It’s been almost five years since the housing bubble popped. And, with a glut of homes still on the market, housing prices could fall further. Why is it taking so long for the housing market to sort itself out?

The answer may have something to do with a coin toss.

 I recently visited Eric Johnson, a professor at Columbia’s Business School. He offered me a sweet bet on the flip of a coin. If the coin came up heads, I would win $6. If it came up tails, I would lose $1.

I told him I’d take the bet.

But then he changed the terms — if the coin came up heads, I would win $6. If it came up tails, I would lose $4. That bet I didn’t like.

Of course, this is irrational. The bet is still very much in my favor. If I took the bet 1,000 times, I’d almost certainly make a nice profit.

Still, Johnson said a lot of people are like me: They won’t take that bet. So I went out on the street to test this out on random people.

I introduced myself to Frank Blake, a guy who makes his living as a stuntman, jumping through windows and crashing cars. I offered him the bet — told him I’d pay him $15 if he won, and he’d only have to pay me $10 if he lost.

No deal.

“The $15 makes no difference in terms of gaining it,” he told me. “But losing the $10 in my pocket does.”

Lots of other people turned down the bet, too.

As it turns out, our brains feel losses and gains unevenly: Losing feels worse than winning feels good.

So now — as promised — back to housing.

In a down market, people really don’t want to sell, because selling feels like losing.

Chris Mayer, professor of real estate at Columbia Business School, found evidence for this fear of losses when he studied the Boston condominium bubble in the ’80s.

He would compare two basically identical condos. The owners of both had paid off their mortgages. But one had bought at the peak of the market. That person, he found, would stubbornly ask for a higher price, and keep his condo on the market longer than the other person, who had bought at a lower price. (Here’s the study.)

“The overall magnitude of this effect is very big,” Mayer told me. “This is an important factor in how housing markets operate.”

There are certainly other reasons the housing market is taking so long to sort out. Some people are stuck financially with their mortgages, for example.

But this psychological quirk is also slowing the healing process. It makes people reluctant to lower the asking price on their homes, which in turn contributes to the glut of houses on the market.

“It’s sort of like having a Band-Aid, where you know you would be better off if you just pulled it off at once,” Johnson said. “But instead what you do is you tend to pull it off very slowly, if at all.”

It’s unclear why our brains are wired this way — why we overemphasize losses. Johnson says it could go back millions of years, to when a losing bet was way more serious.

Millions of years ago, we were avoiding animals that wanted to eat us. Today, we’re selling houses.

But some part of our brains may be still be thinking about leopards in the trees.

Source article NPR

Funny I just went through this myself in trying to sell a senior housing unit I had bought for one of my parents, I knew the market had corrected but could not get myself to sell it until it was too late.  I wonder how many of you ar with me?-Sean

Several major commercial real estate groups are fighting a proposed federal tax provision that they say would have a devastating effect on real estate investment partnerships.

Commercial real estate groups contend that the Tax Extenders Act of 2009 (HR 4213) would more than double the taxes on carried interest received by general partners in real estate partnerships because the carried interest would no longer be taxed as capital gains at 15%, but as ordinary income with rates as high as 35%.

“That’s a huge increase at a time when the industry is on the precipice, so to speak,” says Thomas Bisacquino, president of the NAIOP, the Commercial Real Estate Development Association. “There really isn’t any real estate-related group that supports it. We’re trying to stimulate the industry. We feel it would create a huge impediment.”

The House of Representatives passed the “tax extenders” bill on Dec. 10. It would prolong a number of tax breaks currently scheduled to expire at the end of the year. Although the bill contains elements that benefit commercial real estate, such as an extension of tax credits for owners who conserve energy through retrofits or remediate brownfields, the prospective change in policy toward real estate investment partnerships has many investors seeing red.

NAIOP antibiotics online has issued a “call to action” to its approximately 16,500 members urging them to contact senators to defeat the proposal. If enacted, it could bring about the largest modification to the taxation of real estate in more than 20 years, since the Tax Reform Act of 1986, NAIOP said in its alert.

The group added that the proposed tax change would have an effect far beyond the Wall Street hedge funds whose practices originally gave rise to the proposal.

The Institute of Real Estate Management (IREM), an association of property managers, has sent a joint letter with the National Association of Realtors and the CCIM Institute, urging all 100 U.S. senators not to change the current capital gains treatment of carried interest for real estate partnerships.

