I have grappled with this concept for the last couple of days, I figure now is the time to take a stab at explaining inflation effect on property owners, investors, and property buyers. I am no economist, just curious. First of all, I need to explain inflation in my simple mind. Inflation is the price of goods/services going up as a result of the increase in money supply – a decrease in purchasing power. As the FED prints more money it dilutes the value of the money currently in the market driving up prices of goods and services. As a counterbalance to the rise of inflation, the government and/or market raises interest rates. Somehow, unemployment, output and productivity come into play as well.
INCREASE IN FORECLOSURES – Now, as the price of goods and services go up, property owners have to spend more of their income on these items reducing the amount of disposable income. Homeowners that are at the edge of their expenses who do not have savings, become unemployed or have not had increases in salaries will be pinched on making mortgage payments. When a person has to choose between food for family or mortgage, the food will probably win. There will be an increase in foreclosures. Take into account adjustable mortgages as well, when interest rates reset, payments go up making the pinch and foreclosure statistics a whole lot worse.
BIGGER POOL OF RENTERS – When people lose their homes, they are still going to have to have shelter. I think investment properties, rentals, will have a steady availability of tenants. We are seeing this now in North Idaho. Leases/rents are negotiable and reset after a set period of time investors can increase rents based upon inflation creating a hedge that a typical homeowner cannot.
INVEST IN ASSETS THAT CAN PAY OFF YOUR DEBT – Creating hedges in an inflationary environment is key to wealth protection. Inflation hedges include tangibles and goods (commodities). Land and property is definitely an asset but you have to buy right. Finding property deals that are close to the bottom as possible is key. Any good agent can give you a synopsis on the current market conditions in the area you would like to purchase. Good indicators would be level of foreclosures and short sales, active price ranges, and amount of solds/pendings in each price range.
HYPERINFLATION (a long shot) – Lets say hyperinflation comes around – that is – huge increase of inflation month over month. The value of money changes drastically and becomes worth less and less (i.e. it takes much more dollars to purchase the same thing). It makes sense if you have tangibles that increase at the same rate, if you owe 200,000 on your property and a pound of gold is worth 200,000 you can sell and pay off your house. I see having debt as being a plus in a hyperinflationary environment, AS LONG AS, you have assets, tangibles, goods that can counterbalance. The value in this for example, is now you can buy pound of gold for under 16,000. You have got to have a means to create income that is adjusted to inflation on a daily basis.
IN SUMMARY – The key to inflation and the housing market on you, the property purchaser is to make sure you get the best deal you can on a house you have interest in. Be aware of what is on the market, and the direction the market is headed in you area. Act in front of the market. Your real estate agent should be able to help you with local housing information. If you can get a loan, buy an investment property in foreclosure or one that is priced right. If your the property SELLER, get your price in front of the market now! That is where the buyer pool is. If you are backwards in value to loan on your house, shortsale it. Banks are taking losses on their loans, freeing up homeowners that could go into foreclosure. Good luck and let me know if I can help!
Property buyers in the $125-175k price range are the winners in this market. Over 700 options available, including 26 foreclosures! We are almost experiencing a 20% pending ratio with listings available and listings with accepted offers. A buyer can reasonably expect to get a property within 97% of list price. I currently beat that with my clients, I typically get within 90-94% of ask price with buyers I represent. Let me help you navigate the process. Real estate is what I do.
This is a great snippet about Idaho being a state that may show employment numbers that actually improve. This is good for housing. In North Idaho, we are better off than the average national unemployment rate. See the article below.
5 States Moving on to LOWER Unemployment
In a report from Moody’s, projections are that 5 states expect an increase in private employment by the fourth quarter 2009. Due to the density of high tech jobs in the northwest, the region is well positioned to spark the rise in employment.
