Real estate is a dynamic market that reflects local, regional and national economic changes. The professionals at Windermere Real Estate-Capital Group, Inc. follow the trends that affect Idaho. From the number and value of homes sold in your neighborhood, to the latest ideas on selling your home or buying your dream home, you’ll find it here.

Check back often for the latest in what’s happening and how it may affect your home buying, selling and financing options.

While the national headlines give many indicators of where real estate is headed it is important to remember that real estate is local and what plays in Peoria or Phoenix typically won’t be relevant to the Boise metro area. 

 One area that is of interest to many who watch the market is how dominant a force “distressed” sales have become in driving prices and activity in our local market. For the purposes of this discussion a “distressed” sale is any transaction involving a property marked by the listing agent in the IMLS as “possible short sale”, “in foreclosure”, or “REO-Bank owned”.  The raw data comes from the Intermountain MLS (IMLS), but a local appraisal company, Hennessey Appraisals, has compiled and reformatted the data into a more easily digestible form and I would like to share and discuss some of that information here.  So how “distressed” is the Boise market?

14 month summary for Ada and Canyon Counties showing distressed and “typical” sales

Source IMLS & Hennessey Appraisals

What really stands out in these numbers, besides that they are very high, is how dramatically the percentage has risen since January 2009 and that since reaching very high levels in the spring of 2009 there has been little if any retreat in the percentages.   If one looks at the latest data broken down by area within the Treasure Valley you can begin to see where the highest concentrations of distressed properties are.  Some of this data is misleading however due to the small number of closed sales in a particular area.  However the pattern supports the theory that more established areas closer in to Boise show fewer distressed sales than areas south and west of the city that were built up primarily during the last boom.  Possibly more of the homes in those areas were originally purchased using sub-prime lending or by investors and speculators.

Source IMLS & Hennessey Appraisals

With a few exceptions the areas that have had the highest percentage of distressed sales also have suffered the largest drop in prices. While Ada County average sold price has dropped 11.8% in the same 14 month period as the distressed sale data covers, in the areas of the county that have seen higher percentages of distressed sales the drop in prices has been steeper.  Star (76.2% distressed sales) prices have dropped 21.8% in the 14 month period, while Eagle (67.9% distressed) has dropped 23.8%.

In Canyon County the overall rate of sales price decline has been 18.2% over the last 14 months while 69.6% of all closed transactions in February were distressed.  In Nampa (72.7% distressed) average sales prices have dropped 23.3%.

Another trend starting to occur throughout the valley is buyers gradually shifting away from short sales and towards REO and “typical” listings.  In the short term this is being propelled by buyers trying to beat the April 30 deadline for federal tax credits, knowing that it is unlikely that a short sale offer will be accepted in time.  This has led to an environment where multiple offers, bidding wars, and sold prices over asking are somewhat common on bank owned properties particularly at the entry level. As an example, in Ada and Canyon counties since February 15, of the 1084 properties that have gone pending 400 (37%) of them have been REO’s and 122 (11%) short sales. However of the active inventory of 6270 listings, 1877 (30%) are short sales but only 609 (9%) are REO’s .  While recent REO closed sales have averaged 97% of asking prices, prices on short sale listings that closed in the same period were only 93% of asking price.

Buyers in general are frustrated by the short sale process and have found prices on REO’s in many cases just as attractive as for short sales without much of the hassle.  Banks, who, under pressure from the White House, have been delaying foreclosures are expected to ramp up foreclosing on properties currently in default this year shifting additional inventory into the REO column.  The new HAFA guidelines going into effect April 5 are designed to streamline the short sale process.  It remains to be seen whether or not that will actually happen.  Regardless, most of the experts agree that 2010 will be a year the Boise market focuses on bank owned properties.  Good news for buyers.  Not so great for sellers of “typical” listings who find their primary competition is distressed property and whose appraisals also tend to reflect this reality.  One thing we can say with certainty– the market will continue to change rapidly and buyers and sellers, and their agents need to continually educate themselves as to the current state of affairs LOCALLY.  Please feel free to contact me if you have any questions on this information or would like me to update it for you.

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I‘ve been getting a lot of calls lately from potential buyers and investors asking that very question.  Have prices of easily rentable homes in Boise dropped to a level that makes them pencil out as cash flow positive?  The answer is yes…and no.

     As we are all aware, the mortgage crisis and the ensuing recession have all put downward pressure on housing prices both nationally and here in the Boise market.  The latest numbers for August 2009 indicate that single family home prices in Ada County have dropped 17.9% in just the last year and in many areas have dropped as much as 35-40% since the peak in 2006.  The current climate of near record low interest rates, readily available credit for well qualified borrowers, and relatively  low prices presents a unique opportunity for those with access to cash, whether they be seasoned investors, or those lucky enough to have saved up a nest egg.  Add to this that rents, while somewhat down, have held up much better than home prices and you can see why there is renewed interest in buying rental properties. 

