ALBUQUERQUE AVOIDS REAL ESTATE ROLLERCOASTER

The stories are plentiful: A California home listed at $7 million finally sells for $3.5. A Florida developer auctions off his completed but vacant condominiums at cost. Family homes sit on the market for months, bearing unrealistic bubble-era price tags.
But according to research done by Avi Shama, a professor at the Anderson School of Management at the University of New Mexico, in the Albuquerque residential market, the highs are not so high, nor the lows so low.
"We have not gone through the yo-yo years of 2005 to 2007," says Shama, the Rutledge Professor Emeritus of Management. "In keeping with the nature of Albuquerque, things go very slowly up and rather slowly down. So, compared to the nation, it's a market without a lot of overhang of houses and, relatively speaking, a healthy demand."
Shama, a real estate afficionado - in his spare time, he's studied real estate law, appraisals and management, as well as tested to become a broker - recently decided to apply several national research techniques to the local residential market.
All four approaches he employed revealed homes in the city are currently overpriced by only about 15 percent (or $36,000 for the average priced home) as compared to their affordability before the real estate bubble and the ensuing housing crisis. This compares to estimates of more than 30 percent for home prices in Phoenix and Las Vegas.
Shama's research was based on approaches used by Columbia University's School of Business and Moody's Economy, using home prices, supply of homes, demand for homes, mortgage rates, income and home rental prices, during the past eight years.
"Even though I used different methods, they all revealed the Albuquerque market was overpriced by the same amount [14 to 17 percent]," says Shama, "which was reassuring that things are not out of hand."
The methodology and results were as follows:Mortgage rates approach = Overpriced by: 16 percent
Historically, the rate for a 30-year first mortgage loan for 80 percent of the purchase price has been 1.6 percent above the prevailing rate of a 10-year U.S. Treasury note. By this standard, today's mortgage rate should be 5.6 percent instead of 6.5 percent, which prospective home buyers are now charged by lenders. (Lenders charge the extra .9 percent to reduce the risk they are taking to make loans in uncertain times.)
This difference translates to an increase of 16 percent in the mortgage rate. Put simply, a buyer buying an average home priced at $240,000, who qualified to get a mortgage for 80 percent ($192,000) before the financial crisis began in 2007, would now qualify for a loan of only $161,280.
Ratio of home prices to per capita income approach = Overpriced by: 17 percent
This ratio results in the number of years of work it takes to earn as much as the cost of a home. The ratio was calculated using home price data from the Greater Albuquerque Assn. of Realtors, and per capita income from census data. In the pre-bubble years of 2000-2003 this ratio was 5.42. During the bubble years of 2004-2007 this ratio averaged 6.36. The difference between the two ratios is .94 years, and means that the average Albuquerque home now costs an additional 11.28 months of work. This means, on average, an Albuquerque home now costs 17 percent more than it did before the bubble.
Ratio of home prices to rent approach = Overpriced by 14 percent
Owner-occupied homes and comparable rented homes are close substitutes. As a result, this ratio shows the number of years of rent money that it takes to recoup the price paid for a home. The smaller the ratio, the more attractive it is to buy rather than rent.
According to RealtyTrac.net, the home price-rent ratio in Albuquerque averaged 12.5 in 2000-2003. It went up to an average of 14.2 in 2004-2007. The difference of 1.7 between the ratios means that home prices in Albuquerque in 2004-2007 were higher by about 14 percent than prices in 2000-2003; a 5 percent decline in home prices in the first two quarters of 2008 did not change this picture, because the ratio was coming down from a high of 15.7 in 2007. In fact, in the peak year of 2007, Albuquerque homes were overpriced by 25.6 percent, compared to home prices in the pre-bubble years.
Supply-demand ratio approach =Time to sale: +2.02 months
This ratio is an indicator of the balance between sellers and buyers. It is widely accepted that a ratio of six, indicating a six month supply of homes, reflects a balance between supply and demand. Any number higher than six suggests oversupply.
According to the Greater Albuquerque Assn. of Realtors, in July, 2007 this supply-demand ratio was 5.36 months, compared with 7.38 months in July, 2008. The difference of 2.02 months means that in 2008, on average, sellers have to wait an additional 2.02 months to sell their homes. To move inventories faster, sellers must reduce prices; so far this year home prices in Albuquerque declined by about 5 percent. By comparison, nationwide the supply-demand ratio is 11 months, suggesting much larger declines may be coming.
"If there's any burst of the bubble here, it will not be severe," Shama says, "because the bubble years were so moderate."
cseidman@bizjournals.com 348-8322 Story provided from newmexico.bizjournals.com

INTEREST RATES COMING DOWN!