Other organizations are expressing similar concerns. “Changing the current capital gains treatment of carried interests would undermine job creation and have a negative impact on commercial real estate values, which would devastate local property tax revenues and put pension fund investments at risk,” says IREM’s senior legislative liaison Vijay Yadlapati. “Just as importantly, such a policy would slow the national economic recovery.”

This week, in IREM’s latest legislative report, the group says the loss of capital gains treatment for real estate investment partnerships would turn long established taxation rules upside down and have a far-reaching effect. “Real estate partnerships, from the smallest venture to the largest investment fund, have a carried interest component. Approximately $1 trillion of commercial and residential properties are held by partnerships.”

The tax measure would put additional pressure on the commercial real estate industry at a time when it already faces heavy burdens, IREM notes, including a rapid rise in delinquencies and foreclosures and restricted access to credit.

Because of the health care debate, the Senate is unlikely to introduce its own version of the tax extenders bill until early in 2010. But the commercial real estate groups fear that the Senate could quietly add the tax measure affecting partnerships to any unrelated bill now under consideration.

The Senate Finance Committee intends to take action on its own “tax extenders” bill shortly after lawmakers return from the holiday recess in mid-January, says Yadlapati. However, it’s not known whether the carried interest provision will be included in that bill.

Source Article National Real Estate Investor

The Dow Jones Industrial Average closed above 10,000 today for the first time in a year, and more than a decade after first breaking the mark. Since hitting lows in March, the Dow is up an astounding 50%, while the S&P 500 has gained 60%.

Before you get your broker on the phone or start trading that dormant online brokerage account, take heed of this warning from Mike “Mish” Shedlock, the blogger behind MISH’S Global Economic Trend Analysis: “Five years from now, I think its quite likely the Dow is not going to be much more than 10,000,” he says.

Source Article

Why so negative?

“We’ve still not solved any of those structural problems” Buy Xenical cheap in the housing, banking and debt markets, that caused last year’s crisis, he claims.

Shedlock’s advice: ignore the euphoria, and “take some chips off the table.  Now’s just not a good time to be invested.”

Shedlock, also an investment advisor representative for SitkaPacific Capital Management, thinks investors are better positioned in gold and cash.

S&P/Case-Shiller released their monthly Home Price Indices for July this morning.

This monthly data includes prices for 20 individual cities, and two composite indices (10 cities and 20 cities). This is the Seasonally Adjusted data – others report the NSA data.

Click on graph for larger image in new window.

The first graph shows the nominal seasonally adjusted Composite 10 and Composite 20 indices (the Composite 20 was started in January 2000).

The Composite 10 index is off 31.6% from the peak, and up about 1.3% in July.

The Composite 20 index is off 30.6% from the peak, and up 1.2% in July.

The second graph shows the Year over year change in both indices.

The Composite 10 is off 12.8% from July 2008.
The Composite 20 is off 11.5% from last year.

This is still a very strong YoY decline.

The third graph shows the price declines from the peak for each city included in S&P/Case-Shiller indices.

cheap Levitra alt=”Case-Shiller Price Declines” /> Prices increased (SA) in 17 of the 20 Case-Shiller cities in July.

In Las Vegas, house prices have declined 55.2% from the peak. At the other end of the spectrum, prices in Dallas are only off about 4.9% from the peak – and up in 2009. Prices have declined by double digits almost everywhere.

The debate continues – is the price increase because of the seasonal mix (distressed sales vs. non-distressed sales), the impact of the first-time home buyer frenzy on prices, and the slowdown in the foreclosure process (with a huge shadow inventory), or have prices actually bottomed? I think we will see further house price declines in many areas.

I’ll compare house prices to the stress test scenarios soon.

Source Article

Southern California Apartment Association Trade Show on 09/30/2009

Sept. 21 (Bloomberg) — The recovering housing market may be heading for a relapse as President Barack Obama and Federal Reserve Chairman Ben S. Bernanke consider ending support for the source of the global financial crisis.

The Obama administration is studying whether to let a first-time home buyers’ tax credit expire as scheduled at the end of November. Bernanke and his Fed colleagues may continue talking this week about how to wind down purchases of mortgage- backed securities, according to Peter Hooper, chief economist at Deutsche Bank Securities Inc. in New York. The two programs have helped stabilize real-estate demand, with new-house sales rising 9.6 percent in July from the prior month, the most since 2005.

