Sam's Place

sam's insights on life and Taos

BUYING A FORECLOSURE? YOU DON’T NEED MOVES LIKE JAGGER

Mar 22

Posted by samstaos in Blog, Buyer/Seller Tips, FORECLOSURES | No Comments

When it comes to Taos real estate, you can’t always get what you want. But if you can ignore the misinformation about purchasing foreclosures, you’ll have a much better chance to get what you need.

Some buyers think they need to move like Jagger to get a smokin’ deal on a foreclosed home. For example, they think they should offer half of asking price. Here’s my experience about asking price vs. selling price: most often distressed properties hit the market priced as if they are NOT distressed. Then, every thirty days or so, the price drops a small amount until someone makes an acceptable offer. I have seen one or two sell for half of original asking price, but only after year or more, and only after previous buyers had backed off because of title issues or dreadfully run-down condition.

Every Taos Realtor I know has heard a frustrated buyer threaten to “buy the house directly from the bank.” What I usually answer is that I don’t know of anyone who has been successful buying a distressed property from a bank or lender. Banks list with Realtors because they prefer arm’s length transactions. On this point experience is the best teacher. If you think you’ll get a better deal from Bank of America, by all means call them. See how far you get.

For years pundits and economists have been warning of “The next big wave” of foreclosures. Since 2006 Taos foreclosed homes in the Taos market have kept a steady level of about 3-7% of overall sales. Today we could be at the peak of distressed sales, and only 4.5% of our listings are bank owned. This a fact. I counted each one by hand. Even if foreclosures have hit our market in waves, the waves have been wavelets, shore break, ripples on a pond. Ignore predictions of “another tidal wave” driving prices down further. The number of Taos foreclosures are not going to increase dramatically, if they haven’t already.

If you think I’m wrong about any of the above, check with my gal pal Kathy, the Taos foreclosure queen. Her knee is in a brace these days, so she certainly doesn’t have moves like Jagger.  And she still sells more foreclosures than anyone else.

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56 REASONS THAT TAOS REAL ESTATE HAS HIT BOTTOM

Mar 16

Posted by samstaos in Blog, Market Statistics | No Comments

The table below is excerpted from a study of New Mexico building permits for the last six years. The table paints a grim snapshot of where Taos real estate has been and where it is now. It shows that 2011 building permits in Taos County are down 79% from 2006. Yikes!

2011   2010    2009   2008   2007   2006   Source: U.S. Census Bureau
“56"    63      70     116    195    269

Yikes becomes yikes squared with the knowledge that the above building permits include remodels. Remodels rarely bring more housing to market; they fix up old housing. With that in mind, these building permit numbers indicate a steeper decline than the sales volume figures shown in my Market Stats. County sales volumes for the last 4 years are at roughly 25% of 2006 levels. However in my opinion, the fact that housing starts have kept a downward pace with sales volumes will prove to be a good thing. Taos will not have tracts of newly built, unoccupied homes cluttering up our inventory for years. Today, even now in our lower price ranges (under 200k), there are limited choices for buyers. And our foreclosures, as of this posting, make up only 4.5% of total listings.

This leads me to believe that Taos real estate could come back quickly. Limited choices create an inventory bottleneck. I just have to believe that at some point John Q. Buyer is going to wake up to the fact that prices are irresistibly low and that he can borrow money at generationally low interest rates. With increased optimism about the national economy, rising equity and bond prices, and pent up demand after 6 years of steep declines in real estate, 2012 will see increased activity and sales volumes. You heard it here first–I feel quite comfortable in my interpretation that year 2011 will prove to have been the bottom of the Taos real estate market.

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THOSE WHO ADVOCATE BUYING TAOS HOMES ARE NOT MY IMAGINARY FRIENDS

Mar 9

Posted by samstaos in Blog | No Comments

When Warren Buffett speaks, most people pay close attention. Mr. Buffett recently called single family homes a very attractive investment.  I might add that I’ve been saying the same thing about Taos real estate in this blog for over a year.  My observations predate Buffett’s by well over a year.  This puts me in very good company. I haven’t been imagining it.

Of course, I’m a realtor and I definitely have an interest in selling some of those homes. Even so many others have said similar things.  Just over a year ago I quoted hedge fund manager, John Paulson, who made hundreds of millions of dollars shorting the mortgage lenders.  At that time Mr. Paulson recommended that everyone should buy a home even if  they already own one. Quite modest advice given Mr. Buffett’s pronoucement that, if it were practical, he’d “buy up a couple hundred thousand single family homes.”

A couple hundred thousand homes!  ”Really, Mr. Buffett?”  Let me give you my card.