From my favorite Countrywide lender, Jason Pike:

We are starting to see interest rates head downward. Buyers appear to be warming up and starting to realize that the world is not ending. Sellers are starting to realize the truth about the market and are staring to pricing according! Sellers are starting to see the light and are no longer blaming the agents for the reason their house is not selling! Interest rates are currently under 6.00% at an affordable price. Simulate your listings - offer seller paid points for a permanent interest rate buy-down for potential buyers. This seems to be working in many markets. The cost of a buy-down equates to four times the amount borrowed. In other words, if the cost of the buy-down is $2,500, the borrower may borrow $10,000 at the same payment without the buy-down.

FALL IS HERE

So I was getting ready to have a gardener chop away on all of my bushes when I read today that it is best to wait until Spring to trim. Think I'll go put my feet up and read a good book!

RATE NEWS

This just in from my friend, Jason Pike, at Countrywide:

Good morning: Global banks, in an unprecedented move, cut short-term interest rates in order to ease the current credit crisis. The Fed reduced its benchmark rate to 1.5 percent. The ECB's main rate is now 3.75 percent; Canada's fell to 2.5 percent; the U.K.'s rate dropped to 4.5 percent; and Sweden's rate declined to 4.25 percent. China cut interest rates for the second time in three weeks, reducing the main rate to 6.93 percent. I would expect more rate cuts are in the cards as global banks continue to try and spur lending. The impact of this move on mortgage-backed securities and Treasury obligations is fairly neutral. As many of you know, and as I addressed previously, future traders at the Chicago Board of Trade had already priced in a 100 odds of a 50 basis point cut by the Fed. This move however clearly signals the Fed will go lower for its target fed funds rate. The next FOMC meeting is scheduled for Oct 29th. Question is can we wait????

MONEY IS AVAILABLE TO BUY!!

This just in from Jack Thompson, President of Legacy Mortgage:
• Mortgage loans are still available in abundance to the qualified borrowers. • Even though interest rates have increased slightly, FHA, VA, Conventional, and Jumbo loans are at historical lows• Politics aside, Dave Ramsey, a popular Radio and TV financial advisor, said: “In this current market turmoil, where would you advise people to invest their money?” He said, without hesitation: “The real estate market. There are great buys out there. There is an abundance of money available for those who qualify (have you heard that before) and the rates of return, purchased wisely, can be remarkable.”
•Forbes.com reports: o Starting in 2010, housing price appreciation in metro Albuquerque is projected to lead the nation, due to job and economic growth, along with other factors. Housing starts are anticipated to increase by 26.6%, with single family increases of 26.4% and multi-family increases of 27.1%. o Money will be coming into the metro economy from baby boomer parents who move once the last child departs the nest. Albuquerque placed seventh on the list of cities attractive to this target group, due to our outdoor activities, arts, and moderately priced homes.
So buyers, get on out there and we will find you a great buy here!!!!

NEW CAPITAL GAINS TAX EXEMPTIONS

From an attorney friend of mine:
You know the tax law that says your home is exempted from capital gains taxes when it serves as your personal residence two out of the five years prior to a sale? It looks like that has been changed.
The "Housing and Economic Recovery Act of 2008" eliminates the capital gains exclusion for the portion of gain that comes while a home serves as a vacation or rental property. The provision is effective Jan. 1, 2009.
That means for houses sold after 1/1/2009 you would have to pay capital gains taxes on a portion of the gains. If you lived in it for 2 years and rented it out for 2 years you would pay capital gains on 50% of the gain you made! Under current law, you would not.

ANOTHER BUYER SCAM UNCOVERED

Due to the housing and economic downturn in many parts of the country, the mortgage industry is seeing an emerging trend where homeowners are purchasing a new primary residence with the intention of letting their previous property go into foreclosure. During the loan process they claim they will rent the current residence but after closing they default on it. Because of this phenomenon, referred to as “buy and bail,” lenders have come out within the past week or two with new guidelines that are making it more difficult to count rental income to qualify for a purchase.