Monday, November 30, 2009

Suburban development trends

The USA Today published an item this month regarding suburgan development trends throughout the United States. The paper noted the end of four decades of suburban growth throughout the nation:
"Places that have done the worst are places where basically real estate was the economic engine," says Ed McMahon, senior research fellow at the Urban Land Institute, a non-profit group that promotes sustainable development.
emphasis added

What does this mean for Central Pennsylvania? We have not suffered the same consequences as the Sun Belt cities during the recent economic downturn, thus indicating that real estate is not the real "economic engine" for Central Pennsylvania. Instead, government employment has been the main economic engine in the Harrisburg area and continues to prop up the real estate business locally (with help from stimulus money and homebuyers credits).

Does this mean that the real estate bubble is safe in Central Pennsylvania forever? Will real estate prices forever rise? Don't count on it.

Monday, November 23, 2009

Natural Gas prices linked to real estate litigation; Marcellus Shale

The consequences of the ongoing devaluation of the dollar are far reaching and hard to predict. One such consequence has been felt by Realtors attempting to sell raw land in rural areas of Pennsylvania (and other states).

As the government printing press weakens the dollar, prices of commodities, such as fuel, increase. We saw just such a skyrocketing price effect in 2008 with the price of gasoline (and other fuels). When fuel prices shot up, there were many casualties, such as the contracts between real estate sellers and their listing agents. Sellers that had previously signed listing contracts with Realtors to sell their raw land now found themselves with an opportunity. Natural gas prices had risen along with other fuel prices. These rising natural gas prices had made raw land more valuable in many parts of rural Pennsylvania. While this may have seemed to be a welcome surprise to many landowners, many of their properties had been previously listed for sale at pre-inflation prices.

The only way for some land owners to take advantage of the rising natural gas prices was to break their contracts with listing agents (or even sales contracts with buyers). Litigation between Realtors, owners and buyers often resulted.

Keep in mind that fuel prices rose, creating this situation, despite the discovery of 500 trillion cubic feet of natural gas in Pennsylvania and neighboring states (otherwise known as the Marcellus Shale) during roughly the same period as the general commodity price inflation.

Only when the dollar is being devalued at an alarming pace can commodity prices rise despite discovery of tremendous new supplies of said commodity. That same dollar devaluation that caused (1) natural gas prices to react unpredictably and (2) unforeseen litigation will continue to create unpredictable consequences for the economy as a whole, especially the real estate market.

Marcellus Shale - H/T

Thursday, November 19, 2009

Buyers tax credit less important than home prices

I have previously written here on Congress' extension of the home buyers' tax credit.

A recent survey suggests that the homebuyers credit was not as big a factor in home buying decisions as previously believed:
But in a recent NAR survey, only 6 percent of first-time home buyers—who made their purchase during the 12 months ending last June—cited the tax credit as the primary reason behind their decision. The results suggest that other factors, such as attractive interest rates and falling home prices, deserve more of the credit for the market's recent uptick, says Keith Gumbinger of "The most powerful force at work is the desirability of buying a home and the market conditions—that's your mortgage rates and your prices," Gumbinger says.
H/T U.S. News and World Report

The tax credit (and the recent extension) will actually prop up prices. The credit thus appears to be hindering the volume of sales.

Friday, November 13, 2009

Mortgage applications reduced to 2000 levels.

Bloomberg reports that home mortgage applications for purchases are down to their lowest level since 2000:
The drop in buying plans points to the risk that the recent stabilization in housing will unravel without government help. In a bid to sustain the recovery, Congress passed and the administration signed a bill last week to extend jobless benefits and incentives for first-time homebuyers, adding a provision that also made funds available to current owners.

This article and this trend indicate that the government considers it to be a problem when buying returns to levels from the year 2000. I remember 2000, and the economy, including the real estate market, did not seem to be in desparate shape at that time. Yet sales at only the year-2000 level seem to be insufficient to avoid dire economic consequences.