Ending these efforts may stifle the housing rebound by depressing sales and pushing up both mortgage-backed bond yields and interest rates on home loans, even in the face of the record-low zero to 0.25 percent short-term rates the Fed has engineered, said economist Thomas Lawler. A weaker housing market would likely dampen the economic recovery and undercut shares of builders including Fort Worth, Texas-based D.R. Horton Inc. and Miami-based Lennar Corp., that have risen 40 percent this year, based on the Standard and Poor’s Supercomposite Homebuilding Index of 12 companies.

“Things could get ugly,” said Lawler, an independent consultant in Leesburg, Virginia, who spent 22 years at Fannie Mae, a Washington, D.C.-based government-controlled mortgage- finance company. “We could be facing a triple whammy at the end of the year: the expiration of the tax credit, the end of the Fed mortgage-buying program and rising foreclosures.”

Major Test

This is the first major test of policy makers’ ability to coordinate exit strategies as they seek to wean the economy off government support, said Brian Bethune, chief financial economist of IHS Global Insight, a forecasting company in Lexington, Massachusetts.

They have already acted separately, with the administration ending its $3 billion “cash-for-clunkers” automobile trade-in program on Aug. 24 and the Fed starting to wind down its purchases of Treasury debt, which totaled $285.2 billion between March 25, when the initiative began, and Sept. 16.

The 55-year-old Bernanke and his colleagues, who meet tomorrow and Wednesday to map monetary strategy, discussed “tapering” off the Fed’s purchases of mortgage-backed securities and housing-agency debt at their last gathering in August, according to the minutes of that meeting. No decision was made by the central bank’s policy-making Federal Open Market Committee.

Mortgage-Backed Securities

Under the current program, the Fed is scheduled to buy up to $1.25 trillion of mortgage-backed securities and $200 billion of agency debt by the end of the year. So far, it has purchased $862 billion of the former and $125 billion of the latter.

A trio of Fed presidents — Jeffrey Lacker of Richmond, James Bullard of St. Louis and Dennis Lockhart of Atlanta — has publicly raised the possibility the central bank might not spend all the money authorized for the mortgage-backed securities. Lacker questioned whether the economy needs the additional stimulus in an Aug. 27 speech.

New York Fed President William Dudley, who is vice chairman of the FOMC, has sounded more cautious.

“The market expects us to complete these programs,” he said Aug 31. “To contradict that market expectation is a pretty high hurdle.”

Abrupt Stop

An abrupt stop might push up mortgage rates by a half to one percentage point, said Hooper, a former Fed official. Tapering off — by reducing weekly purchases and stretching them beyond the end of the year — would have a more muted effect, pushing rates up by at least a quarter percentage point, he said, adding that the Fed may announce just such a strategy after its meeting this week.

Mortgage rates for 30-year fixed home loans averaged 5.04 percent in the week ended Sept. 17, down from 5.07 percent the previous week, according to McLean, Virginia-based Freddie Mac, a government-controlled mortgage-finance company.

Borrowing costs for home buyers are relatively high based on the historical relationship with the Fed’s target rate for overnight loans between banks, currently at zero to 0.25 percent.

The yield on the benchmark 10-year Treasury note is 3.22 percentage points more than the federal-funds rate, compared with an average of 1.45 percentage points during the past 20 years, according to data compiled by Bloomberg. Thirty-year mortgage rates average 1.69 percentage points more. While that is down from 3.19 percentage points in December, it is still above the average of 1.4 percentage points for this decade before the credit markets seized up in the second half of 2007.

Fed Purchases

The Fed’s purchases of mortgage-backed debt so far this year have dwarfed net issues of such securities by Fannie Mae, Freddie Mac and government-run mortgage-bond insurer Ginnie Mae, which totaled about $440 billion through the end of August, said Walt Schmidt, a mortgage-bond strategist in Chicago at FTN Financial.

Once the Fed exits the market, the spread between yields on mortgage-backed debt and Treasury securities will have to rise, perhaps by a half percentage point, in order to attract other buyers, he said. The spread now is about 140 to 145 basis points, down from around 215 at the start of the year.

