In a survey of 1,000 single people, more than a third of women and 18% of men said they would much rather date a homeowner than a renter.

Only 2% of women said they preferred to date a man who rents, while only 3% of men said they would choose a woman who rents over one that owns her home, according to the survey, which was conducted by Harris Interactive for real estate site Trulia.

Both sexes also clearly prefer it when there’s no roommate in the picture; 62% of survey respondents, men and women, prefer to date singles who live alone.

And there was bad news for the growing number of boomerang kids — the young adults who went off to college, graduated and then wound up back in their old bedrooms. It’s going to be hard to find love, except (perhaps) from your parents. Less than 5% of all singles surveyed said they would date someone living in their childhood homes.

“That’s a real deal-breaker,” said Michael Corbett, a spokesman for Trulia. “If you’re still living with your folks, you’re dead-on-arrival for dating.”

Trulia also asked which home features are the biggest turn-ons. Number one turned out to be a master bath. Men (64%) love that private sanctum almost as much as women (75%) do.

Walk-in closets were cited by 55% of men and 72% of women and gourmet kitchens got 51% of the male vote and 62% of the female. Hardwood floors, outdoor decks and home theaters also came in high on the list.

Interestingly enough, hot tubs got a lot less love from respondents. Only 26% of men and 22% of women cited the old standby in the science of seduction as an amenity they would truly want.

• “Price it right from the get-go!” – Comps! Comps! Comps!  Comparable sales (not unsold listings), of homes that have actually sold in your neighborhood (that are similar to yours) are truly the best indicator of what your home’s current value is at this point.  The National Association of Realtors has reported that nearly half of all sellers accepted offers that were less than 90% of the asking price.

• “Put your best foot forward” – Some of the most impactful actions you can take when it comes to selling are often times just addressing the little things.  Which also means that these efforts are generally some of the most cost effective methods of making your home stand out.  Try paying extra attention to the details of your home.  Replacing that worn or missing caulking, sharpen up the landscaping with more timely trimmings or making sure the windows truly shine can all help your house chirp ”buy me!” just a little bit louder.

• “Be flexible” – Today’s real estate market is clearly a buyers market so be prepared to flex in all directions when it comes to attracting and keeping buyers on the line.  Offering incentives such as paying the buyer’s closing costs or leaving behind those beautifully matched appliances are a great start!

• “Don’t fall victim!” – Scams abound in these distressed times of ours.  Always proceed with caution when approached by “investors” seeking out desperate homeowners.

• “Finance 101″ – Realize that it’s harder for a buyer to obtain financing these days due to more stringent borrowing standards and intensified scrutiny from lenders.  It is also important to always take the time to consider cash offers even if they are lower than you had hoped to receive.  No one wants to just “give it away” but you also don’t want the bank to come and take it away either!  Counter offers are always an option!

As always if you or anyone you know has any questions regarding buying or selling real estate in the Portland or Wilsonville metro areas then please feel free to contact us at anytime!

- The Kennedy Team
RE/MAX equity group
503-981-9146
kennedyteamhomes@gmail.com

Lenders are cutting closing costs and offering other discounts to go along with low rates. What’s the catch? (click through to read article from SmartMoney.com)

http://money.cnn.com/magazines/moneymag/bplive/2011/snapshots/PL4180150.html

We’re all aware of how central our kitchens are to our family’s everyday activities, not to mention our special occasions.  More often than not, these culinary spaces provide more than a mere space to prepare nutrition. For many people their home’s kitchen has the capacity to bring together generations and provide sustenance for the mind, body and soul.  As such this space remains one of the most popular areas of our homes to update and remodel.  After all who wouldn’t want to create a welcoming space that truly reflects their own individual vibrancy?  Exactly.  So now that we’ve decided to pursue this journey of kitchen reform how do we avoid busting our individual budgets?  Read on dear friends, read on…

Refaced Cabinetry - Before and After

Cabinetry:
As the largest occupant of your invaluable kitchen real estate these particular sultans of storage often have the most profound visual effect on your kitchen’s environment.  That being said you can easily spend anywhere between $5,000 to $25,000 purchasing brand new replacements.  Now unless you are one of the lucky few that was miraculously spared the assault of our current economic storms, you are probably not anxious to shell out the purchase price of a new car merely re-shelving the walls.  Don’t!  Rather than replacing each individual cabinet you could save yourself upwards of 80% by simply refacing or painting your existing cabinetry.  Install new or vintage hardware to achieve a polished new look.

