My Response to Christopher Matthews in Time Business

The following link is what I'm responding to. A post in LinkedIn seemed to think this article was optimistic. After reading it, I didn't find it so, but I notice a lot of agents on LinkedIn are talking the market up, maybe because they believe it to be true, but, I suspect, mostly to make a commission. So this is the link:
http://business.time.com/2012/04/27/has-the-housing-market-finally-hit-bottom/

Here are two of my responses that I posted on LinkedIn:
 #1

 In coastal areas this may be true. California's San Diego, Orange County, and San Jose only have about 30 days of inventory. This may well have to do with the employment bases in those areas, though. 
SD County and OC are pro-business conservative strong holds in the CA political landscape. San Jose has made the most of high-tech government subsidies, and is left-leaning. But the three areas have steady jobs and ocean accessibility. 
Outlying areas are still seeing drops in the housing market. We're also seeing a double-dip (or are soon likely to) in the foreclosure rates--or should I say a double-spike? There is going to be another round of foreclosures as investors and homeowners who can't find work after 2 years finally let their houses go back to the banks. 
Why? If you've been watching, CA tax revenue dropped 16%. The job providers in CA are still leaving and Gov. Brown is still trying to get Californians to vote themselves a tax increase this year. So, expect more people to give up on CA. This will probably help some other state, though. 
You can also add in factors such as "self-deportation" of illegal immigrants and also of some of our legal immigrants who've decided to go home. Keeping in mind that many adults are living with extended family, and the country's population growth is driven primarily by immigration, you don't have heavy demand for housing, except for already crowded markets.

 #2
 When the market got overheated in 2005, I decided to go work as a building inspector in 2006 until 2008. I couldn't justify selling homes I felt were overpriced, but thought I'd see a 30% correction. Little did I know that in the Inland Empire it would be 50-70% or I would have gotten out of the rental market entirely. 
After being an inspector for the first half of 2008 I watched panicked contractors unloading their inventory, and Frontier Homes declare bankruptcy. I am currently VP of the local chapter of the International Code Council, and 90% of the contractors I knew have left not only the area, but California. I listened to Mexican-Americans and guys that I suspected were here illegally talk about leaving CA to go back to family farms in Mexico. (FWIW I speak pretty good Spanish, and was the only Spanish speaking inspector at the city for over a year). 
There are bright spots in the economy, but this has more to do with government favoritism of certain industries. Low income housing (or affordable housing) requires local governments to provide a certain amount of housing. This helps developers at the cost of small-time investors. Also FHA rules allowing only 4 loans has hurt small investors. I know several that would like to invest but can't, unless they spend money incorporating and jumping through other hoops. 
Many of these investors, maxed their credit cards to keep things afloat or took hard-money loans because they couldn't get any other financing. Their hopes of the economy recovering has been dashed, and they are realizing that it's time to short sale, deed-in-lieu, or BK this year. Next year you will see more bargain homes outside of the coastal areas. 
Additional areas for profit include rentals, if you are just getting into them. The FHA 4 loan rule benefits corporations and the IRS (is that a surprise to anyone?) There is a lot of rental buying in the High Desert, mostly with section 8 renters. But, I can't deny there is money to be made in this arena. I think it's a big crap shoot myself, but know people that swear by Section 8. File this under making money through affordable housing and government subsidies, in my book, however. 
There was a recent article about new home owners finding themselves underwater shortly after purchase on Reuters on April 26, 2012 (date preserved for future searches:http://www.reuters.com/article/2012/04/26/us-usa-housing-negative-idUSBRE83P12E20120426) If the agents for these new owners did the right thing for them, they may have bought for construction cost or less. In which case their is still an upside. If we get inflation, the houses may be worth more and the low mortgage rates are beneficial, as long as their is employment to pay the mortgage. 
I'm not saying don't buy. But, inasmuch as we disclose to our clients, we have a fiduciary responsibility to let them know what we can. I try to work with investors that understand the risks 
One other area to look at that comes to mind is having your buyer buy solar during the purchase process. It adds to value of the home, and costs around the same on a monthly basis as the electricity it generates. This helps keep housing from going underwater and is justifiable with FHA energy efficiency mortgages. This also prepares your client for CEC building code changes coming in 2016 and 2020. 
My company PFAES consulting can help with this process.

Please email me at savingyoursol@gmail.com or reply to this blog if you have any questions. 

More rearranging the home office and submitting a commercial offer

So today consisted of running over to a clients place of business and having him sign an offer on a restaurant going into foreclosure across town.

The lender plans on foreclosing on Thursday, so my client made what he thinks is a high offer, though I doubt the lender will be happy with it. I've been saying we're heading for a commercial crash, and mentioned the stagnant commercial market, so I'm hoping for a counter offer, at best. If we don't get anything, we'll just wait and see if it comes up again at a better price. I'd like to be more hopeful, but I think a lot of lenders are too optimistic about the commercial market, or too stubborn to take a small loss now, in order to take a bigger loss later. Maybe the lender is hoping to make another loan on the property in order to foreclose a second time.
The location is on outer Hwy 18, so a little hard to get to for travellers, but it is close to the post office. We could use a place for a good cup of drive-thru coffee over there.

I also spoke with a businessman and his wife (businesscouple ?) about the value of the building they were leasing with an option to buy. Hopefully I'm making friends. Their building is old and needs a lot of work to bring it up to current codes, as is the attached SFR, but their credit isn't the best, so maybe they can work something out with the owner. IMO, the owner wants way too much.

Still working on the home office. Had to get some round cable staples for the power cords. Just about have things set up in an acceptable manner. Older places never have enough electrical receptacles. When I get my dream house built, it's going to have lots of places to plug the stuff in...if I don't go all mad scientist and power the place with a Tesla coil.