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A TALE OF TWO MARKETS: BEST OF TIMES FOR BUYERS, WORST OF TIMES FOR SELLERS

Feb 28

Posted by samstaos in Blog | No Comments

It may not seem logical, but most real estate markets in the United States have split personalities, including the Taos real estate market. Crazy, impossible, absurd. How can two real estate markets exist side-by-side in the same town or even neighborhood? Simple. Real estate appraisers don’t compare distressed sales to non-distressed properties, or vice versa–unless the neighborhood has a substantial number of distressed homes.  That means the groundswell of foreclosed and short sale homes have only a marginal effect on homes where families are still living as if no financial calamity has occurred. That doesn’t mean distressed properties have NO effect on the market. Distressed homes weigh heavily on all listings. They attract dollars from healthy homes. They create the impression that non-distressed homes are over-priced.  They create the expectation among buyers that all homeowners are stressed and that all asking prices are soft.  In this environment, if a buyer has a choice between a distressed home and a non-distressed home in the same neighborhood that buyer, more often than not, is choosing the distressed home even though it may be in sad shape. A large number of  distressed properties exacerbate an already negative environment.  Fortunately Taos real estate is not overloaded with distressed properties.

Thus, the buyer who wants something in turn-key condition will be negotiating with a seller who may or may not be motivated and who still loves her home and has pride in it. She may have a mortgage which will provide a floor for her price, though it will undoubtedly be less than during more favorable market conditions. With the market for second homes so depressed, sellers just have to take less for properties no matter how much money they have put into them. They may not get their money back for expensive upgrades and extra acreage.

Buyers today expect huge discounts on whatever type of property they are considering. Even well off purchasers are having a hard time securing loans. The appraisal process is tricky too. Some buyers give up because they are afraid of paying too much. On the other hand, the smart sellers know that even the healthy part of our Taos real estate market is going to wait a long time before we see appreciation of any sort. Those  sellers are willing to deal.  If a buyer can find a motivated seller, who doesn’t have one foot in foreclosure, that buyer may get the buy of a lifetime.

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FINAL 2011 TAOS COUNTY SALES VOLUME

Jan 26

Posted by samstaos in Blog, Market Statistics, Real Estate | No Comments

DOES AN  INCREASE IN VOLUME SIGNAL A TURNAROUND IN TAOS REAL ESTATE?

Before we get all gushy about a blowout quarter and a 30% increase over Q3, let’s take a look at Q4 numbers for 2010 and 2009.  It sure seems like a seasonal bump to me.  Also, a significant development should be noted in Red River, the old mining town in the north of Taos County. Several high-priced closings occurred which may have been broker assisted private sales and entered into the MLS.  The sales show brief marketing times and the involvement of only one broker.  Red River is a very small town and is thinly traded most of the time.  I think it’s somewhat of an anomaly.  That said, it means that our volume may have been lower than expected.  Go to the Market Stats button to see the 2011 year end volume figures for Taos County and the Moreno Valley real estate.

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OCCUPY HOMES, NOT WALL STREET

Oct 26

Posted by samstaos in Blog | No Comments

Back in 1970 when I was a senior I college, the mantra was “make love, not war.” Richard Nixon was escalating the Vietnam war, the Republican Party was being splintered by segregationists, and the Democratic Party was being splintered by pacifists. I went to the rallies and demonstrations and, at one of them, I met a really cute girl with long hair and sandals. Making love and not war seemed like the preferred course of action.

Today, there are more splinter groups than we know what to do with. I don’t know if they scream quite as loud as we did in the 60′s, but the sentiments are there. We have the Tea Party, which has nothing to do with orange pekoe or jasmine, screaming about high taxes and gun control and everything else thrown in. (Have you noticed that some of those screaming the loudest pay NO taxes?) Now we have a less focused, but more slovenly movement called Occupy Wall Street. (I’m sure we’d all look and smell slovenly if we camped out in city parks without modern plumbing.)

I have heard nothing from either of these splinter movements that provides insight or solutions to our present economic conditions. I would simply offer a new mantra that could, if taken to heart by millions of Americans, help us out of our economic doldrums. It is, “Occupy homes, not Wall Street.” The time has never been better. Take advantage of the rock-bottom prices and exorbitantly low interest rates. If you already own a home, buy another.  It could kick start our economy and would certainly put thousands and thousands of people back to work.

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WHY IT’S TIME TO BUY A HOME IN TAOS, NM

Oct 21

Posted by samstaos in Blog, Real Estate | No Comments

The time is so ripe for a home purchase in Taos, New Mexico that I‘ve chosen to make my case with bullet points only. So, here goes:

–The second home market is dead. Baby boomers who’ve collected houses all over the world are trying to figure out how to retire comfortably, rather than lavishly. They are cutting back, sizing down, and bailing out. Taos homes have been discounted so much that, in some cases, they sell for less than purchase price of six or eight years ago.

–Prices have dropped about 30-35% from the 2006 peak. With homes selling for less than replacement cost one has to ask himself, “How much lower can prices go?” The only sellers for whom prices can still drop further are the nondiscretionary sellers such as banks. They must sell regardless of what the market is doing. They do cut their prices until the properties sell. Typically their sales are reported as distressed sales and are not used in future appraisals. However they do drag the market down, to a point. Most discretionary sellers (those sellers who have a lot of equity in their homes) will usually pass on lowball offers. Discretionary sellers are maintaining the floor in our market.