    There are many, many ways to approach this question from in-depth analysis using several different measuring criteria such as Cap Rates, time value of money, GRM (Gross Rent Multiplier), etc. to the most basic.  Is there any money left each month after I make my payment and cover other expenses?   For the purposes of this discussion I will only be looking at single family residences, not apartments or multi-family houses.  If the answer is yes, then there is positive cash flow.  Obviously, this is the most desirable scenario.  However, especially in times when home values are rising, there are many investors who are willing to tolerate negative cash flow in order to build equity.  I believe it will be quite some time before home prices in this market begin to significantly appreciate so it makes much less sense to look at anything that isn’t cash flow positive or at least neutral, unless you have deep pockets and lots of patience.

     I spoke to Gary Stott, a loan officer with Waterstone Mortgage The Stonebrook Group here in Boise, to get a lender’s perspective.  A few basic things to consider before you decide that buying a rental makes sense now:

Almost all lenders will require at least a 25% down payment to provide competitive rates. 

You will also need closing costs of around 3% of the purchase price.

Rates are currently around 5.5% for this type of loan, but can change daily.

You must be well qualified. 

If you currently own a rental you must have a 2 year history as a landlord for the rental income to be eligible for qualifying you for the loan.  Banks will typically assume a 25% vacancy rate and deduct that from the allowable rental income.

Most lenders will limit you to a total of four financed properties (including your residence), although Fannie Mae is now allowing up to 10.  However the PITI reserves required by lenders increase dramatically for 5 or more properties.

Since the property will not be your principal residence you will not be eligible for the Idaho property tax homeowners exemption.  If the property you are buying currently has the exemption applied to it you will need to multiply the assessed value by the levy rate to determine what the approximate taxes will be.  This information is available from a qualified real estate agent or on line at www.adacountyassessor.org

There are other expenses which should be considered in your decision such as maintenance, repairs, vacancy, and management fees (optional).

So what are the magic numbers that you should look for to find properties that will pencil?  There is no simple magic formula because there are so many non-numerical variables, such as location, condition of the property, layout of the house, etc.  Most importantly in evaluating the property you need to try and determine, ‘How rentable is the property and how much will it realistically rent for?’  Rentability and rents vary by neighborhood, so thorough research is important.  You need to ask, ‘Who are the potential renters in this neighborhood?’ ‘What affect will things like proximity to large employers, the freeway, or schools have?’  You can also research what current rents are by talking to a qualified real estate agent, property manager, or by scanning such sites as www.CraigsList.org  and www.idahostatesman.com.  You can typically search these sites by neighborhood and type of house.

 But is there a simple litmus test the potential investor can use in today’s market here in Boise?  Depending on your investment and income goals there are some criteria that you can apply to “weed out” properties once you have determined the areas you want to focus on and what the expected rents will be.                                                                                                      1) Typically, the most “rentable” home is a 3 bedroom, 2 bath newer home with at least a 1 car garage.                                                                                                                                                     2) Rents will, of course, vary by neighborhood, but for our purposes, $800/month is a pretty reasonable number to use.                                                                                                                               

So one easy place to start would be 3 bedroom, 2 bath, homes with a garage where the PITI (Principal, Interest, Taxes, & Insurance) payment is going to be less than $800/month.  We assumed hazard insurance of $35/month ($420 annually) and taxes at $185/ month ($2,220 annually). 

       We figured $140,000 for a starting point. Of course these are only estimates and the actual numbers would be dependent on the specific property involved.   So I researched to see if there were specific properties available in the city of Boise that would meet our most basic criteria.  There were:

I had Gary Stott at Waterstone Mortgage The Stonebrook Group run some sample good-faith estimates for me to see if we could hone in on a price point that works. 

                                                                                                                                                                                                                                                                                          Based on Gary’s samples it looks like at an interest rate of 5.5% or lower the purchase price cutoff is around $130,000 and if the interest rate jumps to 6% then it is closer $120,000.  Of course, this is not the whole picture as no allowance was made for other expenses such as vacancy, repairs, maintenance, or management.  Nor does this consider that you are tying up anywhere from $30,000-35,000 in cash as a down payment in a market where values are not expected to increase anytime soon. 

