David Parrish Realtor

There’s an old adage in real estate… I’m sure you know it well: The three most important things in real estate are location, location and location…

There are several things that contribute to location; however, chief among those is the school district and sometimes even the specific school that serves a particular address. That is such a strong criteria for homebuyers that searches most often begin by school system rather than geographic area or zip code. I know that the search functionality on my Web Site is built with that fact in mind.

It should come as no surprise then that homes in “good” school systems are in higher demand than homes in “poor” Schools systems. It directly follows then that the school system associated with a home in turn is one of the features of a home that contributes greatly to a home’s market value.

This begs the question: “What makes a good school system or promotes the perception of quality schools?”

While there is a plethora of materials and research attempting to answer this question, I will be so bold as to narrow the discussion down to two groups of qualities: Performance and Infra-Structure.

The performance-based criteria include such items as: test scores, graduation rates, and scholarship awards. Infrastructure includes those things that cost money and that are invariably linked (directly or indirectly) to performance, things such as: facilities (especially permanent structures), resource materials, reference and research library resources, enrichment programs, and even non-academic programs.

This brings me to the discussion of taxes and the proposal to raise the ad valorem tax* in Trussville.

Raising taxes is rarely popular. Some may not feel the necessity of raising taxes for schools, perhaps because they do not have children in our schools… others may simply be sickened at the thought of paying any additional tax regardless of its purpose. However, there is another way to think about the 7-mil increase in property taxes… Raising the ad valorem tax is akin to buying investment protection for the value of your home.  

May the Market be with you.

* Vote to raise the ad valorem tax in Trussville is scheduled for February 25, 2014 

A collection of recent headlines:

• Year in Review: Building permits, housing sales rise in 2013
• New home sales in Alabama improve 6% in October; YTD sales up 8%
• Alabama Residential Report: November sales up 4%; YTD sales up 10%
• Alabama December Sales up 17% year-over-year; 10% YTD
• Home Prices Mark Biggest Gains Since 2006
• Banks warn new rules will make it harder to issue mortgages
• USDA Eligibility Zones set to contract
• Interest rates continue gradual rise toward 5% and higher
• Boomerang Buyers Could Boost Housing Market Further

So what does it all mean? There is no denying that 2013 was a much better year for the Real Estate Market throughout most parts of Alabama. That said, everyone should understand that these headlines and signs of marked market improvement do not apply uniformly to all markets. Everybody’s situation is different!

Even so, the improvements have been more than just encouraging. The question being asked by folks now is what can we expect in 2014. The headlines above reflect a bit of a mixture of good news and maybe bad news.

First the good news. Real estate sales are definitely up and that improvement is building on itself. We are now experiencing sustained market appreciation… However, it will take some more time for the losses of the past six-to-seven years to be made up.

So if you were waiting on the bottom… you missed it. The bottom for most of the Birmingham Metro area markets occurred in October 2012… Prices are increasing at a rate above the inflation rate. Good news for homeowners… bad news for those wanting to buy their first home at rock bottom prices. Even so, rising rental rates and increasing mortgage interest rates are making that decision to buy a home almost a no-brainer for those that don’t own a home. However, first-time homebuyers need real guidance to understand how to make all this work to their advantage. As big an advocate as I am for home ownership, home ownership isn’t for everyone in every situation.

Zero down options are shrinking. One of the most formidable of these options, the USDA Rural Housing Program is set to expire for many areas: most notably: Pinson, Moody, Pell City, Chelsea. The recent “Final” Expiration Date for these zones was set to expire January 16^th. We were given yet another reprieve at the last minute until the government passes a Continuing Resolution or Budget before implementing the changes mandated by the 2010 Census. How much longer those changes can be delayed is uncertain. But it is certain that when they go into effect they will have dramatic impact on sales in these areas.

A year ago interest rates were at 3.25%, a historic low. Today they are 4.375%, still very low… but rising. By year’s end they will probably be above 5%. Many forecast are calling for 5.5%, which I believe is a worst-case scenario.