Hint:  Shopping for hardware online allows for extensive price comparisons and use of promo codes for additional savings!      

Countertops:
Considerably one of the most important surfaces in your home, your countertops are the visual equivalent of a kitchen “lawn”.  Who doesn’t love the look of a well manicured lawn?  That being said natural material counters such as granite and quartz are the current epitome of the beautifully maintained kitchen “lawn”.  As such they can cost anywhere from $40 to several hundred dollars per sq. foot.  So rather than installing materials with prices that leave you gasping for air, why not consider a natural block hardwood countertop or the modern appeal of current ceramic tiles?  These alternatives can offer the same visual and tactile appeal of other natural materials but at half the cost!

Butcher Block Countertop

Tip:  Think twice about purchasing “professional-grade” appliances.  While their swanky features are quite tantalizing, multiple ovens are generally not a “seal-the-deal” feature when re-selling your home.  Instead, ditch the diva style, dual-fuel range and opt for replacing the aged appliances with energy-efficient, standard models.                

Flooring:
Quite literally the foundation of a beautiful kitchen is it’s flooring.  Despite hardwood and laminates remaining popular choices, 3) the latest trend in high-end flooring is marble.  So for those of us who would prefer to retain our financial marbles rather than scattering them about the floor, we have a solution!  Rather than selling off vital organs to replace your flooring we would recommend the far more affordable alternatives of using ceramic or porcelain tiles.  Especially considering that marble flooring will run you an average of $10-$40 per sq. foot versus glazed ceramic tile costs of $1-$20 per sq. foot and porcelain tiles cost of $2-$4 per sq. foot, saving you up to 95%!

Tip:  Quickest route to a kitchen revamp is with a fresh coat of paint.  Best to remember though that if you plan to sell soon earth toned paint is your friend!

Fact: The average kitchen renovation takes 2 years to complete and has a return on investment (ROI) of 68.7%. 1), 2)

Sources:
1) National Kitchen and Bath Association
2) National Association of Realtors 2010-2011
(Remodeling Cost v. Value Report)
3) National Kitchen and Bath Association

We're having a sale! Ground Floor - Housing!!

Glad you asked!  According to a recent survey published by Coldwell Banker RE LLC, Woodburn is Oregon’s most affordable home market and Lake Oswego is the least affordable among the 21 real estate markets surveyed.

Utilizing a unique take on the residential industry that looks solely at the prices of four-bedroom, two-bathroom homes listed between September of 2010 and March of 2011.  It should be noted that only markets with at least 10 homes on the market that met the criteria during the survey period were included in the report.

The average price of a Woodburn midsize home was $198,812, marking it as the 763rd cheapest market currently in the U.S.  Additionally Woodburn is one of only 775 U.S. cities where such a home commands $200,000 or less.

Whereas Lake Oswego’s (Oregon’s most expensive city to own in), average 4 bed, 2 bath home costs an average of $524,100, ranking it as 2,113th in the nation for comparative affordability.  Interesting stuff you say?  Read on for the complete list of Oregon cities, ranked from the most affordable to least affordable:

