Where do we stand with our business?

I’m in this game long enough to have seen more ups and downs than all the rides in Disney World combined.

Over the past forty years, the number of houses built each year in the US floated around 1.5 million a year and went just over 2 million in 2005. Then it hit the fan. For the past three to four years, housing starts hasn’t reached 600,000. This isn’t even half of the forty year average.

We’re not talking sales here, though lack of sales is a result. We’re not talking about remodeled houses. We’re talking about new homes. New homes are one of the largest contributors to a healthy economy. Resales of existing houses are down because people sell when they want a new house. Not another house, a new house.

Builders are slow to build new housing developments due to the existing open market glut, and worse yet, the shadow inventory. Shadow inventory are the homes in limbo between foreclosure and the sheriff’s sale. And, homes that are in default that the banks are reluctant to process for fear of adding to the open inventory and driving prices down further.

I know most people are done with short sales, with the time span and difficult bank managers. Even if you don’t hear about them, foreclosures are still happening, though not as quickly. Banks are slow to process for fear of being charged with fraud. Don’t you think that if they’d been more honest in their dealings with borrowers, they wouldn’t have to be afraid? That’s another missive!

As far as foreclosures: California led the nation last year with 51,800+, next came Florida with 24,000+, then Michigan – 14,000+, Georgia – 11,500+, Illinois – 11,400+, Texas – 9,800+, Nevada – 9,600+, Arizona – 9,000+, Ohio – 8,500+, Colorado – 4,800+. And on and on! And yet, California is still selling high priced homes. Go figure!

In all this mess, there were only two metro areas that I track that showed an increase, albeit small. Detroit prices rose about 2.7% and Washington rose about .3%. Imagine buying in these two areas. One with extreme unemployment and one with extreme over-employment; talk about a dichotomy of the present state of the housing economy.

Here’s the thing. Real estate is still a great business to be in. You can make money, but you have to look at each opportunity carefully. If your numbers work, try to follow through to the transaction. If they don’t work, let the deal go. Do Not try to work the numbers into a deal. If they don’t work, walk away. As you can see from the numbers, there are going to be many opportunities. Don’t overwork the bad ones.

I’ll close this with a list of some of the markets I watch to look for trends in the areas that I want to invest. They’re in alphabetical order, not the order of price decreases.

These are all negative numbers: Atlanta -6.3%; Boston -1.7%; Charlotte -3.4%; Chicago -5.8%; Cleveland -4.8%; Dallas -1.9%; Denver -1.6%; Las Vegas -5.8%; LA -3.5%; Miami -4.6%; Minneapolis -8.5%; NYC -3.4%; Phoenix -7.7%; Portland -7.6%; San Diego -5.5%; San Francisco -5.3%; Seattle -6.1%; Tampa -5.8%.

Yes, I look in many other areas, but these are some of the largest markets in the US with some of the highest foreclosure rates. I was most surprised by San Francisco. This is the first time I’ve followed this city with the prices dropping. This is a really hot market when the economy is going even a little bit. I will have to look at some opportunities out here very soon.

At present, I’m following about ten cities in the mid-west. These are all fairly large, destination or distribution hubs, stable economies, rising prices, low unemployment, good for business tax areas, etc. I’ll have a report ready in about six weeks and let you know then. Have a Happy, Healthy, Safe and Holy New Year!