Note these rates are for the best loan applicants. Most will be paying from .5 to 1% higher than the low rates seen in advertisements. By the way it is important to understand that in the world of mortgage interest rates, rising rates are at the moment the result of good economic news… and falling rates the result of bad news.

New mortgage rules that went into effect January 1^st are expected to make it more difficult for Mortgage Lenders to make loans… at least that is what the mortgage industry is saying. And I suspect that for a while this will be true as they adjust their practices in response to needed industry change. My sense is that they will work through the mortgage quality issues and find a way to continue business by raising mortgage rates rather than front-end costs and passing unnecessary risks on to the secondary mortgage market. That said, those with poor credit and/or burdensome debt will find it continuingly difficult to get a mortgage and when they do they will be paying significantly higher rates.

While on the decline, foreclosures are still with us and will probably continue at above historic norms for the next several years. While the new mortgage rules are intended to impede the creation of mortgage time bombs, it’s really more complicated than that.

Simple answers are flawed… half-truths. Every market is unique and within the metro Birmingham Area we have literally thousands of micro markets each with its own set of dynamics. Whether buying or selling you should get real guidance from a proven real estate professional. That said, from my view 2014 is already shaping up to be a banner year for the real estate market and I hope for you.

May the market be with you.

When I say I don’t want anything for Christmas, that’s really not true… It’s just that what I want you can’t buy! And really… it’s much more fun to give anyway… it’s one of the many blessings of getting older!

That said: there are real estate topics related to gifts that I could discuss here… really helpful information for homebuyers especially those first-time homebuyers that are so strapped for cash and wanting to participate in the American Dream. While I’m more than happy to help answer those questions and provide that guidance, that’s not how I wish to use this space today.

Yes I know this is supposed to be a real estate column… So I’ll try to keep it in those lines. But what I really want to share with you today is my Christmas List… Maybe you can help.

What I want for Christmas (and 2014):

• Make at least one less person/family homeless
• Make it possible for a family to get their children in a good school system
• To listen to those in need and help them satisfy that need
• Help save a homeowner from foreclosure
• Help build at least one Habit-for-Humanity home
• Guide a family in making the best choice for their new home
• Counsel individuals on how to improve and protect their credit
• Be a resource for helping connect people to others who can help
• Help a family move on after loss
• To make a difference in the community that I live and serve
• Help spread the joy of the giving

While the economy is improving, we still have many who are hurting… It could be your neighbor, a family member or may be even closer to home. Become a listener. Together we can make a difference… ease some pain, instill some hope and build a stronger community.

May the Market be with you.  May the love of giving infect your life!

Of all holidays Thanksgiving is perhaps the most American Holiday.

There can be no doubt that despite all of our challenges, we have much to be thankful for. Yes even in these days where unemployment remains at a higher level than is healthy of our economy and is the cause of pain for so many of our neighbors, and in these days where so many of our brothers and sisters are in faraway lands engaged in what has come to seem endless wars… Despite political strife unparalleled since the American Civil War… Despite what has been a weak and slow recovery from the worst recession since the Great Depression…. Despite all of these things and more, we are indeed a fortunate people.

Even so, we seem to be more focused on what we don’t have… what we would like to have and on our differences rather than those things and non-things that we have and on our similarities … the hopes and dreams we share.

The American Dream while seemingly out of reach for a growing number of our brothers and sisters continues. Home Ownership continues to be a keystone to realization of that dream. Yes, the Housing Market has been challenged like no time in our history as a nation. And while we have experienced strong signs of its recovery, there is still a distance to go before we can declare full recovery. But progress is being made in substantial ways… Not that every market will experience a full recovery.

In this season of Thanksgiving it might be more than appropriate but even beneficial to us all to recount all of those things that we have to be thankful for: the progress that has been made… looking at the half full glass rather than the half empty glass. Let us rekindle the American Spirit of the house-raising, where members of the community come together to help another participate, as co-members in our community and sharers of the American Dream.

May the Market be with you.