1. Woodburn: Average price, $198,812; national rank, 763.
2. Lebanon: Average price, $200,422; national rank, 782.
3. Pendleton: Average price, $214,027; national rank, 936.
4. Keizer: Average price, $216,665; national rank, 964.
5. Prineville: Average price, $222,213; national rank, 1010.
6. Coos Bay: Average price, $243,854; national rank, 1192.
7. Klamath Falls: Average price, $257,250; national rank, 1303.
8. Roseburg: Average price, $269,506; national rank, 1396.
9. Albany: Average price, $272,840; national rank, 1415.
10. Beaverton: Average price, $277,341; national rank, 1435.
11. Silverton: Average price, $277,708; national rank, 1437.
12. Redmond: Average price, $278,029; national rank, 1440.
13. Salem: Average price, $286,850; national rank, 1488.
14. Eugene: Average price, $287,946; national rank, 1495.
15. Springfield: Average price, $1291,632; national rank, 1508.
16. Bend: Average price, $311,521; national rank, 1598.
17. Medford: Average price, $332,625; national rank, 1666.
18. Portland: Average price, $356,769; national rank, 1752.
19. Tigard: Average price, $371,877; national rank, 1795.
20. Corvallis: Average price, $373,200; national rank, 1802.
21. Lake Oswego: Average price, $524,100; national rank, 2112.

As most of you are aware, when someone’s home is foreclosed on in Oregon, the bank that is foreclosing can take no further action against that owner.  As Oregon is one of few “non-recourse” states where a first mortgage cannot pursue a deficiency judgment against a home owner, once they’ve taken the collateral back for non-payment of the debt.  Their only other option is to sue on the promissory note instead of foreclosing, but that rarely happens.  The property is likely worth more than they can get by suing the debtor.

However what few may realize is that Oregon law does not treat investment properties the same way [per ORS 86.705(3)] it does owner occupied properties.  A bank can foreclose AND may also come back on the owner for the deficiency.  This is a scary possibility for those who are uninformed.  For these reasons making a cooperative effort utilizing processes such as a short sale may be a good option for such a scenario.  In any case, owners of rental properties who are facing difficulty in servicing debt on their properties should be sure to seek out professional advice when looking to get out of a situation such as this.

Author: Matt Kennedy

Well, yes — and from a surprising source. Housing. Say what?

Almost everyone considers the housing collapse a disaster, and it is. Since 2007, roughly 8 million homes have gone into foreclosure. Housing prices, according to the widely cited Case-Shiller index, are down about 33 percent from their 2006 peaks. They’re still falling, albeit at a slower pace. In some cities (Atlanta, Cleveland, Las Vegas, Detroit, Phoenix), they’re at or below 2000 levels. Home sales are stunted, and construction is a quarter of its previous peak. Housing’s implosion retards the economic recovery. Aside from unemployed carpenters and real estate agents, there’s much unsold lumber, carpet and appliances.

But housing’s troubles may have a silver lining. If you’re a homeowner, the steep fall in prices is calamitous. But if you’re a future buyer, it’s a godsend. What we’re seeing is a massive wealth transfer from today’s older homeowners to tomorrow’s younger homeowners. From year-end 2006 to 2010, housing values fell $6.3 trillion, reports the Federal Reserve. Assuming there’s no sharp rebound in prices — a good bet — that’s $6.3 trillion the young won’t pay.

Up to a point, the lower home prices merely deflate the artificial “bubble.” But there’s evidence that the declines transcend that. The National Association of Realtors routinely publishes a housing “affordability” index, which judges the ability of median families to buy the median-price home at prevailing interest rates. By this measure, existing homes are the most affordable since the index started in 1970.

Young buyers “will be able to enter the housing market at bargain prices,” argues NAR economist Lawrence Yun. When home prices again rise, increases will parallel income gains, meaning that the relative burden of housing costs will remain roughly stable, Yun says. He expects only modest increases in interest rates. (A one percentage point rise — say, from 5 percent to 6 percent — on a $150,000 mortgage boosts the monthly payment about $95.)

Falling real estate prices have also affected new homes. They’re getting smaller and less embellished, as they must. New homes typically sell at a 10 percent to 20 percent premium over comparable existing homes. If prices don’t fall, buyers won’t buy. From 1973 to 2007, the size of the average new home grew by about 50 percent, from 1,660 square feet to 2,521 square feet. By 2009, that was 2,438 square feet, with more declines expected.

“People have become much more value oriented,” says Jeff Mezger, CEO of KB Home, a major builder. At the height of the boom, with cheap mortgage credit widely available, over-confident buyers selected five-bedroom homes with Jacuzzis and granite-top kitchen counters, he says. Now, buyers favor practical amenities: more kitchen cabinets and bigger closets.