“One of the key linchpins Cialis Without Prescription to the restabilization of our economy is getting housing back,” said Laurence Fink, chairman and chief executive officer of New York-based BlackRock Inc., the largest publicly traded U.S. money manager. “There is a great need” for the Fed to “continue to invest in the mortgage market right now,” added Fink, 56.

Crucial Extension

A number of Washington-based organizations — the National Association of Home Builders, the National Association of Realtors and the Mortgage Bankers Association — say an extension of the buyer’s tax credit is also crucial.

Lawrence Yun, chief economist of the realtors’ group, estimates that about 350,000 home sales through August were directly attributable to the tax credit of up to $8,000 for first-time buyers. People buying their first homes accounted for 43 percent of sales since the credit became law, up from 32 percent in the six weeks prior to its passage, according to Washington-based Campbell Communications Inc.

Treasury Secretary Timothy Geithner, 48, called signs of stabilization in the U.S. housing market “very encouraging” and told reporters on Sept. 17 that the Obama administration will take a “careful look” at extending the credit.

‘Slim’ Chances?

Congress may not pass an extension; the chances “seem slim,” said Mark Calabria, director of financial-regulation studies at the Cato Institute in Washington and a former staffer on the Senate Banking Committee. Public opposition to increasing the federal budget deficit is high, and there’s little appetite on Capitol Hill for finding spending cuts to offset the cost of the tax credit, he said.

The deficit will total $1.6 trillion this year as revenue falls and the government spends at the fastest pace in 57 years, according to the nonpartisan Congressional Budget Office.

In a sign of the public’s concern about the deficit, 62 percent of people surveyed in a Sept. 10-14 Bloomberg News poll said they would be willing to risk a longer-lasting recession to avoid more government spending.

The impact of terminating the tax credit will show up first in the new-home market, said David Crowe, chief economist of the home-builders’ association.

“It takes at least four months to build a house, and you need to buy it before Dec. 1 to qualify,” he said. “If you haven’t started building it by now, it’s too late.”

Housing Starts

Single-family housing starts fell 3 percent in August to a 479,000 annual rate — the first decline since January — according to seasonally adjusted figures in a Sept. 17 report from the Commerce Department.

Residential construction and home sales led the way out of the previous seven recessions going back to 1960, according to David Berson, chief economist of PMI Group, a mortgage insurer in Walnut Creek, California. Real-estate sales fuel consumer spending, which historically accounts for about 70 percent of gross domestic product, he said.

“Housing has been the sector of the economy with the largest multiplier effect,” said Berson, former chief economist at Fannie Mae. “Whether buying new homes or existing homes, people tend to fill them up with things: new furniture, new appliances, new window coverings.”

Recovery Signs

To be sure, some economists are betting the housing recovery is here to stay. The market has “clearly bottomed,” said Dean Maki, chief U.S. economist for Barclays Capital in New York.

Even some of the optimists are hedging their bets given how dependent the market has been on government and central bank support.

“I’m right in there with the rest of the cheerleaders, but there are no historical anecdotes, no historical data points to use for this,” said Lewis Ranieri, the 62-year-old mortgage- bond pioneer who is chairman of New York-based Hyperion Partners LP. The U.S. housing market is “still very fragile.”

As Values Decline, Pension Funds Jump Into Real Estate

NEW YORK — The Queens Center Mall doesn’t seem to have followed the dour shopping-center story line of this recession.

Sales per square foot actually ticked up in 2008 to $876, and year-end occupancy stood at 97.5%. In the food court, 20-year-old shopper Mario Ontaneda, wearing a cap and jeans he purchased from stores in the mall, said: “I need to save up, but I’m constantly buying stuff.”

The strong performance of Queens Center Mall, located in New York’s borough of Queens, helps to explain why Cadillac Fairview Corp. agreed to pay $150 million and to assume $167 million in mortgage debt to acquire a 49% stake in the mall last week. Cadillac is owned by the Ontario Teachers’ Pension Plan. Macerich Co., the Santa Monica, Calif., real-estate investment trust, sold a stake in the one-million-square-foot mall as part of a broader plan to reduce debt.