I’m reminded of the classic Alka-Seltzer commercial from the 60’s …Oh What a relief it is … the market is getting better! As I speak with friends, clients and those in the cash register line, I often hear folks delighted to hear the news, which I always couch in the caution “But every Market is different… Where do you live?”

For almost all markets, we have seen a dramatic turn around from the bottom of the market in late 2010… early 2011. For those that haven’t shown improvement, there should be major concern… real improvement may never occur for some markets. It is my sincere hope that this doesn’t describe your market… But some people do own real estate in such markets… There is more than one such market within readership distance of this column!

As the public becomes a bit more excited about or at least at ease with the return of the real estate market, I often hear the complaint that so much value was lost between 2006 and today that they will wait a while longer to recover that loss in value before acting to sell their homes and move on with their lives. While that response is understandable… it may not be well informed.

I can’t think of any better way to communicate an accurate picture of the market and what all the experts (including myself) see as the factors that define the market and what home-owners need to know as they make the decision to Act Now or Wait!

While I realize that the use of charts and numbers may seem daunting, these charts are simple and straightforward in the way they illustrate the dynamics that should influence your decision to act or wait. So let’s begin by looking at your current home.

Current Home Likely Appreciation Over The Next 5 Years

The consensus opinion is that we are returning to a normal level of appreciation of real estate. Due to a shortage of homes for sale, the recent appreciation rate has been a bit more than the average appreciation rate of 3%-to-4% per year. However, the norm and expected appreciation rate based on current trends and mid-to-long-term projections is between 3-4%.

Using a fictional value of $100,000 (making it easier to readily translate to your own situation), you can see from the above chart that there is likely to be a considerable appreciation (by recent standards) in home values…

Remember not every market will behave exactly like this… but it’s a good starting point for looking at the likely outcomes. Yes, I know you’ve heard about double-digit appreciation rates… but those are not occurring in our markets… They are occurring in California, Arizonia, Florida and other places that were the hardest hit by the economic crisis. Fortunately, that is not what happened here.

With that projected increase in value, it is understandable that many are shifting into a wait to act mode. But the value of your current home is not the only factor to be considered if your plans include buying another home. If buying another home, there are two other critical factors to consider. What’s happening or likely to happen in your target market for the home you will eventually buy and what is happening with interest rates. To evaluate those factors, take a look at he following charts…

First, let’s look at interest rates. As the market has improved the historically low rates of 3.125 % (sub 4%) are gone… unless you’re looking at an ARM. The interest rate table provided here shows a conservative projection at where interest rates for 30 year fixed-rate mortgages will go over the course of the next few years. Note: The normal rate for 30-year mortgages has been between 7 and 8%

Interest Rates Projections Over The Next Five Years

That means the cost of borrowing money is on the way up. Now if you don’t plan on having a mortgage you can ignore this factor… You might want to wait… or maybe not, depending on whether you are moving up or downsizing. Regardless, if you have to borrow money to purchase that new home this is a more significant factor than you may imagine. To illustrate my point, I provide the following chart, based on the value of your new home being static, that is not enjoying the 4% average appreciation rate you will expect on your existing home… Illogical, yes; but bear with me.

Note that the Payments cited above are Principal & Interest Only… Taxes and Insurance are not included.

Notice what happens to your payment over time based solely on the change in interest rates. As they say in the automobile dealership… it’s the payments not the price that is important.

Of course when you move, you’ll probably want to move to a better neighborhood… most people do. Not only will that target neighborhood experience appreciation… It’s possible that it may experience an appreciation rate higher than the 4% we’ve used for your current home. But let’s not stretch numbers to make our point. Assuming an average appreciation rate of 4% and that you won’t buy any more home than you have now… take a look at what happens to price and payments over time.

Target Home with Likely Appreciation Over The Next Five Years

Now I ask you to be the judge… does it look likely that you will be better off to wait. Does what you will “gain” put you in a better position? Do you want to put off the move to the neighborhood you want to live in… to your new life?