We are, perhaps, at a historic juncture. The relentless expansion of home size since World War II — encouraged by federal subsidies, including the mortgage- interest tax deduction — arguably resulted in many Americans being “over-housed.” Homes grew beyond what was “needed” or could even be enjoyed. The reason they kept expanding, Cornell economist Robert Frank has argued, was social competition. People want to be in the “best” neighborhoods with the “best” schools, and these neighborhoods have ever larger homes. Somewhat smaller homes, Frank contends, wouldn’t make people less happy.

If the housing collapse mutes this self-defeating syndrome, the main beneficiaries will be today’s young. Their homes will be somewhat cheaper and smaller; their operating costs (mainly utilities) will be somewhat lower. The sacrifices in living standards will be barely noticeable, and the savings — housing, after all, represents most families’ largest expense — will provide some relief from higher taxes and health costs.

Caveats apply. Housing markets are famously local; what’s true in one won’t be true in another. Moreover, the housing bust still looms large. The young are staying or returning home; new household formations are less than half of previous levels. Mortgage credit is constricted. Private lenders, once promiscuous with loans, are now prudish. Fannie Mae and Freddie Mac are in a state of transition — to what, no one knows. The price adjustment, especially for new homes, is incomplete. Unless these problems are overcome, housing construction will remain depressed. Eventually, the scarcity of homes would push prices up.

But crises pass and have unintended consequences. The young just might catch a much-needed break from this one.

Courtesy of Robert J. Samuelson and Oregonlive.com

Robert Samuelson writes for the Washington Post Writers Group. 

A home under construction in Austin. The number of new homes in the pipeline nationwide is quite low. 

From his wide-rimmed cowboy hat to his roper boots, Mike Castleman fits moviedom’s image of the lanky Texas rancher. On a recent March evening, Castleman is feeding cattle biscuits to his two pet longhorn steers, Big Buddy and Little Buddy, on his 460-acre Bar Ten Creek Ranch in Dripping Springs, a hamlet outside Austin in the Texas Hill Country. The spread is a medley of meandering streams, craggy cliffs, and centuries-old oaks. But even in this pastoral setting, his mind keeps returning to a subject he knows as well as any expert around: the housing market. “I’m a dirt-road economist who sees what’s happening on the ground, and in 35 years I’ve never seen a shortage of new construction like the one I’m seeing today,” declares Castleman, 70, now offering a biscuit to his miniature donkey Thumper. “The talking heads who are down on real estate will hate to hear this, but America needs to build a lot more houses. And in most markets the price of new homes is fixin’ to rise, not fall.”

Castleman is in a unique position to know. As the founder and CEO of a company called Metrostudy, he’s spent more than three decades tracking real-time data on the country’s inventory of new homes. Each quarter he dispatches 500 inspectors to literally drive through 45,000 subdivisions from Baltimore to Sacramento. The inspectors examine 5 million finished lots, one at a time, and record whether they contain a house that’s under construction, one that’s finished and for sale, or a home that’s sold. Metrostudy covers 19 states, or around 65% of the U.S. housing market, including all the ones hardest hit by the crash: Florida, California, Arizona, and Nevada. The company’s client list includes virtually every major homebuilder and bank — from Pulte (PHM) and KB Home (KBH) to Bank of America (BAC) and Wells Fargo (WFC).

The key figures that Metrostudy collects, and that those clients prize, are the number of homes that are vacant and for sale in each city, and the number of months it takes to sell all of them. Together those figures measure inventory — the key metric in determining whether a market has a surplus or a shortage of new housing.

Today Castleman is witnessing an extraordinary reversal of the new-home glut that helped sink prices just a few years ago. In the 41 cities Metrostudy covers, a total of 78,000 houses are now either vacant and for sale, or under construction. That’s less than one-fourth of the 343,000 units in those two categories at the peak of the frenzy in mid-2006, and well below the level of a decade ago. “If we had anything like normal levels of buying, those houses would sell in 2½ months,” says Castleman. “We’d see an incredible shortage. And that’s where we’re heading.”

