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I Told You So

I am not one to gloat (well, ok maybe I am a bit), but let’s take an inventory of what has occurred in the past few months. In the summer of 2007, the “Big, Hairy Subprime Mortgage Crisis” hit the nation. Were we affected in Eastern Idaho? Yes, but only as a residual to what was occurring in other, more vulnerable markets nationwide.

In August 2007, I wrote about this so-called crisis and, my humble opinion, how it would affect the local, Eastern Idaho market. My thoughts were centered on three points. First of all, the foreclosure of “sub-prime” loans, though increasing, were not quite as big a problem as the media was making them out to be. Second, though there were “mortgage bubbles” to be found in certain markets (i.e. California, Las Vegas, Phoenix, etc.), Southeast Idaho was not in a mortgage bubble. The growth that Idaho Falls had experienced was driven by actual growth and not artificial hype. Finally, I spoke about the slowdown in the market. This, in my opinion, was based more on the self-fulfilling prophecy of what was being touted on the news and investor fears than actual market issues (at least locally).

At that time, I made a bold and risky prophecy:

“The Eastern Idaho Real Estate Market is strong today and will continue to be so in the future. Though it naturally is reacting to the national market sobbings (after all, most local loans are sold to the national market), real estate, just as in politics, is STILL local. Give this bump a few months to ride itself out and we will be back on our steady and slightly increasing path of growth in Southeastern Idaho!”

Now, for the gloat fest … Yes, the local market took a hit the past few months. Our volume was the lowest it has been for many years in the last quarter of 2007. We were down 30%-40% during those few months. Rest assured, the Southeastern Idaho market is rebounding and returning to its prior growth.

As predicted, the rules have changed and national lending is a different animal than it was before. It will continue to change. The new bureaucratic “Independent Valuation Protection Institute” created to “save the nation” (that was said with heavy sarcasm) from this “terrible crisis” has been developed from the “Home Valuation Protection Code” which is basically a fall-guy fix for a media-hyped issue that should have been solved by allowing the markets to work naturally.

The code will change the way lenders and appraisers work together (or do not work together). Beginning on Jan 1, 2009, local lenders will no longer be able to order appraisals directly from the appraiser. They, instead must order through a third-party, management company. There will be no estimated values, no recommending favorite appraisers, and no second appraisal if the first one does not come in high enough to make the loan work. Though many aspects of this code are favorable and welcomed in the industry, much of it is overkill for a problem that was never really a problem.

In other words, politics have changed the way we do business, but the Southeastern Idaho market continues to be strong and increase steadily. The national spillover affect hit us briefly, but our markets were never in trouble to begin with. The major hype is decreasing and the local growth continues.

Some anecdotal evidence: Drive the streets of Idaho Falls, Blackfoot, Pocatello, Rexburg, etc (I do this often). The growth of both residential homes and commercial buildings continues. There are still a large number of high value residential spec homes sitting empty, but the majority of homes in the $100,000 to $300,000 range continue to move. Though days on market increased slightly for most of these homes (from 133 in the first quarter of 2007 to 146 in the first quarter of 2008) , values have not decreased (but have actually increased slightly) in the past few months. In the Post Register, just Monday was an article on a proposed, large convention center planned for Rexburg. Folks, these builders are not stupid. They are capitalists and would not be continuing to build if the market was dead.

Now, some actual statistics: The Post Register reported Tuesday that Idaho’s urban centers are ranked in the top 30 for the rate of population growth…NATIONWIDE! We are growing at over 3 percent per year! Those people have to live somewhere. In February of 2008, MSN Money rated Idaho Falls 9^th in home value increases as sourced by the OFHEO’s House Price Index. According to the OFHEO, Idaho Falls increased .28 percent in the last quarter of 2007 (DURING the so-called slow-down). Though the OFHEO stats are not out for quarter two yet, they do report that the ONLY area in the nation that actually had an INCREASE in value for Jan. 2008 was the Mountain Region at 0.1%. According to the local MLS, the average selling price for a home in Southeastern Idaho in the first quarter of 2007 was $170,000. In the same period of time a year later, the average selling price INCREASED to $183,000. This is a 7% increase at a time when the national markets are decreasing!

Based on this and other research, I continue to mark “increasing” in describing the local market in my appraisal reports (for most neighborhoods). Also, I continue to make a sales date adjustment for older sales. In other words, those homes that sold for X amount 9 months ago, would sell for a HIGHER price today.

Everywhere I go, when people learn I am in real estate, the question is “So, what do you think about the slow-down?” My answer continues to be the same, “What slow down? I haven’t noticed.” Just as in years past, December and January were slower months (this is seasonally the most difficult time to sell a home). Also, as in years past, purchases are picking up as we head into the spring and summer seasons. I expect, just as in years past, we will have a thriving summer in Southeastern Idaho.

Your comments are welcomed.

Good news at Appraisal Precision and Consulting Group, Inc.!  Due to our expanded team (we now have EIGHT fully trained members of our staff), we are now covering Eight Southeastern Idaho Counties!  That is right.  You have known us in Bonneville, Bannock, Bingham, Jefferson, Madison, and Fremont Counties for years.  Now, our appraisal and consulting coverage includes POWER and CLARK counties! 

We have not changed either our fees or our turn times either!  Unlike rival appraisal companies, we do not raise our prices to travel (no hidden mileage charges).  Furthermore, our incredible 48 hour turn time is guaranteed in ALL of our counties. 

