Just How Valuable are “Property Values”?

It’s a little bit like real estate’s Rite of Spring: ‘for sale’ signs sprouting on lawns like new flowers finding Savannah’s April sun. And since we are used to hearing how “property values” are still battling to rebound, this season the ‘Sale’ part of those signs is likely to be taken more literally than usual.

But since “property values” seems to be such an important measure, what is really behind the term? Who determines Savannah’s “property values” – and how?

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We aren’t just talking about some abstract Econ 101 textbook definition of economic principals. We are dealing with a family’s major investment – their current or future home. So it’s valuable to make a mental distinction between that notion of ‘property value’ and other, less abstract terms. Like “price”.

In a nutshell, “property value” can mean different things to different people -- and even different things to the same person! To a homeowner, for instance, it can be the amount of money he or she can sell it for (its “market value”), or the value it has if he or she don’t sell but continue to use it as a place to live (its “use value”). To a lender, it usually means current market value; to a pure investor, property value might be its future value or its liquidation value, -- which would also vary depending on whether they are thinking of some possible future forced liquidation or an orderly liquidation. In other words, “property value” is a term that can mean so many different things that it is not terribly useful.

So the next time you hear a commentator talking about “rising property values” or “sinking property values,” be ready to take what they are saying with a grain of salt…or possibly a shaker-full. Property values are not anything like “price”, “asking price,” or “selling price.” Those terms can have real numbers attached!

In case you have been thinking about buying or selling a Savannah property, give us a call. Our agents are here at the office -- and the market’s ready!

Warren Buffet Now: “Buy!”

Since everyone in the country knows who Billionaire Warren Buffet is, it’s fair to call him the most prominent investment expert around. So, when Mr. Buffet offers his opinion of the housing market as he did during a recent interview, Savannah residents considering whether to buy a home (or sell one) had good reason to pay attention.
 
Mr. Buffet is definite in saying that believes now is a good time to enter or re-enter the housing market. It may not mean that it makes sense for everyone in Savannah to go out and buy a home -- but what he does say is more than a little encouraging:

1. Buffet believes that real estate is a good investment right now because of the undeniable price factor. In an interview with CNBC, he even singled out the single-family home as a good investment opportunity. Would he personally buy a home right now? “…A couple hundred thousand” would be about right…if only he had a way to do it!

 

2. According to the Oracle of Omaha, real estate is now a good long-term investment. In addition, with 30-year fixed rate mortgages below 4%, this looks like a particularly propitious time to buy a home for the long term.

3. He also points out that there is a lot of real estate available for sale. With such a large inventory available in all over the country, Savannah buyers join others throughout the country in having an unusually wide number of options available.

Even though Buffet’s prognostications on the housing market have not always been spot-on, his track record as an investor speaks for itself. He points out that while some of these same positives are true of other investments, single-family investors have a built-in advantage over institutional competitors. When we buy a home, it’s likely to be our single largest investment. To institutions, that same purchase is too small to consider. Less competition means more opportunity.

When someone like Warren Buffet says he would invest in hundreds of thousands of homes if only it were feasible, that does have a way of making anyone pause and think.  In other words, in case you have been considering whether now is a good time to buy a home or Savannah income property, go ahead and call us today. Let’s talk over the prospects!

FHA Loans Actually Aren't

By the end of February, The Wall Street Journal felt confident enough to print a headline shrieking, “At Last! Banks Rev Up Lending”. But that doesn’t mean that FHA loans aren’t going to continue to be important to the Savannah real estate market. To be perfectly clear, let’s get some terms straight. “FHA” stands for the Federal Housing Administration. And “FHA Loans” aren’t.

 Aren’t loans, that is.

 The term “FHA loans” actually refers to loans made by entities other than the FHA. If that isn’t contradictory enough, the banks and other loaning entities are called ‘FHA Lenders’ (the ones who aren’t, actually). The reason behind the naming contradiction is that these mortgage loans are only guaranteed by the FHA – that is, insured by it, not funded by it. 

The FHA offers to act as an insurer in order to lower the risk to the actual mortgage lender. Since the availability of FHA insurance makes it less hazardous for those lenders to grant people mortgages, the ultimate effect (and intention of FHA loans in the first place) is to make it easier for potential homeowners to obtain a mortgage, thereby freeing up the kind of large capital that mortgage loans usually involve. FHA loans help ‘unlock’ the real estate market, allowing people to move in and out of residences more freely.