If all the noise you’re hearing about housing has you totally confused, join the crowd. One day you’ll read that owning a home has never been more affordable. The next day you’ll see news that housing starts have plunged to nearly their lowest level in half a century, as headlines announced in March. After four years of falling prices and surging foreclosures, it’s hard to know what to think. Even Robert Shiller and Karl Case can’t agree. The two economists, who together created the widely followed S&P/Case-Shiller Home Price indices, are right now offering sharply contrasting views of housing’s future. Shiller recently warned that the chances were high for a further double-digit drop in U.S. home prices. But in an interview with Fortune, Case took a far brighter view: “The lack of new home building is a huge help that a lot of people are ignoring,” says Case. “People think I’m crazy to be optimistic, but housing is looking like the little engine that could.”

To see where real estate is truly headed, it’s critical to keep your eye firmly on the fundamentals that, over time, always determine the course of prices and construction. During the last decade’s historic run-up in prices, Fortune repeatedly warned that things were moving too fast. In a cover story titled “Is the Housing Boom Over?,” this writer’s analysis found that the basic forces that govern the market — the cost of owning vs. renting and the level of new construction — were in bubble territory. Eventually reality set in, and prices plummeted. Our current view focuses on those same fundamentals — only now they’re pointing in the opposite direction.

So let’s state it simply and forcibly: Housing is back.

Two basic factors are laying the foundation for dramatic recovery in residential real estate. The first is the historic drop in new construction that so amazes Castleman. The second is a steep decline in prices, on the order of 30% nationwide since 2006, and as much as 55% in the hardest-hit markets. The story of this downturn has been an astonishing flight from the traditional American approach of buying new houses to an embrace of renting. But the new affordability will gradually lure Americans back to buying homes. And the return of the homeowner will start raising prices in many markets this year.

Drumming up sales 

Of course, home prices are low and home construction is weak for a reason: incredibly low demand. For our scenario to play out, America will need a decent economy, with job creation and consumer confidence continuing to claw their way back to normal.

One big fear is that today’s tight credit standards will chill the market. But we’re really returning to the standards that prevailed before the craze, and those requirements didn’t stop prices and homebuilding from rising in a good economy. “The credit standards are now at about historical levels, excluding the bubble period,” says Mark Zandi, chief economist for Moody’s Analytics. “We saw prices rising with fundamentals in those periods, and it will happen again.”

To see why, let’s examine the remarkable shift in home affordability. A new study by Deutsche Bank measures affordability in two ways: first, the share of income Americans are paying to own a home. And second, the cost of owning vs. renting. On the first metric, the analysis finds that homeowners now pay just 9.8% of their income in after-tax mortgage, tax, and insurance payments. That’s down from 17.2% at the bubble’s peak in 2007, and by far the lowest number in the Deutsche Bank database, going back to 1999. The second measure, the cost of owning compared with renting, should also inspire potential buyers. In 28 out of 54 major markets, it’s now cheaper to pay a mortgage and other major costs than to rent the same house. What’s most compelling is that in all of the distressed markets, owning now wins by a wide margin — a stunning reversal from four years ago. It now costs 34% less than renting in Atlanta. In Miami the average rent is now $1,031 a month, vs. the $856 it costs to carry a ranch house or stucco cottage as an owner. (For more, see The top 10 cities for home buyers)

Not all markets will bounce back equally, of course. Housing resembles the weather: The exact conditions are different in every city. But in general the big U.S. markets fall into two different climate zones right now. We’ll call them the “nondistressed markets” and the “foreclosure markets.” A more detailed look shows why the forecast for both is favorable.

Nondistressed markets: Ready for launch

No cities went untouched by the collapse in prices over the past few years. But markets such as Northern Virginia, Indianapolis, Minneapolis, San Diego, the San Francisco suburbs, and virtually all of Texas held up reasonably well. In those areas prices spiked far less than in bubble cities — the foreclosure markets we’ll get to shortly — chiefly because they didn’t get nearly as many speculators who thought they could flip the homes or rent them to snowbirds.