     My conclusion at this time would be that if you can find a well located, easily rentable, property under $120,000 there maybe some marginal positive cash flow and that if you are able to hold the property for at least 3-5 years you may see some increase in the property’s value.  Given the relatively large amount of up-front cash required and the relatively low (if any) cash flow in a declining market, this is probably not the investment strategy for most.  However, compared to from 2005-mid 2009, the numbers are really starting to improve.  For those who are comfortable doing more detailed financial analysis of rental properties there are several web sites that offer easy to use programs to quickly analyze investment properties.  www.erealinvestor.com, www.realdata.com  (I suggest the REIA Lite Edition), and www.planease.com  are three that I am aware of.  And of course you can always seek the advice of a qualified real estate professional.

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Recently a business partner brought to my attention an article on Hispanics in Idaho.  I found the information very motivating with today’s economic conditions.  Recent studies show that Hispanics in Idaho increased in purchase power in comparison with Hispanics nationwide by a full percentage point, reaching 13.5% in 2008.

Hispanics play a large part in overall economic  growth, and are increasingly becoming more important contributors to the economy of Idaho and its businesses.  Furthermore, the Hispanic population grew by 5% in 2008, representing 10% of the total population in the state.  Pew Research Center shows that 60% of the 10% are homeowners/householders in Idaho and rank 3^rd in the nation. 

The statistics show that the influence of Hispanics will continue to grow in the future, and during the current recession, will continue to contribute to the economic growth of the state of Idaho.

Source: Idaho Department of Labor & Mirada Magazine

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It is hard to pick up a newspaper or turn on the news without hearing about short sales or the increase in foreclosures. As I talk with people about real estate, this is one of the areas that is probably a bit of a mystery.

Short Sales

In the vast majority of real estate transactions, when someone purchases a home they borrow money from a bank or mortgage lender to cover a portion of the purchase price. As security, the lender places a lien on the property in the amount of the loan. In order for the home to be sold and clear title issued to a new buyer, the lender has to remove the lien. Typically a lender removes this lien once the loan balance is paid in full. A short sale occurs when the net proceeds of a real estate transaction are less than the amount owed on the property. In a short sale situation, the lender must agree to accept less than the amount owed in return for removing the lien.

 A lender’s willingness to accept a short sale depends on several factors:

• The home owner has to display some type of financial hardship. They must submit past tax returns, bank statements, brokerage account documents, etc. Based on their review of a person’s specific financial situation, the lender will give preliminary approval for a short sale.
• All offers on a home in a short sale situation must be approved by the lender. While the person selling the home may agree to the offer, the lender must also approve the sale and agree to remove the lien. Getting approval from the lender can be a very time consuming and involved process. The biggest time consuming part of this process is getting the contract and associated paper work to the top of the stack. Lenders are dealing with so many short sales it is easy for your contract to get lost in the process. Once you are on the top, the lender will compare the contract price to a liquidation appraisal or similar value estimation. They will also compare the estimated net proceeds from this transaction to what they feel they would obtain under a foreclosure scenario.

Short sale transactions can take anywhere from 30 – 180 days to close. My experience this year is that the average is running close to 75 days. Given the drawn out nature of this process and the uncertainty associated with getting lender approval, many Buyers shy away from a home going through a short sale. As a result these homes are typically sold at a significant discount.

 Foreclosure

When a home owner falls behind in their payments, the lender can initiate the foreclosure process to gain full title to the property. There are very specific steps the lender must take as they work through a foreclosure. In Idaho, this process takes a minimum of 120 days. If the home owner has been approved for a short sale, they can still sell the home during this time period. If at the end of this period, however, the home owner is still in default an attempt is made to sell the property at auction. Typically the lender places a minimum bid on the property at the auction. If there are no buyers at this price, the property is taken over by the lender and becomes what is referred to as an REO property or Real Estate Owned.

 It is important to note that a home facing a short sale situation may not be in foreclosure. A home owner could very well be current on their payments yet still owe more on the home than it is worth.

 Deed in Lieu of Foreclosure

There are times when a home owner is facing foreclosure that they may opt to sign all of their interest in the property over to the lender in exchange for avoiding a formal foreclosure. The benefit to the home owner is that they are immediately released from their debt and they avoid any of the public notoriety associated with the foreclosure process. The benefit to the lender is they avoid the timely process associated with a foreclosure.

 While the above three scenarios are not very appealing, they are a reality of the times. If you have any questions, please do not hesitate to give me a call.

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Real Estate market data can be one of the most invaluable tools available not only to the Real Estate Professional, but also the savvy buyer and seller. At Windermere Real Estate Capital Group we have one of the most sophisticated market analysis tools available.

Our Real Estate Professionals are able to use this tool to analyze the most current market data in helping their customers and clients to make one of the most important decisions in their life – buying or selling a home.

Visit the Market Trends section for updates.

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