Coffee heat rising

How’s the economic stress level in your parts?

Here’s a new money tool that’s entertaining or frightening, depending on where you live, and always interesting. The Associated Press has put together an interactive map of the U.S. measuring economic stress nationwide, by county. Mouseover your home county (or anyone else’s) and you see a “stress” index based on unemployment, foreclosure, and bankruptcy figures. The higher the stress index, the harder times are in any given place.

The thing is fascinating. As bad off as things are in Michigan, what with the struggles of the automotive industry, things generally are far worse in California. The Imperial Valley has an unemployment rate of 27.7 percent! That plus a foreclosure rate of 4.28 percent and bankruptcies at 1.14 percent add up to a stress index of 31.58, making my  home county look good, with a mellow stress index of 14.45. It’s interesting to observe the trends in various regions; the entire midsection of the country is relatively less affected by the deprecession. Possibly because fewer people live there? People in North Dakota are too busy shoveling snow to worry about the economy?

How does your part of the country measure up?

Image: Map of USA Showing State Names. Wikipedia Commons. GNU Free Documentation License.

Real estate as investment

Yesterday I followed open-house signs to a foreclosure in the Windsor Square district, a gentrified enclave of 1930s and 1940s houses tucked behind the gourmet grocer at Central and Camelback. The house, a pretty little money sink in the very best part of the neighborhood—as far away from any of the main drags as you can get—had bankrupted a speculator who’d fixed up it handsomely and imagined he could sell it for $600,000.

At 1,900 square feet, it was cobbled together from a tiny 1949 structure with a couple of additions, both of which appeared to have been professionally designed and built. the result left the two original dwarf-sized bedrooms free to be used as offices or game rooms, while a big new master bedroom with a gigantic walk-in closet and handsome bathroom looked out into the backyard.

The buyer would need to install a stove, dishwasher, and fridge, but BFD: you usually end up having to buy those for any used house. The backyard needed a cleanup: Gerardo, $150. One nice thing about it—very nice, in Phoenix’s vintage central-city neighborhoods—was that it had a functioning two-car garage in excellent condition.

I wanted it.

Unfortunately, the bank already had an offer of $300,000, more than I could reasonably expect to clear on the sale of my present home and so, since I’m not going into retirement with a mortgage on my residence, out of my price range.

But…wow. If someone is “stealing” an old jumbled-together house out of bankruptcy for three hundred grand, then the truth is, the downtown house M’hijito and I are upside down on was a good buy. It’s only about five blocks away from Windsor Square, within walking distance of the much-touted light rail and of the very fancy gourmet store and all the very fancy restaurants and shopping around it. Eventually, young professionals who want to live near Central and Camelback will notice, and when they do, they’ll start to drive the prices up in our area.

I really love houses of that vintage. They still have the lath-and-plaster walls with their rounded corners and thick block or brick exteriors. They retain some of the charm of still older houses, but they’re not as decrepit as the property in the Willo and Coronado districts. Personally, I could live very comfortably in our downtown house, and in fact, given half a chance, I will.

If and when M’hijito decides to move on, lured away by a better job, graduate school, or a wife, I plan to buy the downtown house by selling my house, paying whatever we owe on the mortgage, and reimbursing him for his investment in the house. If that happened today (which it won’t), it would put $30,000 or $40,000 in my pocket, and I’d end up with a much-desired smaller place, no pool to have to tend, and a sweet environment built to our taste.

The real estate market, even in beleaguered Phoenix, is pretty clearly bottoming out. My house has never lost value, and in fact has gained value at about 3 percent a year since 2004. That means that within the next year or two, as employers start to hire again (we sincerely hope!), my house will start to increase in value and demand will rise markedly. The central areas are always in demand, and as gasoline prices rise, demand follows in lockstep.  Meanwhile, the principal on the downtown house’s mortgage isn’t going anywhere…meaning that its payoff “cost” drops as inflation rises and the sale price of my house goes up.

In a few years, about when I expect my son to experience some sort of life change that will have him wanting to move up or out, I should be able to clear about $50,000 or $60,000 by selling my house. If the price of my house rises to $300,000 (about what it should be worth in five years), the difference between my selling price and the mortgage principal on the downtown house will be about $90,000. So I can easily pay off that principal, fork over $30,000 or $40,000 to my son and still have a significant amount to add to the retirement fund. If I die before he’s ready to move on, he’ll be able to sell my house for enough to pay off the mortgage and pocket at least $50,000, or else rent the downtown house for enough to cover the mortgage payments and move into my place. Or…who knows? Rent or sell them both!

Considering that my initial investment in my first paid-off house was $100,000, that’s not a bad return. Of course, it doesn’t count the amounts we’ve put in to renovating and improving the three houses or our down payments and interest gouges on the downtown house. I’d guess those costs would come to a little over a hundred grand, all told. So we’re looking at a $90,000 gain on about $200,000 invested over 15 years…not too bad, considering that the amount invested also put a very pleasant roof over my head and got my son out of a dangerous firetrap.

Could we have made more in the stock market? Maybe, absent the Cheney-Bush economic melt-down. But we each still would have had to live someplace, requiring us to pour rent or mortgage interest down the drain.