How can we do it?  Simple, we are the ONLY true appraisal firm in Southeast Idaho!  What does that mean?  Unlike our rivals, we are not a single-man, or father-son office.  We have a full staff of FOUR appraisers and FOUR assistants to serve you! 

Also, these new counties are not foreign to us.  Dustin, our Chief Appraiser, has covered these counties in the past and each of our staff members are up on the current markets of these "new" counties. 

We look forward to hearing from each of you soon.

Merry Christmas and Happy Holidays to each of you!!!

See us at www.appraisalprecision.com

or call (208) 528-6400

If you have not heard the doom and gloom lately about the “Sub-Prime” lenders, let me briefly bring you up to date. The 24 hour cable news channels are chattering away about the lending industry and the “irresponsible” lending practices of late. Due to the sharp increase in the number of foreclosures lately (Fox News reporting up by 93 percent from last year), everyone is looking for someone or something to blame. The most likely target is the so-called “sub-prime” lenders.

The term “sub-prime” is a buzz phrase used to describe lenders who put together loans for those with less than perfect credit. In order to compensate for the higher risk these borrowers pose, a higher (or sometimes adjustable) interest rate is assigned. Many borrowers sign on because it is the only way they can foresee the purchase their piece of the American dream—a home. However, few (and I stress FEW) find themselves unable to abide by the terms of the loan and wind up upside down in their mortgage.

Though I am not an advocate of giving loans to those who truly cannot afford it, I am not against the so called “sub-prime” lending practices as a whole. For those with sticky credit problems (who otherwise could afford the payments) it has been a wonderful blessing. Frankly, the media blame has been on these “sub-prime” lending practices, but truly this has only been a small portion of the problems nationwide (Money Magazine and CNN reports only 3.23 percent of subprime loans started foreclosure in the fourth quarter last year). Instead, the large issue may be from several big “bubble” markets (Nevada, California, Arizona, etc) that have crashed in the past 12-18 months. This has caused some of those who were upside down in their mortgages (mainly in these depressed markets) to look at alternatives (i.e. foreclosure or short sell).

What does all this mean for you and I in Southeastern Idaho? Though I am just a single observer of the market, I do keep pretty good tabs on what is going on locally. For one thing, it is my job, for another, it is my interest. Since this is my blog, and I can basically let it loose, here goes… …the current Eastern Idaho Real Estate Market according to Dustin:

First, I am not worried. Though foreclosures on “sub-prime” type loans have almost doubled in the past year nationwide, they still only equate to less than 5% of the total “sub-prime” loans out there. Keep in mind, “sub-prime” loans are not the top dog out there (The Federal Reserve Bank of Chicago reports that Prime Mortgages are still over 80% of the total home loans out there). In other words, those that are at risk of foreclosure equate to less than .006 of a mortgage loans. That is .006 with TWO zeroes after the decimal point, folks (and that is the NATIONAL average). According to the Idaho Real Estate News on Aug 14, 2007, foreclosures in Bonneville County are not low. In fact, they have not even risen at all this year! Take that, CNN.

Second, Idaho is NOT in a housing bubble. Unlike Southern California, Las Vegas, and Phoenix, the market in Eastern Idaho is stable and increasing at a reasonable rate. Where the before mentioned areas saw housing price inflations of 80% per year in some cases, Idaho has been on a steady growth track of approximately 10% per year for the past 3-4 years (no, not the 13%-18% that has been reported locally in the papers, but that is a topic for another post on another day). With that growth has come infrastructure. Where “bubble” areas across the country have seen artificial inflation, Eastern Idaho has seen new businesses, schools, places of worship, etc. crop up as well. In other words, actual PEOPLE moving here is driving up the housing market, not speculation. Because Idaho is not in a housing bubble, it is impossible to pop it. You can’t break what is not there.

Finally, we will (and have already) seen a slow down in the market. Note, I said “slow down” and not recession. We are not moving backward (recession), but are seeing an 8% price increase instead of the 10% we have seen for the past three years (slow down). This, I believe is a self-fulfilling prophecy perpetrated by the cries of “Housing Market Death” we see every time we turn on Neil Cavoto or Lou Dobbs. You hear it enough times that the housing market is in shambles and you start to believe it. You think, “No one should be buying real estate, and no one who wants to could get a loan anyway.” In other words, national investors have turned (temporarily) to other ventures. Those in Easter Idaho that need a home for personal living are still buying (as opposed to renting), and the investors will return as soon as they realize that Idaho is still growing and is not like other pockets of the country.

My outlook is this: Turn on the TV and you are bound to be scared. Look at the real numbers, and there is nothing to fear...especially in Southeastern Idaho. Sure some lenders are in trouble and made some stupid loans, but this is America! These companies are capitalists. They will restructure, learn their lessons, and be back tomorrow (hopefully a little wiser). As soon as the feds get done ranting and raving, as soon as the secondary lenders change their lending rules—again, as soon as Paris Hilton gets back behind the wheel drunk as a skunk and gives the 24 hour news channels something else to harp on, the housing market will resume.

The Eastern Idaho Real Estate Market is strong today and will continue to be so in the future. Though it naturally is reacting to the national market sobbings (after all, most local loans are sold to the national market), real estate, just as in politics, is STILL local. Give this bump a few months to ride itself out and we will be back on our steady and slightly increasing path of growth in Southeastern Idaho!

Dustin Harris

Appraisal Precision and Consulting Group, Inc.

2988 Tegan Cir, Idaho Falls, ID 83401

(208) 528-6400

www.appraisalprecision.com