Tomorrow is time to meet an inspector and potential renters.

Are there more desirable areas of the Victor Valley?

I answered this question on Trulia.com late December of 2009:

This is a fairly complicated question. I have a client from out of the area who is looking to invest and he's asked me a similar question. While the Victor Valley has been occupied for 100 years, most of the growth has been in the last ten. Many larger cities have found it economically feasible to house parolees in the area, including some of the nicer areas. Many investors bought homes in nice areas in order to house Section 8 rentals. This has made even nice areas a mixed bag. There are nice neighborhoods scattered throughout the valley, but there are a complicated set of factors that will help you decide what is most appropriate for you.


Some of the factors you should consider: Who is the occupant (you or someone else)? What is the health of the occupant? Does the occupant commute? Will there be children in the house (which public school will they be in, or are you willing to pay for private school, or home school)? How much privacy does the occupancy like? Do you need park an RV at home?

This really depends on what you want to do and where you will be spending your time. If you're a commuter, and don't want to spend an extra 30 minutes on the road every day, you should consider Oak Hills or Summit Valley. They are rural, yet close to the freeway, and don't have the congestion problems that exist along Main St., Bear Valley Rd., and Hwy 18.

You will have further drives then if you lived in town, but time-wise, they won't end up much longer because you're not spending as much time in slow moving traffic. This is also less time breathing exhaust fumes, so if you have respiratory problems this is also a concern. Health concerns might also lead you to want to be closer to the hospitals in town.

One of the nicer areas with newer homes and a great view is the Quail Ridge community in Apple Valley. There are also gated communities built by Pulte Homes behind Jess Ranch. There are also many nice homes by the Apple Valley Country Club golf course. These areas are close to shopping at Bear Valley Rd and Apple Valley Rd while offering newer more energy efficient houses than some older neighborhoods which will save you fuel in your car and money on your energy bills.

Something to keep in mind about the Victor Valley: It has been an inexpensive place to live for years, and as such, the quality of neighborhoods is less fixed than other areas. Areas that used to be exclusive no longer are or certainly not to the extant that they once were.

This is my recent follow-up(February 20, 2010):

I'm not saying not to buy, but I am saying that you should do some "due diligence". Some web sites offer stats by zip code, but the Victor Valley doesn't have a lot of density, so our zip codes are not an efficient way to look for crime online.


Also, fences make good neighbors. I would look for a property with block walls and wrought iron fencing if I were in the city, and taller chain link fencing (above 5') in the more rural areas.

Also, don't let a nice neighborhood lure you into a sense of complacency. Nice neighborhoods become targets for thieves. My uncle in Simi Valley recently told me of a band of thieves who would drive a moving truck into cul-de-sacs of the nicer neighborhoods and break in and load up. Unless you and your neighbors are friendly, they might not even realize that the persons moving your stuff, aren't movers. Thieves target good neighborhoods (and the increasing political rhetoric seems to be stoking the flames of class envy) so these neighborhoods may put you directly in the crosshairs of criminals your were hoping to avoid. This is especially true if there are parolees or people on probation that are now acting as scouts in nice neighborhoods (and having California tax payers paying for their housing, too). So the criminals might 'commute' to your nice area.

There are some very nice houses outside of the city limits. Some builders and others built very nice houses in rural areas with plenty of land (to park vehicles) and then let the house go back to the bank. Many of these houses can be bought for the price of construction.

Also, in this economy, verify whatever any agent tells you with disinterested third parties. We are commissioned salespeople and things are slow, so it may be in an agent's best interest to NOT know and therefore NOT be liable to disclose information. I recommend talking to the neighbors in the surrounding housing and looking up local news by address number, and go to the local police station. Or pay someone to do these things and write up a report for you detailing what they did.

My last recommendation: Pick up the book "The Zombie Survival Guide". As strange as it sounds, it has a lot of really good information on making you and your home, more secure.

Some thoughts on housing, both buying and renting

Two articles from RISMedia this week have highlighted the fact that prices are at some of the lowest prices in nearly 20 years, and that the affordability index is 67%. This comes as no surprise. Here in the High Desert, in California, it is still possible to buy a house for less than the construction costs.

The good news, is there is continuing commercial and industrial development here, despite some problems caused by local government overextending themselves financially (like most levels of government during the tech and real estate bubbles). The City of Hesperia has just been named an enterprise zone.

Due to Governor Schwarzenneggar's moratorium on foreclosures, I've seen a slight upward trend in the prices in the Victor Valley, as supply of houses on the market is causing an increase in bidding on the houses. I think prices are likely to drop again as there is another wave of foreclosures on the horizon in California. This is going to be exacerbated by small business people deciding to leave this highly regulated and taxed state, even if they have to walk away from their homes.

The affordability of houses has caused quite a bit of competition. First time buyers are competing for houses, with small and large investors. My wife and I had a small house in escrow, but the house wouldn't appraise, so I'm sure an investor with cash will buy it. I could go look up the sales price at the county recorder or online, but I don't want to aggravate myself.

I have seen a trend toward lower rents. Many rental owners are advertising move-in specials. I see family members moving in with each other. I have seen people leaving the area, some to be nearer the larger metropolitan areas, some to leave the state, a few to leave the country.

There is a push for more government subsidized, low-income housing (projects), which will lower rents as landlords compete with the government subsidized landlords.

Some of these landlords are likely to find the competition too fierce and add more units to the market place through sale or foreclosure, which will reduce rents further. It is a question of where the market will bottom out on the government induced spiral. Look to the subsidized unit costs, and the features to set your prices. It may be more important to keep a good renter than make a profit. This is a typical of what happens when the government starts competing in the private sector.