I’m like everyone else. All I can do is take what I’ve been taught couple it with my experiences and what I’ve learned to make what to me appears to be an informed decision.

Therein lies the rub at least as far as this real estate debacle is concerned. I look at the foreclosure filings in my county and see they are up. I read articles that tell me other areas, with few exceptions, are also experiencing an uptick in foreclosure filings.

I combine the two pieces of information and come to the conclusion the foreclosure mess will be with us for the remainder of 2008 and likely throughout 2009. I also deduce, maybe incorrectly, that the turn around won’t happen until 2010, if then.

On the other hand, I also read articles that tell me this mess will bottom out in 2009. One of the reasons stated is that people are staying away from the real estate market today because they don’t want to buy an asset that might lose value right away.

Wouldn’t it stand to reason that if the mess isn’t predicted to turn around until 2009 anything you buy today will lose value? And if it doesn’t turn around, won’t you continue to lose value?

In fact, if I am right and this thing doesn’t turn around until 2010, today’s buyers will be in the same position their predecessors were in, i.e. owing more than the asset is worth. What is to prevent them from walking away? Does this mean the “turn around” will only be two or three months in duration?

I also factor the rising costs of such things as gas prices, groceries, utility bills, clothes and other life mainstays into the paradigm and for the life of me can not see how anyone can say, with a straight face, 2009 is the bottoming out year.

Let’s not forget that big brother is pumping tons of cash into the economy at break neck speed. For the economists in the audience, you already know this is inflation. For the rest of us, it is still called inflation.

Inflation is nothing more than robbing the citizens of their wealth and transferring that wealth to the government. There are many good sites that explain the principle more eloquently than I could so if you want to learn the mechanics, please visit one of them.

If what I said is true, this spiral can only continue one way. Again, if that is true, ALL of us will be living in homes worth far less than they were yesterday and indeed may even be worth less than their current mortgage balance. Heck, they may be worth even less than what we paid for them ten years ago. How about that for a kick in the pants?

Mind you, this won’t be because we were bad borrowers or because we didn’t obey the laws of economics or finance. We did but the 800 pound gorilla didn’t. Is there an answer?

If you weren’t born yesterday, you know there is an answer. You also know the answer is to change the players and not the game. The game was working just fine and sustained both people and economic growth in an orderly manner.

The players who need to be changed are the regulators. At least I think that is the first crew who should be sent to Exile Island. It is these guys who took the reins off sensible lending practices and looked the other way when every Tom, Dick and Harry in the lending business wrote their own rules instead of following established guidelines.

Rather than make this a 5 page post, I’ll stop here and ask that you to tell me what you believe is/are the answer(s).

Read PART II of this Post.

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Tags: home value, homes, house values, property valuations, real estate, real estate values

Last week, someone posted a question about whether or not geography was a factor to Texas not appreciating like the rest of the country in recent years.
It got me to thinking and I recalled a local presentation (Dallas) I had done in 2006 where I addressed that very question.

In Texas, there are three main reasons the appreciation never came close to matching most of the country. In fact, Texas didn’t even see double digit appreciation.

Here are the three reasons that Limit Appreciation:

1. Lack of Union Presence

   In 2003, I walked through a house in Minneapolis to give my friend who had bought it, some advice on rehabbing it. I suggested he have the drywall replaced in most of the house. He objected and said the cost of the labor would be too expensive. I asked him, “What is expensive to you?” He told me that drywall labor cost around $25 per hour. I fired back and told him that drywall labor should not cost him more than $10 per hour. After he finished laughing at me, he informed me that Minnesota had a heavy union presence and most of the labor involved with construction involved union workers.

   In Texas, a lot of rehabbers rely on Hispanic laborers. Some rehabbers (myself included) use “day labor” to assemble work crews where the crew chief can top the pay scale at $12 per hour. Finding a good man for drywall in Dallas for $10 per hour is not that difficult. I guess I have been spoiled in Texas because the cost of labor has really never been much of a factor compared to other markets where unions dictate how much people are paid.

2. New Construction

   I advised people to avoid rehab projects that had any new construction in the area. Why? I told them, it was hard a hard sell to someone house hunting on why they should buy a 20 year old house that had recently been renovated when they could buy a brand new house where the builder tossed in numerous upgrades for free. Did I forget to mention that a lot of builders were offering No-Money Down financing and No Closing Costs if someone bought one of their houses? Oh yeah, a new house also comes with a handful of warranties on the costly items such as foundations, roofs, HVAC systems, etc.

   Why would someone opt for a 20 year old house where they had to come up with out of pocket money with few guarantees?

   In the current market, the builders are hurting just like the rest of us but, they sure enjoyed the ride while it lasted.

3. No Geographic Limitations

   This factor could very well be why Texas will never see triple digit or even significant double digit appreciation. In southern California, it takes mountains being leveled in order to clear room to build new houses. In Minnesota, you run into a lake every few miles. Get the idea?

   Texas just doesn’t have many limitations caused by Mother Nature.

   There are a handful of lakes to contend with but not enough to limit construction. There are mountains in Texas but I don’t know of any that are near Dallas, Houston, San Antonio or Austin that would need to be leveled to make room for new houses to be built. In fact, from the border of Texas-Louisiana, all the way across the state (close to 500 miles) to the New Mexico border, you could pour concrete to make the foundation with few limitations due to mountains and/or lakes and rivers.

You add all of those factors together and you get… Limited appreciation. However, as I suggested in my article last week, with values around the rest of the country in a nose dive, it appears that Texas is ready to take its turn and see some appreciation in the coming years.

Real Estate Listing for information about Appreciation

Tags: house values, real estate, real estate markets, real estate values, real-estate-appreciation