“I buy when other people are selling.” – J. Paul Getty

Jean Paul Getty, an American industrialist and founder of Getty Oil company, was named by Fortune magazine as the richest living American in 1966, so he had to know a few things about making money.  The above quote could also pertain to the ample amount of opportunities that exist in today’s real estate market as banks continue to aggressively move real estate assets off their balance sheets.  Despite historically low interest rates and tremendous amounts of cash still remaining on the sidelines many are still hesitant to pull the trigger due to stagnant job growth, volatility in the stock market, lack of confidence in our government, and the European financial crisis that continues to loom over the entire world.  Could real estate values continue to fall?  Absolutely.  But are the buying opportunities that exist today too good to pass up?  We believe they are and we plan to continue aggressively acquiring property and encouraging our clients to acquire the investment properties or primary residences they have been seeking while these buying opportunities are still available.

Statistics

This month we’d like to provide with some statistics relating to housing, foreclosures (current and future), as well as some general economic statistics that we feel are relative to the housing industry.

• New home sales are on pace to be approximately 300,000 in 2011, which would be the lowest on record, and mark the third year in a row of record low home sales.  Back in 2005 nearly four times as many new homes were being sold than today.
• Existing home sales also continue to decline most notably due to the large decline in cash sales to investors (26% decline in these transactions since January) as the uncertain economic climate has caused many investors to save their cash and take a more conservative approach. Currently 18% of all homes in Florida are vacant.
• 23.2% of all sales in Alabama were foreclosures or short sales and the number was even higher nationally at 31%.
• According to the National Association of Home Builders each new home creates the equivalent of 3 jobs for an entire year and generates approximately $90,000 in taxes.
• If you gathered the all the people “officially unemployed” in the United States right now they would become the 68th largest country in the world.
• Mortgage rates are at record lows with 30 year mortgages bouncing around the 4% mark and 15 year mortgages hovering around  3.5%.  The 20-year average for a 30 year mortgage is 7%.
• Banks hold over 500,000 homes on their books, but more than 4 million homes are in some stage of foreclosure or “seriously delinquent” and over 8 million Americans are at least one month behind on their mortgage.
• Amherst Securities Group predicts there will be another 10.4 million foreclosures in the coming years.  Their research states the following:

o     At the end of the 2nd quarter there more than 2.7 million long-delinquent loans, others in foreclosure and REO properties, sat in the shadow inventory, more than double what it was in the first quarter 2010.

o     Predicted that 2 million loans that emerged from default to become re-performing would default again.

o     Estimated another 3.6 million of already troubled loans would default.

o     The remaining of the 10.4 million figure is made up of always-performing loans at various stages of negative equity.  Of the 2.5 million always-performing loans with loan-to-value ratios above 120% nearly half will default, and even 5% of the always-performing mortgages that still have some positive equity remaining will default.

so tell me the good news…

So where is the good news?  Where are these opportunities you speak of?   According to studies land values have now reverted back to levels last seen in 1985 and fallen 77% since their peak in 2005.  While this is hard to believe I can assure it is true and we have bought hundreds of properties in Baldwin County at prices as low as 3% (paid $15,000 for lots that had sold as high as $465,000) of what they originally sold for, but typically distressed land can be acquired today for 20%-30% of their valuations during the peak.  How does that not sound like an opportunity?

Mortgage rates have fallen back to a record low at the same time that housing has become more undervalued than ever before meaning from an affordability perspective there has never been a better time to buy a home.  Housing has become more undervalued relative to income than ever before.  The monthly principal and interest payment on a median priced home bought with a 80% loan would fall to a record low of 13% of the median income compared with the 20-year average of 20%.  This buying opportunity in the housing sector will not last forever and is truly a once in a lifetime event.  Those that have the opportunity to take advantage of this and don’t will be kicking themselves down the line when homes begin to appreciate again and rates revert back to 7%.

so You think you have a real estate horror story…

There was a story recently written in the Wall Street Journal about a land deal outside of Las Vegas that was just too unbelievable no to share.  Long story short 1400 acres of raw land was purchased in 2005 by 5 home builders led by D.R. Horton and Standard Pacific Homes for $639 million.  In 2008 D.R. Horton sold 400 acres of the property to Ross Perot, Jr. for $2 million, and now Perot is expected to purchase the remaining 1000 acres next month for $15 million resulting in a total loss in value of $622 million or 97.34% in just 6 years.  The amazing thing is that it will still be difficult for Perot to profit on the deal by developing it even at the new price point.  Just thought this one was too jaw dropping not to pass on.  As always we hope you have a great month, and please never hesitate to let us know if we can help you in any way.

parting shot

“Sometimes life hits you with a brick.  Don’t lose faith.” – Steve Jobs

about

Bellator Real Estate & Development, Inc. is a full service real estate company that specializes in developing, listing, brokering, and acquiring properties located in both Baldwin and Mobile Counties.  Not only do we represent individuals in the marketing of their properties, but we also represent numerous investment groups in a wide range of deals.  As our tagline states, “Performance…Not Promises“,  we take great satisfaction in always doing what we say we will and delivering for our clients time and time again.  We pride ourselves on our creativity and flexibility when trying to work a deal for our clients, and unlike a traditional real estate company we have the ability to pair up private lenders and borrowers.  We feel it is our honest reputation, work ethic, and strong connections throughout the entire community that set us apart from the pack.  “Fortes Fortuna Juvat”, is a way of life for all of us at Bellator as we certainly believe “Fortune Favors the Bold.”

Nathan L. Cox is a licensed Real Estate Broker in the State of Alabama, the President of Bellator Real Estate & Development, Inc., and the COO of Truland Homes