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Anton Troianovski/The Wall Street JournalCadillac Fairview acquired a 49% stake in the Queens Center Mall in New York for $150 million.

prescription drugs without prescription border=”0″ alt=”Queens Center Mall in New York” hspace=”0″ width=”19″ height=”19″ />

The deal is among a few early signs that pension funds, a huge source of real-estate capital, are looking at new property investments even as they lick their wounds from past deals.

A day after the Queens Center deal was announced, the California Public Employees’ Retirement System said it had closed a $463 million deal to buy a stake in 86 shopping centers around the U.S. from Macquarie CountryWide Trust of Australia.

Queens Center was Cadillac’s first U.S. real-estate purchase since 1999. The company owns about $15 billion of mostly malls and office buildings in Canada, the U.S. and elsewhere.

“We’ve looked at, literally, billions of dollars worth of transactions and bid on several of them, but we haven’t been successful from a pricing perspective for a long time,” Cadillac Vice President of Investments Andrea Stephen said in an interview.

As property values fall, investors around the world are starting to pay attention to the U.S. market. Macerich said it expects to close two more joint ventures in the next two months as the publicly traded real-estate investment trust tries to reduce its $7.9 billion debt load. Chief Executive Art Coppola said in a conference call on Tuesday that a big U.S. pension fund and an international sovereign-wealth fund are the lead contenders to join those ventures.

Dropping property values and rising stock markets also are giving institutional investors like Cadillac Fairview more flexibility in making new real-estate investments. In the wake of the stock-market crisis last fall, many institutional investors were trying to reduce their exposure to real estate because of the “denominator effect.” With equity portfolios losing value, and appraisers slow to mark down commercial property, some pension funds and college endowments found themselves with more real estate on their books than the percentage approved by their boards. Now, with stocks up and real estate down, that balance is starting to move back in line.

“Deals that make sense are pretty few and far between,” said Martin Rosenberg of real-estate investment consultant Townsend Group. But “with the denominator effect abating, a lot of investors are working to find targeted ways to put capital to work today and to position capital to be deployed quickly as pressure on sellers continues to build.”

The danger is moving too soon. Few commercial real-estate transactions are getting done, not only because they are hard to finance but also because it is unclear how much further the market will fall. Before last week’s transactions, there had been only three retail deals of more than $100 million this year, according to research firm Real Capital Analytics. By this time in 2008, there had been 15 such deals.

Analysts said Macerich got a decent price, selling the stake in Queens Center to longtime partner Cadillac Fairview at a capitalization rate just over 7%. Real-estate participants have been warning that the cap rate — annual net income divided by purchase price, a measure of how the market values real estate — could hit double digits for some properties as distressed landlords are forced to sell.

Source Article.

With housing prices still in the dumps, many Americans are finding themselves in the uncomfortable position of landlord.

Some have been forced to relocate for a job and can’t sell their houses. Others have moved, but are holding on to their previous homes, hoping for prices to rebound before selling. Many are finding that rent checks don’t come close to covering their mortgage payments.

Hard data are scant on how many homeowners are renting out their homes, but anecdotal evidence suggests numbers are up. In one indication of the trend: More homeowners are converting their homeowners insurance to landlord policies that cover the additional risks of leasing out a home. Allstate Corp., Cialis Online buy the second largest home insurer in the U.S., reported a 27% increase in conversions in the first quarter from the previous year.

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Stephen Voss for The Wall Street JournalHome away: Kyle Becker in front of his Virginia home, holding a picture of the Missouri house he now rents–reluctantly.

Ten Tips on Renting Out Your House

• Check with your co-op, condo or homeowners’ association about rules regarding renting out a unit.
• If you want to refinance the mortgage, do so before letting out the house, as not occupying the home may adversely affect your ability to do so.
• Research the market; and get a sense of vacancies and comparable rents in your area. Check with local real-estate agents or go to a Web site like Rentometer.com.
• Calculate your monthly expenses including mortgage payment, property taxes, insurance, etc., and see if you can charge enough rent to cover them, but remember expenses like repairs and maintenance are deductible against income.
• Consult IRS Tax Topic 414 at www.irs.gov and IRS Publication 527 for tax laws regulating rental income and deductions.
• Draft or obtain a residential lease agreement and stipulate your requirements for rent, security deposit, upkeep and rules; standard forms are available online from various sources, including Nolo.com.
• Check with state and local authorities for landlord-tenant and fair housing laws. Landlords generally are required to keep homes habitable and well-maintained and meet local codes, to disclose lead paint and, often, to maintain working smoke detectors.
• Do a thorough background and credit check on tenants, call references.
• Decide whether you will do maintenance yourself if you need a property manager, they charge 3% to 12% of monthly rent.
• Check with your insurance agent about converting to a rental housing policy for an average of $500 to $2,500 annually.

