Investment properties, or more precisely, multi-family units had been the albatross of many real estate firms and banks. And it's no wonder. With the Ponzi-schemes rampant during the later 1990's until about fall of 2005, serious investors liquidated or stayed away from that segment of the market. They knew something was afoot and for many, having survived the downturn of the 1980's, they sensed the impending bursting bubble. That banks refused to act on all the warning signs remains a question to be answered.
These last several months have seen an interesting development. Too early to yet call it a trend or turnaround, nonetheless, multi-family units are again selling. And, many of the buyers seem to be following what I've referred to these past 15 or so years as "Uncle Pete's Rule of 10". Simply put, multiply the yearly income of a property by 10 and that is the upper limit of what an investor should pay. Slice and dice the formula any way you want, Uncle Pete was right. The lower the multiple the better but paying over 10 times yearly income and a Buyer went from being an investor to a speculator: "Say, high-roller, baby". A lot of would-be investors came back from the "real estate casino" of speculative buying with just enough pocket change to make a call to a bankruptcy attorney.
But, there are signs that enough Buyers are again seriously looking at multi-family homes as sound investments to take notice. Some, looking to be owner-occupants may pay a bit more than the 10 times ratio to live in an area they find more desirable. The rest, however, seem to realize that Uncle Pete was right.
December 11, 2008
December 7, 2008
A Recycling Life
Early one morning last week before heading into work I was enjoying the last of my coffee while reading another chapter from Tom Wolfe’s, Bonfire of the Vanities. Not sure why I never read it when it was first published, but 20 or so years later it seems few things have changed – at least on Wall Street.
Morning has a pace all its own. Looking out my front window I’ve noticed when the traffic for Fairfield University and Prep starts to increase, when certain joggers or walkers pass by on their daily routines and even when the activity at my side yard bird feeders builds to a noisy, but controlled frenzy. All sorts of things. So when the yellow van nosed into my driveway, parked and two men got out and picked up my and my neighbor’s recycling bins I took notice. Times must really be getting tough if the trash people are downsizing to Econo-vans, I thought. But when these two guys kept glancing up and down the street furtively as they rummaged through the bin it dawned on me – they’re looking only for the deposit bottles and cans. I wondered, are they being more efficient than the shopping cart guys…or just more desperate. These men looked as if only a few months ago they may have been pushing lawnmowers or paint brushes. This winter has already brought a lot of changes.
It’s been a while since I’ve seen grown men, of apparently sound mind, rummaging through trash with the idea of getting a little money from the recyclers. I’m not talking about picking up odds and ends left at the curb and giving them a new coat of paint. No, I’m talking about actually going through garbage.
Bridgeport’s dump in the 1950’s was a marvelous opportunity for junk pickers. My younger brother, Brian, and I would sometimes get to go there with our father to search for copper. We’d climb the huge mounds of garbage along with a handful of other men and boys looking for the tell-tale signs of a pay off – the tangled BX electrical wiring stripped from old buildings during remodeling or demolition and just dumped. We’d take hold of the cables, twist them counter-clockwise and reveal their inner strands, one being the coveted copper. After a few hours we’d take our buckets full of wire to the junk yard across town. Who knows how much it was worth or what it bought for our household – it was worth something and we – my brother and I – had the time of our lives making money from what we considered play.
Fifty years later, because there’s no more dump, men drive to my house to go through garbage. Somehow, judging by the looks on their faces, I don’t think they are having much fun.
Morning has a pace all its own. Looking out my front window I’ve noticed when the traffic for Fairfield University and Prep starts to increase, when certain joggers or walkers pass by on their daily routines and even when the activity at my side yard bird feeders builds to a noisy, but controlled frenzy. All sorts of things. So when the yellow van nosed into my driveway, parked and two men got out and picked up my and my neighbor’s recycling bins I took notice. Times must really be getting tough if the trash people are downsizing to Econo-vans, I thought. But when these two guys kept glancing up and down the street furtively as they rummaged through the bin it dawned on me – they’re looking only for the deposit bottles and cans. I wondered, are they being more efficient than the shopping cart guys…or just more desperate. These men looked as if only a few months ago they may have been pushing lawnmowers or paint brushes. This winter has already brought a lot of changes.
It’s been a while since I’ve seen grown men, of apparently sound mind, rummaging through trash with the idea of getting a little money from the recyclers. I’m not talking about picking up odds and ends left at the curb and giving them a new coat of paint. No, I’m talking about actually going through garbage.
Bridgeport’s dump in the 1950’s was a marvelous opportunity for junk pickers. My younger brother, Brian, and I would sometimes get to go there with our father to search for copper. We’d climb the huge mounds of garbage along with a handful of other men and boys looking for the tell-tale signs of a pay off – the tangled BX electrical wiring stripped from old buildings during remodeling or demolition and just dumped. We’d take hold of the cables, twist them counter-clockwise and reveal their inner strands, one being the coveted copper. After a few hours we’d take our buckets full of wire to the junk yard across town. Who knows how much it was worth or what it bought for our household – it was worth something and we – my brother and I – had the time of our lives making money from what we considered play.
Fifty years later, because there’s no more dump, men drive to my house to go through garbage. Somehow, judging by the looks on their faces, I don’t think they are having much fun.
December 6, 2008
Change
Change. While we may not have much control over what happens around us, we can control how we react.
In doing research these past few weeks my initial focus was on how deeply housing prices have been effected and if any serious prognostication might be offered regarding when prices might hit bottom and level out. For the first question, as detailed in an earlier posting, our area – greater Fairfield County in Connecticut – has seen housing prices, with few exceptions, 22-25 % lower than last year. Of the second question, when will prices level out, I don’t know. No one does.