–Money is tight, but cheap if you qualify. We will, someday, sit our grandchildren down and tell them about the 3.5% mortgages we locked in. 3.5% approaches the rate of inflation. This is almost free money. It’s a no-brainer to borrow at these rates. Interest rates are exorbitantly low.

–Skittish buyers worry about future appreciation, or rather the lack of it. It is a valid concern. Keep in mind that Taos, New Mexico is a very small real estate market by any standard. That is not so important, except that homes are so far below replacement cost that we will see very few new homes come to market for quite a long time. This means that prices will firm up quickly when our markets do turn around. In the last 30 years, every time there has been some sort of cataclysm in other parts of the U.S. such as riots in L.A., hurricanes, earthquakes for example, our tiny market gets a bump. Sudden appreciation could happen here before other markets.

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THIRD QUARTER VOLUME NUMBERS SHOW BIG DROP FROM 2010

Oct 5

Posted by samstaos in Blog, Market Statistics | 3 Comments

Third quarter volume shows a 15% drop from same quarter as last year, while total dollar volume registered a drop of 33%. The figures are not a one time fluke, because the data for first and second quarters reported similar slumps. Last year we thought it couldn’t get worse, but we were wrong–big time. The interesting part of all this is that some brokers are reporting rosy outlooks and brisk activity. I use MLS data to glean my sales volume data. So Realtor fluff could only be possible if the sales they are bragging about are actually not reported through the MLS. Would Realtors keep their sales a secret? Almost never, unless instructed to do so by their buyers and sellers.

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THE MOST IMPORTANT PRINCIPLE IN BUYING A FORECLOSED HOME

Sep 30

Posted by samstaos in Blog, Buyer/Seller Tips | No Comments

As someone with contrarian tendencies I look skeptically at the values of many foreclosed homes. “They’re so cheap!” is the common refrain. I contend they’re cheap for a reason. Here’s why: for the ex-owners of these homes, their deal went sour and they left under less than happy conditions. Often these homes are trashed, appliances missing, windows broken, plumbing ruptured and electrical systems fried. In most cases an aura of sadness and anger hangs over the house. No longer a home, the accumulated materials that comprise it, are worth little more than scrap value. The labor that built the structure has usually been discounted severely. Even the land’s value is compromised because of the “mess” that sits on top of it.

The questions you must ask are: first, how much money and labor will be required to make this house a home again? However, determining how much refurbishment will cost can be tricky because of hidden problems. If you need help, consult a builder or handyman. Get bids BEFORE you make an offer. If the answer is a number that, when added to the purchase price, is still less than market value, the house should not be purchased.

Second, try to get an idea of where prices will go. Purchase price plus refurbishment costs must be equal or less than future market value. This is where you need the help of your real estate agent–in helping you determine the future value of a home that, once refurbished, is ready to be marketed. In our current economic landscape, future estimates of value are very elusive. For example, if a home had been previously marketed for $400,000 and is now offered at $200,000, it may seem attractive. It does not necessarily follow that a simple $100,000 in refurbishment will yield a $400,000 house again.

Thus, when considering the purchase of a foreclosed property, you need to give yourself the best possible chance of recouping your investment. The oldest principles of real estate should be strictly followed. Perhaps the oldest principle is that of location. Picking a foreclosed home in a topnotch location is the best way to ensure that you’ll recoup your initial investment and fix up costs. The location may even be more important with a foreclosed home than one that is not. Location, location, location. The real estate world may be upside down, but that principle is more true than ever.

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WHY IT’S GOOD NEWS THAT HOUSING STARTS ARE DOWN SHARPLY

Sep 21

Posted by samstaos in Blog, Real Estate | No Comments

The Taos real estate market mimics the national market in many ways. Currently only a handful of homes are under construction, expensive custom homes for wealthy transplants. Nationwide home construction is a trickle as well. The news yesterday was all about housing starts being down. I acknowledge that this is not good news for the overall economic picture, since it is more evidence that jobs, of any type, are not being created fast enough. But I think it’s good news for the national real estate markets. Here’s why:

We need 500,000 new homes per year just to replace homes that burn down, blow down, flood out or become abandoned. Amazing fact. Wish I could remember where I read it. So, if we build that many every year, the housing supply should theoretically remain constant. However, we are still recovering from the hangover of building too many homes for several years. A huge vacant inventory stands available with more coming on every day through foreclosure. X-out the 500,000 replacement homes. If no new homes are built for a couple of years, it might be a good thing. During the Great Depression homes were bulldozed to eliminate excess supply.

As you know, I take somewhat contrarian views of real estate trends. You’ll recall I’ve complained about exorbitantly low interest rates being one of the roadblocks to banks making more loans, certainly a contrarian call. I think this is a great time to buy real estate unlike others who think real estate should be avoided. I don’t think prices will go much lower. I’m contrarian on both accounts. Now when I see home starts sinking lower, I’m heartened. The biggest problem we have in real estate is too much inventory, not to mention the shadow inventory of pent up seller’s demand which will hang over us for years. We desperately need the jobs from a robust housing spurt. I could even get excited about lots of snazzy new homes to sell–if only we weren’t having such a hard time selling the ones we have.

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