Sources: NOLO, USAA, AICPA and WSJ research.

“The number of rental homes available is greater today than it was a year ago due to the foreclosure crisis,” says Mike Nelson, current president of Rental Home Professionals Inc., a multiple listing service of rental homes owned by the National Association of Residential Property Managers in Chesapeake, Va.

In Frederick, Md., Realtor Jim Bass says that because of rising demand, a couple of months ago his real-estate group started offering property-management services, tending to the rented homes of absent owners. Mr. Bass says a client recently rented out his 4,700-square-foot house after failing to sell his home, which he listed for $790,000. Now a tenant pays $2,995 per month—a shortfall of $2,000 from the $4,995 mortgage payment. The homeowner “feels that two years from now, the market will improve to the point where he can recapture that,” Mr. Bass says.

More on Renting

Developments blog: Why you’re better off selling

 

Experts generally advise against becoming a landlord in hopes of recouping lost home value. In some hard-hit parts of the country, such as Florida, Nevada, Arizona and parts of Ohio, prices may not climb back to mid-2000s levels anytime soon. Landlords have to pony up money each year for property taxes, insurance, maintenance and repairs. Meanwhile, demand for rentals in many parts of the U.S. isn’t strong: Apartment vacancy rates nationally are the highest in more than two decades and rents are falling in some areas, compounding the difficulty of finding a good, steady tenant.

Homeowners who owe more than a house is worth in very depressed areas may be better off selling even in a short sale, whereby the bank agrees to accept less than the full amount owed on the mortgage, says economist Edward Leamer, director of the UCLA Anderson Forecast. Your credit rating takes a serious hit, but, he says, “better to take your losses and move on.”

Kyle Becker, 27 years old, and his wife didn’t feel they had much of a choice in becoming landlords. The couple and their infant son moved from Columbia, Mo., to Winchester, Va., last year so that Mr. Becker could attend pharmacy school at Shenandoah University.

Before they moved, they listed their three bedroom, two-bath ranch-style home in May 2008 for $139,000. They had bought it in 2005 for $110,000 and put $30,000 into roofing and siding. By February, they hadn’t received a single bid.

“We had only seven lookers over the course of a year,” Mr. Becker says. Meanwhile, the couple was paying $1,200 a month in rent for a Virginia house. Last spring, the Beckers finally leased the Missouri house for $675 a month—$225 less than their mortgage payment.

Because the home was no longer owner-occupied, Mr. Becker was unable to refinance his 6.1% mortgage when 30-year rates dipped below 5% briefly.

If he had to do it all over again, Mr. Becker says, he might have chopped the price of his Missouri house, where sales have been stagnant—with the exception of “distressed” properties in some stage of default.

The calculation isn’t the same for all homeowners. Those who have paid off their home or have a small mortgage balance may be able to wait out the market. And there are pockets of the country—Houston is one—where home prices haven’t fallen as hard. Some homeowners may want rental income to supplement retirement savings.

Still, they may be shocked by the costs. Teshika Holmes, 36, says she received no bids for her three-bedroom house in Huntsville, Ala., after a job loss forced her to relocate to Montgomery, Ala. She’s renting it out for about $800 a month.

Ms. Holmes hired a property manager who charges 10% of the rent. Typically rates run from 3% to 12%. She also pays an increased premium of $500 a year for landlord insurance. Among other things, a landlord policy covers the loss of rental income if a fire makes the house uninhabitable. It costs about 25% more than a standard homeowners policy, according to the Insurance Information Institute.

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Mustafah Abdulaziz for The Wall Street JournalKaren McIntyre and her 3-year-old son near the property she rents out in Pennsylvania.

Ms. Holmes says she has negative cash flow each month from her Huntsville house, but the rent allows her to stay current with her mortgage and preserve her good credit. “The only thing I wanted was the house note paid,” she says.