The nondistressed markets will be able to get prices rising and construction growing far faster than the harder-hit areas for a simple reason: Although some of these markets are still suffering from foreclosures, they don’t need to work through the big overhang haunting a Las Vegas or a Phoenix. The number of new homes for sale or in the pipeline is extraordinarily low in nondistressed markets. San Diego is typical. It has just 921 freestanding homes for sale or under construction, compared with 4,425 in late 2005. The challenge for these cities is to generate enough demand to reduce inventories of existing, or resale, homes. In the entire country the resale supply stands at 3.5 million houses and condos. That’s a fairly high number, since it would take more than eight months to sell those properties; seven months or below is the threshold for a strong market.

But in the nondistressed cities, the existing home inventory is lower, closer to seven months on average. So a modest increase in demand will translate into strong gains in both prices and new construction. That should happen quickly, because most of those markets — including Silicon Valley, Northern Virginia, and Texas — are now showing good job growth.

Zandi of Moody’s Analytics expects that prices will rise three to four points faster than inflation for the next few years in virtually all of the nondistressed markets. His view is that prices will increase in line with rents, which are now growing briskly because apartments are in short supply. Those higher rents will encourage buyers to cross the street from an apartment to a home of their own.

In Northern Virginia, Chris Bratz, an engineer, and his wife, Amy DiElsi, a publicist, are planning to leave their rental apartment and become homeowners for the first time. The main reason? Buying has simply become a far better deal than renting. “The market got completely inflated, then it crashed, so prices are coming back to where they should be,” says Chris. As the couple have watched prices fall, they have also watched the rent on their apartment spiral upward, reaching $2,700 a month. They calculate that they should be able to purchase a townhouse for between $400,000 and $500,000 and pay less per month for a mortgage.

The nondistressed markets will also lead the way in construction. Zandi predicts that for the nation as a whole, single-family housing “starts” — measured when a builder pours a foundation for a new home — will rise from 470,000 in 2010 to as much as 700,000 this year. A large portion of that activity will happen in nondistressed markets where a tightening supply of resale houses will start making new homes look like a good deal. “Our main competition is from resales,” says Jeff Mezger, CEO of KB Home. “The prices of those homes have stayed so low, because of low demand, that it’s hampered the ability of builders to sell new houses.”

But many would-be buyers simply prefer a brand-new house. Eventually they’ll move from renters to buyers, and the trend will accelerate now that prices are no longer dropping. In Minneapolis, Yuan Qu and her husband, Xiang Chen, a researcher at the University of Minnesota, just moved from a two-bedroom rental to a new light-blue four-bedroom ranch with a chocolate-colored roof on a spacious corner lot. They paid $400,000, a bargain price compared with a few years ago. The couple, both in their early thirties, moved to Minnesota from China six years ago. “We wanted to buy a house, and we’ve been waiting and waiting and waiting,” says Qu. “The prices went down for so long, we finally thought they couldn’t keep falling.” For Qu the only choice was new construction. “We’re not very handy people,” she admits.

Foreclosure markets: The outlook is brightening

A home off the market in Mesa, Ariz. 

The true disaster areas for housing since the bubble burst have been Sunbelt cities such as Las Vegas, Phoenix, and Miami — places that boasted great job and population growth in the mid-2000s, only to suffer a housing crash that swamped them with empty homes and condos and crushed their economies. But people always want to live in those sunny locales, and their job markets are starting to recover, albeit slowly. In foreclosure markets the inventory problem is far greater because it includes not just traditional resale homes but millions of distressed properties. Fortunately those houses are now such a screaming deal that investors, including lots of mom-and-pop buyers, are purchasing them at a rapid pace. To be sure, some foreclosure markets won’t rebound for years because they’re both vastly overbuilt and far from big job centers; a prime example is California’s Inland Empire, a real estate disaster zone 80 miles east of Los Angeles.

But the outlook is brightening for Phoenix, Las Vegas, Miami, and parts of Northern California. A big positive is the tiny supply of new homes entering the market. Phoenix, for example, has a total of just 8,100 new homes that are either for sale or under construction, down from 53,000 in mid-2006. The big test in these cities is absorbing the steady stream of distressed properties. The foreclosures put downward pressure on the market far out of proportion to their numbers because of markdown pricing. “We had levels of inventory even higher than this in 1990 and 1991,” says MIT economist William Wheaton. “But they were traditional listings, not foreclosures, so they didn’t create the big discounts you get with foreclosures.”