Your choice: Act Now or Wait? Either way, you can now make that choice in a more informed manner.

May the Market be with you.

For those of you who know me… you know that I am into fixer-uppers… I have the ultimate Fixer-Upper and for the most part I love it… But then my wife would tell you she’s the project manager in chief and there is no doubt that it’s a love affair; because, there is no way that we’ll ever profit a penny.

I work with a lot of clients that see the potential opportunity in a fixer-upper. I see it as integral to what I do to be sure the buyer understands what they are getting into, knowing well that fixer-uppers aren’t for everybody. Here are some of the major items I advise buyers to consider in making their final decision.

Why are you buying?

There are a lot of reasons to buy a property in need of TLC (my translation: Tons of Loving Care). Frequently, as happened to me, you can fall in love with a property that has history… maybe it’s a history connected to your family… maybe it’s a history that you want to be connected to, maybe a history you want to create… All of these fall into the category of a love story and thus an emotional purchase. Others buy with the hope of making a profit, or believing they have found a deal… all of these reasons are valid motivations for making a purchase… understanding and being clear about your motive(s) is step one of checking your decision making process. These motives will be the fuel that drives you through the process of restoration… My advice: make sure that tank is full!

Okay, so now you’re clear about the why. Let’s now look at the What. There are two big Whats. First: What are your expectations and secondly: What needs to be done.

What are your expectations?

If this is to be a love story purchase, that is a known, confessed and stated out in the open emotional purchase, you could move to the next question… But I would advise examining those expectations to see if you are really up to the challenge. If your motivation is “This is such a deal” meaning: “I am saving money” or “I can turn a profit here” this becomes a bit easier decision process, as you aren’t looking at the intangible benefits that come with the “love purchase.” In this case, your expectations can be stated in terms of time and money. Do you have enough of both to reach the end of the project and realize your expectations?

What needs to be done?

Still with me? Time to make an honest assessment of what needs to be done. Beginning to sound like a 12 step program isn’t it. So does it need a new roof? What about the foundation? What kind of electrical and plumbing updates are needed? Do walls need to be moved? Floors re-done? Windows? Paint? Landscaping? Look behind, under and around everything. Make a detailed list of everything you can imagine that needs to be done… Nothing is too small to be listed here. Those seemingly little projects can add up to serious time and money projects, even when you are doing the work yourself.

Who will do the work?

Will you do all or some of this work yourself? Do you have any special skills/experience doing these things… Will you hire others? A word to the wise: A job poorly done adds no value to a home. I (my wife and I) have taken on many projects only to end up convinced it would have been both faster and cheaper to hire a professional… After fifteen years of working on our old house, we’ve finally come to know that you have to know your limits and be willing to pay for your education. Really… No one is an expert at everything!

When will the work be done?

Much of the work done on our old house was done by us after work and on the weekends. Our idea of a date was going to Lowes or Home Depot to buy supplies. We worked on the house for seven months before we could even move in. I’ve quit flying and sailing because there was no time to do all that had to be done. After fifteen years of working on our project (which includes 4 rental properties), it is still rare for us to do much other than work on our old house. Have I told you sometimes it is cheaper and faster to hire a professional! Remember: Time is money!

How Much Will it Cost?

Get estimates! What kind of time frame do you have to work with? If you are flipping a property, time is often a critical factor in turning a property for a profit. Refer to “Who will do the work” (above). Doing it yourself is frequently more expensive than hiring a professional! Get multiple estimates!

In the end the fixer upper can be a dream come true or a nightmare… So much of that outcome is dependent on the research you do up front, knowing your limits, your motivation and ability to see a project through to the end. The payback can be life changing… but it is not without cost.

May the Market be with you.

We are indeed in a housing recovery. One that began in October / November of 2011. Regular readers of this column have heard me speak about this long awaited recovery for sometime. It has taken well over a year of that recovery to be reflected in a convincing statistical way. I’ve been speaking some time now, as well, about a shortage of inventory, rising rents and pent up demand for housing. As these improvements in the market forces have occurred, prices have begun to rise again rather than fall. Good News!

