Biz Tip: Where the deals are
Today’s slower real estate market has good values, if you know where to look
By MARIA HOPKINS
The real estate "bubble" didn’t burst so much as it slowly deflated. And everyone desperately wants to blow another bubble.
Is it going to happen? Most real estate professionals believe we have bottomed out and stabilized.
But the test for how the market is really doing will be in the next few months as we go through the spring market. Most property owners became more realistic about their asking price. In the past, the listing price often started at an inflated level because the owner wanted to "try it and see."
More often than not, with that strategy, the price had to be reduced. There are serious buyers out there and inventory is shrinking. Smart buyers know that lower prices coupled with low interest rates result in great real estate deals. New construction, which was the fastest appreciating product, has finally leveled off as well. Lower end and over 55 condos were one of the strongest markets. Multi-families were the weakest area of the market. Now the over 55 products are moving much slower in some areas. There are great deals to be had in multifamilies.
For the last few years, anyone who owned some land could probably get a loan and become a builder. There was a great profit margin, and with increasing values, even with some mistakes, you probably could make money. Now things are changing. The acquisition cost of a land lot has greatly increased. All building materials have increased. Lenders are tightening up their requirements and requiring borrowers to jump through a few more hoops and do their homework.
Carrying costs are greater because houses – even new construction – aren’t selling as fast, and interest rates on borrowed money are higher. With all of these factors, profit margins are shrinking and sometimes builders are not making very much. One mistake that many make is to offer a similar product (type of house) as everyone else, in basically the same price range. This creates an oversupply. Although larger houses seem to have greater profit, sometimes a lower-priced subdivision will be better in the long run if it sells out quickly.
The starter home price range is still in high demand, which is why some of the condo projects (not all) are continuing to do well. The bottom line is that there are still deals out there, but they are hard to come by. There are more foreclosures for homeowners who have been living beyond their means, or who have experienced substantial increases in their adjustable rate mortgages.
Commercial properties in most areas seem to be holding value and even appreciating as replacement costs increase. There are great opportunities right now to make money in real estate, but to do so requires more caution than in the past. If you’re not sure what the real value of a property is, hire a good appraiser and find out. If you guess wrong, the market appreciation isn’t there to forgive your mistake.
Maria Hopkins, SRA,RA is a real estate appraiser and consultant, and president of Maria Hopkins Associates in Holden.
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