So…while I don’t think real estate is a great investment—and we know it certainly isn’t risk-free—as long as you’re in a buy-and-hold mode, it’s probably not as bad an investment as it seems just now.

When real estate is funnier than real life…

Here’s a fine, recently built little palace, billed as 1,400 to 1,600 square feet, for sale in the far-flung Phoenix suburb of Anthem, an instant “community” that contributed richly to the destruction of, at the height of the real estate boom, an acre an hour of irreplaceable Sonoran desert habitat. This great lake of lookalike tracts was expected to house as many people as live in the city of Flagstaff, Arizona, most of whom would commute (endlessly!) into town over one, count it, one freeway.

In 2005, somebody paid $329,000 for this place. The current owners have been trying to unload it for the past seven months, with no luck, at the bargain-basement price of $199,000—a 39.5 percent loss on their investment.

The address?

2446 West Myopia Drive

😆    🙄    😆

Real Estate: Resale market looking better

Comes a newsletter from the predominant Realtor in our neighborhood, the ineffable Sandy Goodheart. She reports that she just unloaded a house in the neighborhood for a mere $325,000, not bad under the circumstances. Then she adds,

The real estate market has improved dramatically since the first of the year. In January of this year, the inventory of homes for sale stood at about an 11-month supply. A balanced inventory is between four and six months. As of Memorial Day, the inventory stood at a 4.5-month supply.

Of course, what she’s not saying is that the drop in inventory came from foreclosures and short sales. Foreclosures in particular have become so hot that buyers are bidding up prices. La Bethulia missed the boat twice in efforts to buy foreclosed properties in our area; she eventually bought a nice little place near M’hijito’s downtown house, to rent to the two nieces.

That notwithstanding, it’s a good sign. Before the real estate market could even begin to recover from the burst bubble, we needed to clear the flood of foreclosures and houses that couldn’t be sold when lending dried up. If it’s true that the inventory is about back to normal, we should see real estate values begin to appreciate at their former stately but dependable pace.

In fact, that’s about what’s been happening, if you pretend the bubble never occurred. I bought my house right before the inflation started. Assuming Zillow’s machine-generated estimate of its present value is roughly correct, it has appreciated at about 4 percent a year over the past five years.

As for the downtown house, this development means there’s a good chance the credit union’s loan officers are right that by December its value will increase enough to put us rightside-up again. Right now nothing is for sale in that neighborhood. With one possible exception, the foreclosures have sold, and no new ones have come on the market.

The damnable City has decided to turn down the stimulus money that would have completed the light rail line up the main drag past my neighborhood. That’s bad for the area where I’m living (since the city has already ripped out homes facing that road before it decided to suspend construction, trashing nearby property values), but good for the downtown house: it makes close-by light rail a rarer commodity, and that will increase its perceived value…jacking up the real value of neighborhoods near it.

Alors, ça marche.

Foreclosure: Not all bad

Yesterday as I was chatting with the tile guy at the former home of Dave’s Used Car Lot, Marina, and Weed Arboretum (recently foreclosed upon, bought out of auction for $162,500, and resold to a flipper for $192,500), up comes a perky blonde Realtor. She was meeting a buyer there to eyeball the place.

Asked what they hope to get for the place, she showed me a listing sheet: $269,900.

Well. That’s not a disaster, all things considered: if they get $260,000 for it, the value of my house (relatively) at least will not drop below what I paid for it four years ago. My place certainly won’t sell for anything near $300,000 anytime soon (it was valued as high as a giddy $375,000 during the bubble), but at least I’m not going to go broke. Yet.

Really, as long as the new resident is not another biker, another furniture-flinging berserker, or another slob, the trade-off will be worth it. Cleaning up that pigpen across the street transforms this part of the neighborhood. If the place stays halfway decent, I can get rid of some more of the shrubbery designed to screen my front windows from the view of Dave’s hovel, which will improve the looks of my place considerably. And over time, without the drag of that run-down property, values should improve. If nothing else, at least the street is now a more pleasant place to live!

Bidding Up House Prices: A new illusion?

111208gavelThe other day I was chatting with the guy who’s painting the former Used Car Lot, Marina, and Weed Arboretum across the street, who has four clients in the business of buying, fixing up, and flipping foreclosures. When I remarked that my friends La Maya and La Bethulia had run into a situation where a rather nice little house in foreclosure was bid up in price by competing speculators, he had an explanation for that.

Ken the Painter says that bottom-feeding investors (of course, “bottom-feeder” is not a term he uses for his customers) don’t want any competition from regular folks. So when they spot someone they think is an amateur at an auction, they’ll deliberately bid up the price on a dog. From experience, they have a good feel for how much it will cost to make a place salable and how much the place realistically will fetch. So they engage a little competition with the newcomer, pushing the price above the amount that would allow for a profit, and then drop out of the bidding. This leaves the wannabe investor paying too much for a piece of junk guaranteed to burn his fingers. And that gets him out of their hair.

Nice folks, eh?

At any rate, this phenomenon represents something, all right, but it ain’t upward motion in the prices of real estate. Unfortunate in two respects, is what it is….