Some homeowners are renting out their homes because they live in areas where a handful of distressed sales have skewed home prices downward. Economists say homeowners who have equity in such homes may be right to delay selling, as sales have started picking up. However, they should be realistic: Sales of lower and moderately priced homes are recovering faster than homes at the upper end, and prices may not rise that much in the short term.

David Richter, of Chicago suburb Wheaton, Ill., says he rented out his home because he was receiving low bids. “There were plenty of lowball bidders,” says Mr. Richter who moved to a smaller home in Wheaton. “We have enough equity that we felt we were better off riding it out.”

Before doing that, homeowners should consider the financial realties. Generally, utilities, maintenance and repairs run higher with tenants than when the owner occupies the house. Collecting enough rent to cover the note on a home purchased at the height of the housing boom may be impossible.

Rental income is taxable, but can be offset with business expenses–including mortgage interest, real-estate taxes and homeowners insurance–and depreciation. Expenses in excess of rental income also can be deducted, up to a limit.

Renting for an extended period can eliminate or diminish the value of capital-gains tax exclusions. Federal tax law requires you to live in the house at least two years of the previous five in order to qualify for the full capital-gains tax exclusion upon sale of $250,000 for a single person or $500,000 for a couple, with some exceptions.

Karen B. McIntyre, 46, a certified financial planner in Lower Gwynedd, Pa., a Philadelphia suburb, says she and her husband have been renting out their former home after they bought a newly built home nearby because of its better location and excellent price. “We may also lose some of the capital gain exclusion, but expect the increased selling price (of the older home) will make up for the decrease in capital gain exclusion.”

If you want to figure a good rate look at the unemployment rate in the areas you are interested in, for Portland Oregon area that rate is 13.2%.  It makes sense vacancies should trail and track the unemployment numbers especially for a blue collar working class building.  Well enough of my rant here is an article from the latest issue of Multifamily Executive.-Sean

Rental Owners Report Soaring Vacancies: People Who Lose Homes Move in With Families Instead of Renting Apartments

Aug. 28–Southern Oregon Rental Owners Association reported a 9.4 percent vacancy rate for June, the highest level in the 20 years that the organization has surveyed its members.

“We knew some of our renters couldn’t afford it and moved in with families,” said association manager Roberta Claudson of SOROA, which consists of rental owners with anywhere from a few rentals to hundreds of properties. “We thought it would be balanced out by people who had lost their homes. But apparently, they’ve moved in with families, too.”

She said multiple-family housing has been hit harder than houses.

“Houses are staying good,” Claudson said. “But it’s the apartments that are seeing it; the ex-homeowners still want a house.”

In the report for June — the most recent month for which figures were available — SOROA members said they had 414 vacancies out 4,392 reporting units. One year earlier, the vacancy rate was 5.5 percent. It was 5.9 percent in the summer of 2007 and 2.3 percent in 1999.

The local vacancy report represents only Buy Viagra Online Without Prescription the owners who reported figures for the association’s June meeting.

Nationally, rental owners are finding themselves with even more empty units. The vacancy rate increased to a record 10.6 percent in the second quarter, according to the Census Bureau.

HomeTownRent of Chapel Hill, N.C., anticipates that the rate will spike at 11.5 percent and slowly decline toward 8.5 percent by 2012 as excess housing and apartment inventory is soaked up by additional renters.

The Census Bureau estimates there are more than 80 million people living in nearly 40 million rental units. There are more than 1 million vacant rental properties than in 2000.

SOROA also announced it has moved its office, overseen by association coordinator Sharri Dallas, to Suite 10 of the Estate Building, 10 Crater Lake Ave., Medford.

The association’s new hours are noon to 4 p.m. Monday through Friday. The telephone number remains 842-7676. However, there is a new fax number, 858-3081.

SOROA’s next meeting is 6:30 p.m. Sept. 15 in the conference room of the Housing Authority of Jackson County, 2231 Table Rock Road. Diane Hess of the Fair Housing Council will be the speaker.

It seems to me we are hearing the same old thing from the experts at the conference, hurry up and get ready because now is the time..-
Sean

Halford joined moderator Jeff Moore, senior managing director of CB Richard Ellis Inc.; Brandon Birtcher, president and CEO of Birtcher Development & Investments; Guy Johnson, president of Johnson Capital; Martin Pupil, executive managing director of Colliers International; and Tom Sherlock, senior managing director of Buchanan Street Partners during the event’s opening panel.