One question often leads to another and in the searching for answers an unexpected twist sometimes emerges. In researching the historic ups and downs of housing costs I wanted to somehow keep things in perspective. Merely factoring in inflation to determine the relative cost of housing didn’t seem quite enough.
In the years 1945-1950 the cost of buying a modest existing house was the equivalent of approximately one year’s gross salary for a workingman. In 1950, a modest, newly built, home could be obtained for little more than a years gross salary – under $8,000. By 1975 relative prices had gone up, yet, a modest, existing home could be obtained for about 2 years gross salary of a single wage earner– under $35,000 – even within the cities of Fairfield County, Connecticut. By the beginning of 2006, that salary - to - purchase ratio had climbed to 4 to 5 years of gross family income or 6 to 8 year’s gross salary for a single average wage-earner. For a modest home!
Something terribly wrong has happened to the American homebuyer during these past 30 years or so. Whatever changes are coming, let’s hope they are for the better. Maybe, we all need to take a step back.
In doing research these past few weeks my initial focus was on how deeply housing prices have been effected and if any serious prognostication might be offered regarding when prices might hit bottom and level out. For the first question, as detailed in an earlier posting, our area – greater Fairfield County in Connecticut – has seen housing prices, with few exceptions, 22-25 % lower than last year. Of the second question, when will prices level out, I don’t know. No one does.
One question often leads to another and in the searching for answers an unexpected twist sometimes emerges. In researching the historic ups and downs of housing costs I wanted to somehow keep things in perspective. Merely factoring in inflation to determine the relative cost of housing didn’t seem quite enough.
In the years 1945-1950 the cost of buying a modest existing house was the equivalent of approximately one year’s gross salary for a workingman. In 1950, a modest, newly built, home could be obtained for little more than a years gross salary – under $8,000. By 1975 relative prices had gone up, yet, a modest, existing home could be obtained for about 2 years gross salary of a single wage earner– under $35,000 – even within the cities of Fairfield County, Connecticut. By the beginning of 2006, that salary - to - purchase ratio had climbed to 4 to 5 years of gross family income or 6 to 8 year’s gross salary for a single average wage-earner. For a modest home!
Something terribly wrong has happened to the American homebuyer during these past 30 years or so. Whatever changes are coming, let’s hope they are for the better. Maybe, we all need to take a step back.
November 19, 2008
Fair trade winds of change for cities
Sifting through all of the economic news it’s rare to find analysis focusing on the fundamentals. Two such tidbits were found on the American Economic Alert’s website and dealt with manufacturing, globalization and free-trade. The tie-in of free-trade to real estate and housing will, hopefully, be made clear.
Alan Tonelson’s article on export-led growth being at the core of our current economic meltdown (http://www.americaneconomicalert.org/view_art.asp?Prod_ID=3068&x=medium&fontsize=large) points out the logic of American manufacturers once again focusing on the domestic market as their best hope for growth and viability. Current trade policies favor other nations exporting to us in exchange for limited opportunity for U.S. manufacturers to export to them. This has been going on quite some time but has taken on gross proportions of unequal trade for the past 15 plus years or so.
Turning away from the financial and economic havoc these trade imbalances have wrecked on the American economy, let’s look at another victim: American urban culture and viability.
Cities and towns that were once thriving because of having manufacturing driving their economic engines are now, to varying degrees, rusting, and rotting shells of their former selves. Their remaining populations are often struggling within a third world- like existence. The global economy, like a gigolo lover, has promised a lot - but delivered nothing.
So, how does this tie in to real estate and housing?
President-elect Obama has long touted populist and working-man rhetoric. Now, it seems he may be in a position to actually make good on those promises (http://www.americaneconomicalert.org/news_item.asp?nid=3501886). If Obama and a recently elected and decidedly more fair-trading, pro-manufacturing Congress (read: renegotiating NAFTA, et al,) can make good on even some of their promises, look for the beginning of an industrial resurgence here at home. If that happens, cities may yet again be sources of jobs, culture and desirable, affordable housing. Economics, like politics, is, after all, local.
Alan Tonelson’s article on export-led growth being at the core of our current economic meltdown (http://www.americaneconomicalert.org/view_art.asp?Prod_ID=3068&x=medium&fontsize=large) points out the logic of American manufacturers once again focusing on the domestic market as their best hope for growth and viability. Current trade policies favor other nations exporting to us in exchange for limited opportunity for U.S. manufacturers to export to them. This has been going on quite some time but has taken on gross proportions of unequal trade for the past 15 plus years or so.
Turning away from the financial and economic havoc these trade imbalances have wrecked on the American economy, let’s look at another victim: American urban culture and viability.
Cities and towns that were once thriving because of having manufacturing driving their economic engines are now, to varying degrees, rusting, and rotting shells of their former selves. Their remaining populations are often struggling within a third world- like existence. The global economy, like a gigolo lover, has promised a lot - but delivered nothing.
So, how does this tie in to real estate and housing?
President-elect Obama has long touted populist and working-man rhetoric. Now, it seems he may be in a position to actually make good on those promises (http://www.americaneconomicalert.org/news_item.asp?nid=3501886). If Obama and a recently elected and decidedly more fair-trading, pro-manufacturing Congress (read: renegotiating NAFTA, et al,) can make good on even some of their promises, look for the beginning of an industrial resurgence here at home. If that happens, cities may yet again be sources of jobs, culture and desirable, affordable housing. Economics, like politics, is, after all, local.
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