This is one of the characteristics of an inflationary era. Economic activity that is sufficient to maintain prosperity for a short time will not be sufficient without substantial increases. In this case, continued government stimulus is necessary to push real estate sales to higher and higher volumes just for the purpose of avoiding the return of 2000 levels. The stimulus acts like a narcotic, and previous levels are never enough.

Inflation may not always be reflected in prices, but it is reflected in trends found at the crossroads of economic output and government stimulus.

Thursday, November 12, 2009

Gold prices and the economy

Gold prices have set record highs recently, as the dollar continues to weaken.


Why should this matter to those who are concerned about real estate in Central Pennsylvania? Because gold is an indicator of weakness or strength in the dollar. As the dollar weakens, prices of commodities in general will tend to rise. These price increases will include oil, building materials and other commodities whose prices directly impact the real estate market.

The price of gold does not cause the other prices to rise. The price of gold merely helps indicate the direction of other prices. As we await the disaster that must surely follow the government's trillion dollar "stimulus" bill, gold prices will help provide an early warning of the deluge that is to come.

Wednesday, November 11, 2009

Philadelphia, 19104, 19148, 19145; CNBC's hottest zip code list

CNBC recently posted the "Hottest Zip Codes for Home Prices" and Philadelphia has three zip codes in the top 15. Zip Codes 19104, 19148, and 19145 ranked 14th, 3rd and 2nd based on year-over-year price increases ranging from 13.5% to 19.1% for the third quarter.

Tuesday, November 10, 2009

MSN's top 13 tenant excuses.

MSN posts what it calls "13 outrageous tenant excuses" for tenants' failure to pay rent and other lease violations.

The stories are interesting, but successful landlords try not to focus on excuses. If they get stuck on each excuse offered by the tenants, they will go broke.

Monday, November 9, 2009

Renting/Leasing as a solution to mortgage foreclosure?

According to CNN, Fannie Mae announced last week that it would allow distressed borrowers the opportunity to remain in their home by deeding the property back to the lender and renting the property as tenants:
The effort is aimed at borrowers with mortgages owned or guaranteed by Fannie Mae who do not qualify for or cannot sustain a loan modification. Borrowers must live in the home as their primary residence and must be released from any subordinate liens.

Private lenders have tried similar methods in recent months and years. The idea bears many risks for all parties, as owners may be tempted to rent the property to new tenants or otherwuse violate the residency requirement.

Not all lenders who offer this program to distressed owners are doing so under the supervision of Fannie Mae's program. Many private investors will purchase the home from the distressed owner as a way for the owner to avoid foreclosure or bankruptcy, only to evict the former owner (now tenant) under some pretext shortly afterward.

If you are an owner facing foreclosure, be sure to explore all of your options before entering into this type of arrangement, including bankruptcy. Be aware of how much equity you have in your real estate. Most importantly, be aware that your home is not worth trying to save if you cannot make the payments. If you cannot make the monthly mortgage payment, chances are that you cannot afford the new rental payment either.

Monday, November 2, 2009

Pennsylvania school tax increase set for 2012-2013.

School taxes are set to increase in less than three years throughout Pennsylvania due to a pension increase lawmakers voted for themselves in 2001:
Think your school taxes were high this year? Start saving for 2012-13.

That's when Pennsylvania property owners will pay a lot more money to cover the generous pension bump state lawmakers awarded themselves, school employees and state workers in 2001.
H/T Pittsburgh Tribune-Review

The tax hikes will cost the average property owner $558.00.

Jay Himes of the Pennsylvania Association of School Business Officials has tried to estimate the effect on particular school districts:
"I was in the Erie area the other day, and one school district there calculated they would have to raise taxes 14 mills on top of their 48-mill taxes to cover it. That's a 25 percent property tax hike just to cover retirement costs. I don't think the property owners will stand for it. Something absolutely has to happen," Himes said.

Read the Tribune-Review article for the history of the pension increase.

Needless to say, as these tax hikes approach, property prices in Pennsylvania will face downward pressure.