“I think that cleansing is healthy, but it is going to be a painful cleansing,” said Halford. “But if you can get your mind past that, and if the numbers or values get low enough, people will start sniffing around investing, whereas 90 days ago, they wouldn’t dare even talk about investment.”

As with many challenges, positive things do happen and as the bottom becomes more and more clear, there will become more opportunity, agreed panelists. Sherlock sees tremendous opportunity ahead for special servicers. “We have many zombie banks walking around and a lot of them need to be put out of their misery because it has the potential to lead to a worse problem.”

In terms of loans, money is out there and it is a lot more than people think, explained Johnson, who–along with other panelists–prefers to look at the glass as half full. “But the dumb money is gone for the time being,” he said.

On top of the loans maturing in the next few years, while there is capital out there, the demand for capital is just going to go through the roof, said Sherlock. “A lot of it isn’t going to get refinanced and is going to become bank-owned real estate.”

Although some say inflation could help be the savior for value, Halford said it’s not coming fast enough. “There’s a gap…the combo of all the debt maturing, and not enough debt origination, and I don’t think inflation will come fast enough to help us close that gap, but I wish it would.”

Colliers’ Pupil–who is looking forward to 2010 after sitting on the sidelines for 12 months–agreed at cleansing creates activity and helps get us to the bottom. The bottom Buy Generic Cialis is close by, he explained, but not here just yet due to all the outstanding loan issues and capital. “It is starting, which is encouraging. I think we are starting to see a shift,” he said. “Rents have dropped significantly and everyone is a little more realistic.”

In Orange County, the wave has hit rapidly and hard, said Strockis, who urges all landlords to get out of the denial phase. “The business model is changing and the asset manager has become real important,” he said. “Property owners, banks, and investors are really going to look to asset managers to play a big role in recovery.”

The only people who are really doing something right now in this market are the people that have to do something, noted Manley, who’s mantra for opportunity is that the earlier a tenant looks at their lease, the more opportunity they have. “Now is a time to restructure.”

Moderated by Gary Tenzer, senior director, principal and co-founder of George Smith Partners, panelists included: Scott Bottles, managing director of Wells Fargo Bank; Jess Bressi, a partner at Luce Forward; Steve Huntley, a managing partner at Huntley, Mullaney, Spargo & Sullivan; Scott Lamontagne, a regional manager at Marcus & Millichap; and Ellen Marshall, a partner at Manatt, Phelps & Phillips.

Huntley advises his clients to communicate early with a lender to let them know as soon as possible that things aren’t going to continue the same due to the current climate. “It’s better not to spin it, and just give it to them straight.”

Bressi said it is important to know what type of lender you are dealing with. “Before you even decide whether you are going to have a workout, it’s important to understand the language the lending is speaking, or you won’t be able to read it.”

RealShare Orange County is one of an annual schedule of RealShare events that are produced by Incisive Media’s real estate division, which is the publisher of GlobeSt.com, Real Estate Forum, Real Estate Southern California, and a host of other offerings. Incisive Media is a leading provider of specialized business information for commercial real estate, legal, financial services, risk management and marketing professionals.

IRVINE, CA-”I would guess that over the next 24 months, you will see a lot of real estate trade hands.” So said Town Hall panelist Bill Halford, president and CEO of Bixby Land Co. at the seventh-annual Incisive Media RealShare event, held Thursday in Irvine. The consensus from panelists at the half-day event, which attracted more than 200 attendees, was that “we are moving forward and are entering a time of cleansing,” as in getting rid of all the bad loans/assets on the books of banks and investors… and “it isn’t necessarily a bad thing.” The Office Update panel, titled, “Down But Not Out,” echoed that sentiment that it is a great time to be a tenant in this market. “It’s almost a perfect storm,” said panelist Jeff Manley, managing principal of CresaPartners. Manley was joined by moderator Jeff Ingham, executive vice president of Jones Lang LaSalle; Cindy Burger, a managing director with CBRE; John Combs, principal at RiverRock Real Estate Group Inc.; and John Strockis, executive managing director of Voit Real Estate Services. At the conference’s closing panel, “The Good, the Bad and the Ugly,” panelists discussed the importance of being straightforward with a lender for a better result.

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