Wheaton reckons that we’ll see a flow of around 1 million foreclosures a year, at a fairly even pace, from now through 2013. That figure is frequently cited as evidence that the market is doomed for years in most foreclosure markets. Not so. The reason is that the vast bulk of those units, probably over 600,000, according to Gleb Nechayev, an economist with real estate firm CB Richard Ellis (CBG), are being converted to rentals either by investors or their current owners. Those properties are finding plenty of renters, since the rental market is still extremely strong across the country. Remember, the millions who lost their homes to foreclosure still need somewhere to live.

A typical investor is Alex Barbalat, a Russian immigrant who’s purchased seven homes east of San Francisco in the towns of Bay Point, Antioch, and Pittsburg. His average purchase price is around $100,000 for homes that once sold for between $300,000 and $500,000. But he has no trouble finding renters, since his tenants can commute to jobs in San Francisco on the BART transit system. Barbalat is pocketing rental yields on the prices he paid of around 12%, and he’s in no hurry to sell. “I’m holding them until prices drastically rise,” he says.

Investment funds are also entering the game. Dotan Y. Melech looks for bargains in Las Vegas for UnitedAMS, a firm he co-founded that manages apartments and other real estate investments. The firm has raised more than $20 million from outside investors to purchase distressed properties. So far, Melech has bought around 300 houses and plans to purchase another 200 this year. He has no trouble renting the houses he buys, since, he estimates, occupancy rates in Las Vegas are touching 95%. The “cap rate,” or return on investment after all expenses, is between 8% and 10% — twice the rate on 10-year Treasuries. Melech rents to people who lost their homes but are reliable renters. “A lot of people can’t be buyers because their credit got hurt,” he says.

Even with investors jumping in, buying activity in foreclosure markets hasn’t yet increased enough to bring inventories down. It will soon. Zandi thinks prices will fall a couple of percentage points lower in the distressed markets in the short run. “But that will be overshooting,” he says. “It’s like an elastic band. If prices do drop this year, they will need to bounce back because they’ll be far too low compared with rents and replacement cost.” Renters will come off the sidelines to purchase homes in the years ahead, precisely the opposite trend of the past few years.

Consider the example of Michael Dynda, a retired Air Force avionics technician who now works for a government contractor in Las Vegas. Dynda, 49, is a first-time buyer who put off purchasing for years, in part because prices were falling so rapidly in Las Vegas, with no bottom in sight. But last year the combination of bargain prices and low mortgage rates became too good to resist. He ended up purchasing a 2,300-square-foot stucco home for $240,000, or about half what it would have fetched in 2007. Dynda got a 4.38% home loan, and pays the same amount on his mortgage as on the rent on the house he left to become a homeowner. “The timing was about as good as it could get,” says Dynda.

Mike Castleman’s company tracks the inventory of new homes in 19 states across the country. He sees supply getting tight. “Home prices are fixin’ to rise,” he says. 

Back on the ranch, Mike Castleman is lounging in his creek-front mansion, built from “a hundred tons of fine central Texas limestone.” As he shows off his collection of custom-made guitars, including one crafted to resemble the skin of a rattlesnake, the homespun housing guru once again returns to his favorite topic.

Castleman claims that this recovery will look like all the others: It will bring a severe shortage of housing. He invokes the livestock business to explain. “It takes three years between the time a bull mates with a cow and when you get a calf ready for market,” he says. “That’s how it is in housing too. We’ll get a big surge in demand and the drywall companies will take a long time to ramp up, and it will take years to get new lots approved. Buyers will show up looking for a house in a subdivision, and all the houses will be sold. The builders will tell them it will take six months to deliver a house.” But those folks, says Castleman, will be set on buying a place. “And they’ll want it so bad they’ll bid the prices up!” In other words: Beat the crowd.

Courtesy of Shawn Tully, senior editor-at-large
Fortune Magazine