Colorado, Idaho, Oregon, Texas and Washington are all expected to show improved employment. Texas jobs will improve due to the oil industry but the other states will benefit from their technology industries. Another factor adding to better conditions in these states is the fact that residents have better than average household credit ratings. Analysts expect the housing market to improve in these states first.
I am a very visual person, and I wish a video came with this report (LOL). A visual guide to the state of the economy county by county. Using this chart, you can see what real estate market areas are improving and which are being hit the hardest in almost real time.
The population of Kootenai County is 137,475. According to this report, 1.16% of property is in foreclosure in Kootenai County. Not bad, considering parts of California and WA are over 5 times that amount. See the link here:
Many people were saying Idaho realestate markets were going to get better after the election, well, I am stillwaiting. North Idaho Real Estate in particular had a rough October.October 07 we sold 397 units, October 08 we sold 242. An interesting fact,between the price ranges of 400K-450K in NORTH IDAHO, there is 1 pendingsale. However, the good news; property is still moving. It may be a greattime take advantage of some of these opportunities. Below, I am goingthrough two aspects/opportunities of the market, SHORT SALES, andMULTI-FAMILY. Also, attached is the most complete North Idaho Real EstateMarket SNAPSHOT for your own analysis (I’ve left out land and commercial inthis report – contact me with specific questions).
Short Sales
Short sales continue to infiltrate our market. A strategy that is surfacingin short sales includes approaching the seller with an offer of 50-60% ofmarket value. The listing agent then present’s the seller’s information tothe bank, starting the short sale process (could take 6+ weeks). If thebank accepts then the investor gets to buy a property for a great price, ifthe bank counters, the listing agent now knows at what price to market theproperty and the investor does not have to commit OR the investor may beable to SELL THE OPTION to purchase. A win-win. If you have interest intrying this approach, let me know. To see a list of short sale properties,see the below link:
Enclosed is the most complete statistical report for the ending of 08’regarding the North Idaho Real Estate market you can get. We ended 2008 with 7,368 listings, 188 sold for the month with a total of a 39 MONTHsupply of property. We sold 3029 properties in 08’. Total amount ofavailable inventory is around $2.75 Billion. Average sold price is hoveringaround 230K. If you would like a breakdown on each price category, numberof pending, actives, solds, see the TMO (Total Market Overview) above.Also, I just acquired a TMO for every area in Kootenai County (i.e. CDA,Post Falls, Rathdrum, MF) individually. If you have interest in one ofthose let me know. In particular, look at the price range 400-450. Thereis nothing in the “hopper” in that price range reported in the MLS. Also,enclosed is the two year trend line of sales, price reductions, volume, andmonth supply of inventory. Take a look.
If you would like to be added onto a property email list (i.e MultifamilyREO under 200K, immediately sends out notification of listing to you) let meknow. Just let me know what you’re looking for and let me represent you innavigating the purchase.
I just crunched all the sold data in the last year for residential REO and Short Sales in the Coeur d’ Alene MLS. What I found is interesting:
Only 21 Short sales closed in the last year for an average of 15% below Original Ask Price. As the seller was adjusting their price downward, short sales closed within 3% of the adjusted price (Around $14,000). This tells me that once a price hits a certain zone, below market prices, it will getan offer and close within 3% of asking. However, closing short sales can present a challenge, only 21 closed in the last year. 119 Real Estate Owned by Banks (REO) sold in the last year for an average of9% below Original Ask Price. Again, banks had to adjust their property pricing downward to create the sale, then after that, sold for within 4% of asking price. This tells me, if you find an REO, if it is the lowest in its class, you can probably get it 4-9% cheaper. The AVERAGE REO sold price was around 200K, which makes sense, saying our average income in North Idaho is42K, banks will loan to someone making this much money around 240K (MAYBE),people get laid off, the property goes into foreclosure, bank tries to sell it at 220K, they reduce the price to 210K and they accept an offer at 200K.
I’ve attached my spreadsheets if you want to take a look at it or play withor create your own data…
