Do you remember what a home flipper is? Flash back a couple years. This is someone who speculates on a home purchase, makes some upgrades and style changes to the home and then puts it back out for sale for a profit. More over, buy a new house and sit on it for a couple of months and put it back out for sale for a profit. Think HGTV. This investment plan is so 2006 and left a number of speculators totally broke. It's now 2009, so let me introduce you to floppers.

If you read the Idaho Statesman today they wrote a bit about the local housing market. Here's a link to the story "Home sales rise while the number of houses on the market declines."

In summary, the median housing price has fallen by over $50,000 (and continues to fall) and the number of sold homes is down 50% from the peak (what a peak that was!).

How are improved sales possible in a down market? What's the bigger picture?
-Large number of foreclosure re-sales. In the past year, they account for 2010 of 7677 (26%) transactions for Ada and Canyon counties.

-Short sales were also a big part of the equation amounting to 1123 of 7677 (14%).  

-Government programs including the $8,000 tax credit created buyer incentive.

-Federal Reserve buying GSE MBS – no one else is buying them.

-Artificially lowering mortgage rates (hovering around 5% while 40 year average is closer to 9%)

With all the above, we are merely treading water at best.

While the inventory has fallen, the make up of this inventory is in big trouble. 34% of the homes offered for sale are attempting to sell short. These sellers aren't making their mortgage payments and are trying to convince their lender(s) to accept a sales price for less then owed. Would you care to guess the level of negative pricing pressure this trend will apply to future pricing?

Another incredible statistic for our local housing market is the fact that over 50% of the homes offered for sale are vacant. FIFTY PERCENT! Homes are to be lived in. They aren't meant to be empty. Vacant homes are a liability and degrade quickly. Think of it as furniture in the rain with no one around to keep an eye on it.

The year is coming to a close in less than two months, so here's a snap shot of where we are today.

The housing inventory has fallen considerably; we are now down to aproximately 6,600 housing units for Ada and Canyon counties combined. This is all housing --including mobile homes, townhomes and condos BUT, excluding plex's and apartments. The high point in our housing inventory has been apx 8,400 units spring of 2008 and the low point was 3,400 units spring 2006. With this historical perspective, you could guess that we are approaching an equalibribium so long as the housing mix and price point isn't out of wack. 

 There is more to this story. The inventory is actually lower than stated above. Here's why: There are a lot of short sales out there and our MLS accounts for short sales in a way that keeps them actively appearing in the market even though they have a contract on them.

You see short sales require a third party approval --the bank with the loan needs to agree to sell the house for less than they are owed. There are apx 1,000 listings in this situation. These are listings that are attempting to sell short and have a contract on them. The bigger point of this is knowing the number of these sorts of listings that accually close each month. ANSWER: apx 100. So there is a 1 in 10 chance that a short sales will close if it has a contract on it. More too the point is the median price of $150,000 for these closed short sales. My gut reaction to this result is thinking banks are more willing to take a loss on lower priced real estate than higherend real estate. The obvious reason correlates to the size and percentage of loss related to the loan outstanding."DO they take a 20% loss on $150K or a 50% loss on $700K?" HUMMM, what would you do?

Main stream media is spewing all kinds of garbage these days convincing even themselves that the worst of the economy is behind us... after all, debt is a mirage so long as you think positively right?. What-EVER!

What are you reading these days to get a clearer picture of reality? 

Here are a couple URL links for you to gain some assemblance of reality.Read at your own risk.

http://bailout.propublica.org/

http://www.doctorhousingbubble.com/

http://market-ticker.denninger.net/

Lastly, here's a link looking backwards in time. I just love this one because of the historical mania and amazing parallel. http://newsfrom1930.blogspot.com/

I have others worth following. If you want them, just flick me a message.

Most would agree that there is a load of volatility in today's real estate market. Just look around, there are some serious price swings in real estate. Trying to figure out what's a good buy and what's not requires that you keep a very close watch on the most recent transactions and then dissect those deals so you can see what is happening. Here's a little glimpse into some of the analysis that I've been doing to help my clients see the light. 

Since short sales and REO bank owned real estate are leading the market pricing down, it's helpful to know how many of them are selling. 

 Below is a simple spreadsheet breaking down each of the cities in our valley and showing the past three months of sold homes by unit and by percent that were sold short or as an REO. 

The first thing to realize is that REO sales as compared to short sales are selling much better. REASON: THEY ARE BETTER DEALS! Trying to get the best buy on a short sale is harder to achieve. This is because lenders asked to approve short sales are over burdened and constantly applying a metric for acceptance against foreclosing the property, and this effort is chasing a declining market. In other words, the deal they are willing to accept is based on yesterdays news which is better than today's news. 

The second point I want to make here is the combined percentages for each city. With exception to Boise, all the other cities are roughly 1/2 distressed sold. At this rate, we're not likely to find a bottom anytime soon. Foreclosure filings are continuing to grow and the buyer expectation for super good deal isn't likely to change anytime soon. Plus, the cost of money to buy is on the way up. lastly, the job market is going to remain weak.

So if you are going to sell, you better put the right price on it. If you are going to buy, you better know what's the right price is. This takes more than an educated guess. There are a lot of experts out there that have lost money in this market. I hope you won't be one of them. 

Here's some great analysis for you to get you mind around our current market.

Do you think it is a good idea for first time home buyers to have a chance at buying a home if they don't have any money for the down payment or closing costs? Should it be the responsibility of the Federal Government to supply that assistance?

Hey, have you heard of the $8,000 tax credit that everyone is talking about? It's for first time home buyers. It's a way to get some money from the government (may as well... the banks are). Seems that this give-away in combination the warmer weather has brought out the buyers. I've been working with just such an individual. Here's an assessment of market conditions related to what he's after.

 We've been shopping for a home priced under $130,000 that has the following features:

• Minimum 3 bedrooms
• Min 2 baths
• Min 2 car garage
• Newer than 1995
• At least 1,000 sq/ft
• Boise or Meridian location (forget about Boise, it's out of the price range)

Everyone wants a deal, right? So the best deals are going to be bank owned properties; foreclosures (called REO's). Another option could be to offer on a short sale properties and hope the bank owning the existing mortgage is willing to forgive the seller for part of the loan they can't repay at closing.

It turns out that this segment of the market is just getting hammered by the buyers.

You see, In review of sold transaction since 3/1/2009 with the criteria above, we can see what buyers have been able to get for their money. It's exactly our search criteria above. Obviously the market is becoming more aggressive in this segment for the reasons we've discussed. Consistently, buyers are paying $90 to $100 per sq/ft.

Statistically...
20% sold were sold as short sales.
50% were sold as REO bank owned. 

So are there any properties left to consider? YES. But it's getting thinner. There are only a few REO's left in this range and the short sales are going into contract. You'll need to pick through the list and likely make some adjustments to your want list. Start by looking for homes a little older than 1995. Increase the search to $140,000. Consider Nampa near the Idaho Center. Have some patience and wait for the next REO listing to onto the market. 

The deals are still out there and more to come, but the competition is heating up as buyer look to get a deal, a tax credit and a low rate.