quite well. He says ABC is a real estate company that happens to sell liquor. It reminds of a quote I read in Rich Dad Poor Dad from Ray Kroc of McDonald’s fame in which he states that he’s in the real estate business rather than selling hamburgers. My thoughts are that people are doing a lot more drinking with this economy.

One interesting tidbit I got from Chris is the criteria his company has for purchasing a property. They look for freestanding locations to accomodate a 12,000 square foot building on 1.2 to 2.0 acres depending on green space and drainage requirements. They don’t have to be on a hard corner, but can be 2nd or 3rd from it. Traffic count needs to be over 30,000 cars per day, require 2 entrances, population needs to be over 65,000 within 3 miles of the store, combined income of households needs to be at least $60,000, and there needs to be a clear line of sight from major roads.

It’s interesting to see the criteria larger companies have for properties. Heck, if you decided to do a project like that, why not use some criteria that’s worked in the past.

There you have it. There’s much more perspective and knowledge I got from this class and will probably share it in future posts. I went to this class kicking and screaming, but it turned out to be pretty cool. A real estate investing club might be in my future. It’s amazing what you learn when you get people in different facets of real estate in one room.