Yes, housing prices are rising and that makes for headlines and concerns by some that we may be looking at another “Housing Bubble!” The question in many minds must be: Is this just another sensationalistic attempt to attract attention or is there in fact a real danger of a new housing bubble?

Let’s look at some facts… We are currently experiencing an average appreciation rate of just over 4% annually (historically, a modest yet normal rate of appreciation). See chart below:

Average Annual Appreciation May 2013

I remember well the 10% appreciation rates we expected and in fact experienced during the 1970’s, driven largely by we baby-boomers looking to buy our first home. Never heard anyone call that a bubble! During the early 2000’s (1999-2006), we again saw a dramatic surge in housing prices in an almost totally deregulated market where the financial industry acted as both dealer and player. Again appreciation rates were in the 10% per year stratosphere… Note this is the average rate. There were markets where the appreciation rates exceeded 20% per year, most notably: California Arizona, Nevada, and Florida, the warm and sunny Big Bust States.

Again referring to our Average Annual Appreciation Chart the projected annual appreciation rate in the 4% neighborhood is a return to normal appreciation rates. Will there be some fluctuation in these rates? Surely there will be some modest fluctuations. We may even have brief periods of hyper price increases in certain sectors as supply and demand come into balance again. We are seeing this right now in the Birmingham Market with New Home Prices…

Observation: Much of the appreciation we are currently experiencing is driven by New Home price increases.

With subsidence of market fear paired with pent up demand for housing, actual demand has returned to normal levels. With an increased demand for housing and little desire to tackle the “fixer-upper” projects associated with foreclosures and abandoned properties many have decided a new home is the best/easiest way to realize the amenities/life style they desire. New home construction has seen dramatic increases… but nowhere near the boom level. New home inventories have not been enough to satisfy the resurgent demand and so we have seen some rather dramatic price increases there, due in part to supply vs. demand issue but also to a large increase in construction material costs.

Now this is not bad news for existing home sales. They too will follow this wave of the new housing market and price increases… but not at the same levels of appreciation levels currently being experienced by New Home prices. But then neither will new home prices continue to rise at the same level that we are currently experiencing. Why? Because success is a strong attractant… There will be more competition in the new home sales arena with more builders returning to the marketplace. The governor for that new competition will be the buildable lot inventory… So look for developers to start clearing ground for new Sub-Divisions, another sign of an improved economy.

So is there anything that prevents us experiencing a new Housing Bubble?

The new appraisal standards and regulations set in 2009, while still bemoaned by many of us, are an example of regulation put in place to thwart uncontrolled and unsupported appreciation rates that lead to unfounded bubbles.  While in my opinion still under-regulated, financial institutions have nonetheless returned to the sound mentality of NOT making NINJA (No Income, No Job or Asset) Loans… to be sold off to an unsuspecting investor population. Although, it would be nice to see congress put some teeth behind the idea of protecting the market from some of those acts, which lead to the Great Recession.

As to the fear of a new housing bubble… For the foreseeable future an annual appreciation rate of 4 – 4.5% should be expected for desirable markets. Realize that not all markets are equal. Some markets are still struggling… Some are growing at even stronger rates. That does not point to a bubble! But “Danger, Will Robinson”: Should we forget the lessons of the past, all bets are off.

Looking back at the past, it would seem that we may remember these lessons for 20 or 30 years or so… then amnesia or the belief that “this time will be different” seems to set in and we have to learn all over again.

That brings me to a pair of questions: What causes a bubble in any market? Over exuberance! What causes a bust? Fear!

We all have a role to play in preventing Bubbles and Busts. Fight over exuberance… Beware of greed… even when it is our own… Beware of Fear: It rarely leads to the best decision-making. But then I am a contrarian… I believe: When others are selling, it’s time to buy… When they are buying, it’s time to sell…

May the market be with you.

RE/MAX in the Know: The Difference One Light Bulb Can Make