FHA loans can be a good deal for some people, but as with most financial alternatives, there are both pros and cons to the program.  A key advantage of FHA loans is that potential buyers with marginal credit scores can more readily qualify to get them. FHA loans also carry relatively low interest rates, and because they are based on the good credit and massive financial power of the federal government (AKA taxpayers), down payments and closing coats for FHA loans can be kept low.

FHA loans are quite common, yet not a good fit for everyone. For home buyers with good credit scores, other private mortgage insurance options are available. In some cases their premiums may be lower than comparable FHA premiums. As is well known, the FHA also places a limit on the size of a mortgage it will guarantee. If your transaction involves a larger “jumbo” mortgage, FHA loans won't be available.

When you are thinking about buying a home, being aware of current FHA rules as well as Savannah mortgage insurance rates is a good place to start. Our office is here to help you with these and all of the other current intelligence we take into account when helping you find a property and structure the most favorable terms for your new home purchase.

Million-Dollar Foreclosures Up, Midrange Down

It’s not what you would guess, but there it is: according to CNNMoney, the firm that keeps track of foreclosures has reported that the foreclosures on million dollar properties is growing while foreclosures for midrange properties are beginning to drop.

It’s been five years since the housing market began its precipitous drop. During that time, overall growth in foreclosures has been front and center for headline writers in Savannah and throughout the rest of the nation.  But only now are foreclosures among some of the nation’s wealthiest homeowners drawing attention. The foreclosure rate is rapidly increasing in this group --and at a faster rate than for the rest of the United States. 

Surprising also is that many of these wealthy families are doing so voluntarily.

RealtyTrac is the firm quoted by CNNMoney. Its data show that last year upwards of 36,000 homes valued at $1,000,000 or more were foreclosed upon or served with a notice of foreclosure (default). Even though that is fewer than 2% of all foreclosures nationwide, it still represents a greater number of foreclosures than seen in earlier years. For wealthier homeowners who actually could continue to make mortgage payments but decide not to, it can be a business decision. Financial experts call such foreclosures “strategic defaults.”

RealtyTrac also found that the number of foreclosures on properties valued at $1 million or more has risen by 115% in the last five years, and twice as fast for those worth more than $2 million. However, among mid-range homes – those valued between $500,000 and $1 million -- foreclosures actually dropped by 21% during the same period.

It seems that the housing crisis may be ending from the bottom up, with borrowers who purchased lower-cost homes now beginning to emerge from the storm, even as some of the wealthier families (admittedly a very small percentage of them) go through the same trial. 

The silver lining?  If you are looking to buy a home in the $1,000,000+ range, now could be your window to snag a once-in-a-lifetime value!  Contact us if you would like to see a complete picture of all the Savannah area properties for sale this March.

Anticipating the Savannah Spring Buying Season 

It has been a long time since truly credible sources dared to combine the word ‘optimistic’ with anything like ‘Home Sales Buying Season’, but last week the National Association of Realtors’ Chief Economist, Lawrence Yun, sounded like he is ready to start talking that way.

 

This spring the Savannah area residential real estate outlook is being buoyed by an upward trend in the national “pending home sales” numbers. Yun points to January's pending home sales as reaching the highest level since April 2010. The number rose from 95.1% in December 2011 to 97% this January – a 2% increase in one month.

Spring Azaleas Blooming in Savannah

Compared year-over-year, the January home sales level rose 8%, from 89.9%. The significance may be major. Pending sales are defined as homes that are under contract but have not yet closed. They are a leading indicator of the housing market since they represent future business that will only be confirmed statistically in the months ahead.

January's figures are significant on two fronts. First, year-over-year comparisons are true apples-to-apples comparisons -- and 8% represents the kind of substantial gain that can make headlines. Moreover, the comparison to April 2010 is also encouraging.

The new figures are the highest since April 2010, and that number was artificially inflated by the rush of buyers seeking to qualify for the then-impending expiration of the homebuyer tax credit. Yun is optimistic that these newest figures will translate into what he terms a "meaningful gain" this year as the market continues to stabilize.

“Meaningful” indeed! If Yun’s projection that once credit conditions normalize home sales could rise by 15%, it will also become likely that Savannah prices will complete their turnaround and head…well, let’s just cross our fingers and think the obvious: “UP!”